Have you ever heard of the Sarfaesi Act in India?

You might have heard about it either in the daily newspaper or on Internet. Most of you don’t have any understanding as what it is, why this Act is beneficial in India and why it can also be a curse for the customers.

A Brief Intro of Sarfaesi:

The SARFAESI, acronym of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, was introduced in the Indian constitution in 2002. The Act was made as the freedom allowing the banks to run an auction of the property to recover a loan by the borrower. It was initially proposed by the Narasimha committee-I.

In many cases, when the loan borrower fail in the repayment of the installment money or found as a defaulter, making them as NPA (Non Performing Asset), the bank was given the freedom to sell that property to cover-up the loan amount. The issue began after disputes between Mardia Chemicals Unit and ICICI Bank. When the case was submitted to Supreme court of India, the court resulted in the favor of bank. Later on, after the activation of this Act, ICICI completely take over the Mardia Chemicals Unit to recover the loan amount.

What are the Borrower right?

To offer a secure end to the banking sector, this act helped the banking and financial organizations to grow their business without being affected by huge money loss. But this act not only permits the banking sector to use this low. There are some rights provided to the borrowers too.

  • In case the borrower don’t have money for repayment, resulting in the SARFAESI act execution, the borrower is liable to repay the amount and protect his/her property from being in the auction list.
  • If the concerned officer implemented the partial law or incorrect low, the officer will be liable for negative consequences.
  • In the case of the auction of a property, the borrower can file the DRT followed by DRAT. They have a limited period of 45 and 30 respectively.
  • The borrower is also free to get compensation for such acts.

What are the means of recovery?

There are total three means to recover the nonperforming assets from the borrower:

  • Securitisation: Under this, the auto and homes that are left for undue payment are tagged with marketable securities. All such assets are then sold in the market to recover the amount.
  • Asset Reconstruction: Under this, the assets are taken over by the company/bank and are moved out for selling purpose. In this, the borrower can also be leased more time for the repayment of the installment. But the increase repayment date can be provided under extreme situations.
  • Enforcement of Security without intervention of the court: This is a complicated activity. Under this, the banking and financial companies have freedom to execute the nonperforming assets without court interaction.

Next time you encounter any similar case, you can easily share your knowledge with them and help them in taking the right step ahead.