SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
(1) This Act may be called the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002."
(2) It extends to the whole of India.
(3) It shall be deemed to have come into force on the 21st day of June, 2002.
(1) In this Act, unless the context otherwise requires,—"
(a) “Appellate Tribunal” means a Debts Recovery Appellate Tribunal established under sub-section (1) of section 8 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(b) “asset reconstruction” means acquisition by any securitisation company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realisation of such financial assistance;
(c) “bank” means—
(i) a banking company; or
(ii) a corresponding new bank; or
(iii) the State Bank of India; or
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Section 2 of the SARFAESI Act, 2002, provides definitions crucial for understanding the scope and application of the Act. It lays down key terms such as "bank," "security interest," "non-performing asset," and others, forming the foundation for enforcement mechanisms against defaulting borrowers, especially in the context of NPAs. The section's interpretation influences the rights and powers of banks and financial institutions in asset recovery and securitization processes.
Section 2 primarily enumerates definitions of various terms used in the Act, including:- "Bank" (Section 2(c)(iv))- "Security interest" (Section 2(1)(g))- "Non-performing asset" (NPA) (Section 2(1)(o))- "Asset reconstruction" (Section 2(1)(z))- "Securitisation" (Section 2(1)(z))- "Financial asset" (Section 2(1)(a))- "Default" (Section 2(1)(d))- "Borrower" (Section 2(1)(b))- "Asset reconstruction company" (Section 2(1)(b))- "Enforcement of security interest" (Section 2(1)(p))- "Securitisation company" (Section 2(1)(z))- "Reconstruction" (Section 2(1)(z))
The section also clarifies that the definitions are applicable unless the context requires otherwise, providing clarity on the scope of the Act.
This concise legal commentary synthesizes judicial interpretations, statutory provisions, and constitutional considerations relating to Section 2 of the SARFAESI Act, 2002, providing a comprehensive understanding of its scope and legal implications.
(1) No securitisation company or reconstruction company shall commence or carry on the business of securitisation or asset reconstruction without—"
(a) obtaining a certificate of registration granted under this section, and
(b) having the owned fund of not less than two crore rupees or such other amount not exceeding fifteen per cent. of total financial assets acquired or to be acquired by the securitisation company or reconstruction company, as the Reserve Bank may, by notification, specify:
Provided that the Reserve Bank may, by notification, specify different amount of owned fund for different class or classes of securitisation companies or reconstruction companies:
Provided further that a securitisation company or reconstruction company, e
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was enacted to facilitate the recovery of non-performing assets (NPAs) by enabling banks and financial institutions to enforce their security interests without the intervention of courts. Section 3 of the Act defines key terms that are essential for understanding the provisions of the Act.
Section 3 of the SARFAESI Act provides definitions for various terms used throughout the Act, including "asset reconstruction company," "financial institution," "secured creditor," and "security interest." These definitions are crucial for the application and interpretation of the Act.
The scope of Section 3 is broad, as it lays the foundation for the entire Act. By defining key terms, it ensures that all stakeholders, including borrowers, lenders, and asset reconstruction companies, are aware of the legal terminology that governs their interactions under the Act.
Section 3 itself does not prescribe any punishments; however, it is integral to the enforcement of the provisions that do carry penalties for non-compliance or violations of the Act.
This commentary highlights the significance of Section 3 of the SARFAESI Act in establishing a clear legal framework for the securitisation and enforcement of security interests, thereby facilitating the recovery of non-performing assets in India.
(1) The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a reconstruction company, if such company—"
(a) ceases to carry on the business of securitisation or asset reconstruction; or
(b) ceases to receive or hold any investment from a qualified institutional buyer; or
(c) has failed to comply with any conditions subject to which the certificate of registration has been granted to it; or
(d) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (3) of section 3; or
(e) fails to—
(i) comply with any direction issued by the Reserve Bank under the provisions o
(1) If any financial asset, of a borrower acquired by a securitisation company or reconstruction company, comprise of secured debts of more than one bank or financial institution for recovery of which such banks or financial institutions has filed applications before two or more Debts Recovery Tribunals, the securitisation company or reconstruction company may file an application to the Appellate Tribunal having jurisdiction over any of such Tribunals in which such applications are pending for transfer of all pending applications to any one of the Debts Recovery Tribunals as it deems fit."
(2) On receipt of such application for transfer of all pending applications under sub-section (1), the Appellate Tribunal may, after giving the parties to the application an opportunity of being heard, pass an order for transfer of the pending applications to any one of the Debts Recovery Tribuna
(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution—
(a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or
(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.
(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (
(1) The bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets by any securitisation company or reconstruction company, to the concerned obligor and any other concerned person and to the concerned registering authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge, hypothecation, assignment or other interest created on the financial assets had been registered."
