Sarfaesi Act

Sarfaesi Act

Author:- Srijan Kar, a Student of Christ University

Introduction 

The SARFAESI Act, sometimes referred to as the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, went into effect in 2002. This Act's primary goal was to give banks the authority to recover NPAs (Non-Performing Assets) without the use of the legal system. NPAs are bank advances or loans that generate income for the lender since the borrower hasn't repaid the loan's principal and interest for at least 90 days.

The commissions established by the central government to examine and reform the banking industry generally were the Narasimha Committee and the Andhyarujina Committee. These commissions put out new legislation that would permit banks to quickly take securities and auction them off without the need for court supervision. The SARFASI Act of 2002 allowed for the implementation of this recommendation.

What is the 2002 SARFAESI Act?

Without the need for a judge's approval, financial institutions and banks in India are now permitted to sell or auction the assets of defaulters under the SARFAESI Act. The Central Registry of Securitization Reconstruction and Security Interests, or CERSAI, is a comprehensive web-based Central Registry of Information Security Interests established under the SARFAESI Act. The purpose of CERSAI is to monitor financial fraud, which occurs when many loans are accepted from various banks against the same asset.

Borrowers' rights under the SARFAESI Acts of 2002

The secured creditors (banks and other financial institutions) are granted extensive rights under the SARFAESI Act, and they are free to use these rights arbitrarily against the borrower. There are specific rights in the actions themselves to safeguard the borrowers' interests.

Right to Know: If repayment is missed by 90 days, a borrower's account is labelled as a non-performing asset (NPA). The lender must first issue a 60-day notice of default in certain circumstances. In the event that the borrower does not make repayment during the notice period, the bank may sell the asset, but only after giving a second 30-day public notice describing the sale.

Right of Appeal: In accordance with Section 13(4) of the SARFAESI Act, the borrower has 45 days from the date the lender takes action against them to file an appeal with the Debt Recovery Tribunal (DRT). Within 30 days of obtaining the DRT's order, a person may file an appeal with the High Court if he is dissatisfied with the result. By making all outstanding payments before to the assignment's conclusion, the borrower can reclaim his property.

Right to compensation: The borrower may be entitled to compensation and costs as determined by the Debt Recovery Tribunal or Appellate Tribunal if the secured property of the borrower in the hands of the lender does not conform with the SARFAESI Act and related rules. In certain situations, the court has the authority to order the creditor to pay the borrower's expenses and compensation in addition to returning the security.

Conclusion 

The SARFAESI Act, 2002 gives us all the rights necessary to safeguard the interests of borrowers and creditors, but it says nothing about safeguarding the interests of third parties.

In the case of Balkrishna Rama Tarle Deceased thr. L.Rs v. Phoenix ARC Private Limited and Ors, the Supreme Court ruled that CMM/DM (Chief Metropolitan Magistrate/District Magistrate) shall not resolve disagreements between the borrower and the secured creditor, and/or any other third party and the secured creditor, regarding the secured assets.

The borrower and any third parties whose interests are connected to the mortgaged property shall receive 60 days' notice of the impending eviction from the banks; the DRT/Tribunal (Debt Recovery Tribunal) should have the authority to adjudicate the matter independently in accordance with the interests of the third party.

References

• Sravan Dall Mill P. Limited v. Reserve Bank of India Writ Petition No. 18089 of 2006. 

• Bank of Baroda v. M/S Karwa Trading Company and Anr. Civil Appeal No.363 of 2022.

• Phoenix ARC Private Limited and Ors. v. Balkrishna Rama Tarle Deceased thr. L.Rs. and Ors., SLP No. 16013 of 2022