The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, herein after referred to as the SARFAESI, with the aim to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights, and for matters connected therewith or incidental thereto.
The objective of this act is to convert the “Non- Performing Assets” of banks or financial institutions into Performing Assets by way of sale to an Asset Reconstruction Company established Under Section 3 of the Act.In simple words, this act facilitates the banks to get rid of “bad debts” which refers to the loans and debts which are past the expiration date.
This act has brought in “Asset Reconstruction Company”, which buys the “Non-Performing Asset” and enforce the security interest without the intervention of any court or tribunal. The Act provides three alternatives to the
An asset is classified as non-performing if interest or installments of principal due remain unpaid for more than 180 days. SARFAESI provides three alternative methods for recovery of non-performing assets, including taking possession, selling and leasing the assets underlying the security interests such as movable property (tangible or intangible, including accounts receivable) and immovable property without the intervention of the courts. The SARFESI is not available to secured creditors, which are not Indian banks, or financial institutions notified.
As for guarantor under SARFAESI, a guarantor will come under the purview of a borrower. The rights of the guarantor would include:
- Entitled to service of all statutory notice.
- Challenge the Notice by Writ jurisdiction before the High Court or any Civil Court (Section 13(2) of The SARFAESI Act)
- Appeal before the Debt Recovery Tribunal (DRT) within 45 under Section 17 of The SARFAESI Act)
- Appeal before the Debt Recovery Appellate Tribunal (DRAT) from the order of the DRT within 30 days.
- A writ petition to the High Court may be filed by way of Article 226 of the Indian Constitution. Essential of taking action in a legal period. The writ petition is however preferred by the guarantor for the following reasons:-
- Writ petition is not a costly affair, as no court fee is payable, whereas court fee has to be paid in case of appeal to DRT depending upon amount involved.
- Writ petition once admitted takes lot of time in consideration for decision and the petitioner gets the desired breather. In comparison the matter is time bound exercise under DRT.
- Borrowers feel that the action under the Sarfaesi Act will be automatically restrained if writ is admitted.care to be taken when given while POA.
- In case the Bank has not specified the classification of the Non-Performing Asset the guarantor may approach the High Court by way of writ seeking from the classification and the basis on which the debt has been labelled as Non-Performing Asset.
These are few point that one should keep in mind in case they find themselves in a situation wherein their debts have been labelled as no-performing assets and sold to an asset reconstruction company.
Adv (Dr.)Rajkumar S Adukia
International Legal Counsel, Motivational speaker and Growth Coach
Author of 300 plus books,
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