(2) Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or financial institution, the obligor, on receipt of such notice, shall make payment to the concerned securitisation company or reconstruction company, as the case may be, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor ma
(1) Without prejudice to the provisions contained in the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992), any securitisation company or reconstruction company, may, after acquisition of any financial asset under sub-section (1) of section 5, offer security receipts to qualified institutional buyers (other than by offer to public) for subscription in accordance with the provisions of those Acts."
(2) A securitisation company or reconstruction company may raise funds from the qualified institutional buyers by formulating schemes for acquiring financial assets and shall keep and maintain separate and distinct accounts in respect of each such scheme for every financial asset acquired out of investments made by a qualified institutional buyer and ensure that realisations o
Notwithstanding anything contained in sub-section (1) of section 17 of the Registration Act, 1908 (16 of 1908),—"
(a) any security receipt issued by the securitisation company or reconstruction company, as the case may be, under sub-section (1) of section 7, and not creating, declaring, assigning, limiting or extinguishing any right, title or interest, to or in immovable property except insofar as it entitles the holder of the security receipt to an undivided interest afforded by a registered instrument; or
(b) any transfer of security receipts,
shall not require compulsory registration.
Without prejudice to the provisions contained in any other law for the time being in force, a securitisation company or reconstruction company may, for the purposes of asset reconstruction, having regard to the guidelines framed by the Reserve Bank in this behalf, provide for any one or more of the following measures, namely\:—"
(a) the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower;
(b) the sale or lease of a part or whole of the business of the borrower;
(c) rescheduling of payment of debts payable by the borrower;
(d) enforcement of security interest in accordance with the provisions of this Act;
(e) settle
(1) Any securitisation company or reconstruction company registered under section 3 may—"
(a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fee or charges as may be mutually agreed upon between the parties;
(b) act as a manager referred to in clause (c) of sub-section (4) of section 13 on such fee as may be mutually agreed upon between the parties;
(c) act as receiver if appointed by any court or tribunal:
Provided that no securitisation company or reconstruction company shall act as a manager if acting as such gives rise to any pecuniary liability.
(2) Save as otherwise provided in sub-section (1), no securitis
Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the bank, or financial institution, or securitisation company or reconstruction company or qualified institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly."
(1) If the Reserve Bank is satisfied that in the public interest or to regulate financial system of the country to its advantage or to prevent the affairs of any securitisation company or reconstruction company from being conducted in a manner detrimental to the interest of investors or in any manner prejudicial to the interest of such securitisation company or reconstruction company, it is necessary or expedient so to do, it may determine the policy and give directions to all or any securitisation company or reconstruction company in matters relating to income recognition, accounting standards, making provisions for bad and doubtful debts, capital adequacy based on risk weights for assets and also relating to deployment of funds by the securitisation company or reconstruction company, as the case may be, and such company shall be bound to follow the policy so determined and the directions so issued.
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The Reserve Bank may at any time direct a securitisation company or reconstruction company to furnish it within such time as may be specified by the Reserve Bank, with such statements and information relating to the business or affairs of such securitisation company or reconstruction company (including any business or affairs with which such company is concerned) as the Reserve Bank may consider necessary or expedient to obtain for the purposes of this Act.]
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1. Ins. by Act 30 of 2004, sec. 7 (w.r.e.f. 11-11-2004).
(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act."
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
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The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was enacted to facilitate the recovery of debts by banks and financial institutions through the enforcement of security interests without the intervention of courts. Section 13 specifically outlines the procedures for the enforcement of security interests.
Section 13 of the SARFAESI Act empowers secured creditors to enforce their security interests in the event of default by the borrower. It provides a framework for issuing notices, taking possession of secured assets, and conducting auctions to recover dues.
The scope of Section 13 extends to all secured creditors, including banks and financial institutions, allowing them to recover dues without court intervention. It also delineates the rights of borrowers, including the right to redeem the mortgaged property until the title is transferred to a purchaser.
While Section 13 does not explicitly outline punishments, non-compliance with the procedural requirements can lead to the annulment of actions taken under this section, as courts may set aside sales or actions that violate statutory provisions.
"Notice Requirement" - The secured creditor must issue a demand notice under Section 13(2) before taking any action to enforce security interest. The 60-day period for the borrower to discharge liabilities starts from the date of receipt of the notice, not its issuance. - [ V. Viswanathan VS District Collector cum District Magistrate]
"Possession Rights" - Borrowers retain the right to redeem their property until the title is transferred to a purchaser, ensuring that their rights are protected until the completion of the sale process. - [ 04200000217]
"Compliance with Rules" - The enforcement of security interest must comply with the Security Interest (Enforcement) Rules, 2002, which require a clear 30-day gap between the notice and the auction date. Failure to adhere to this can render the auction null and void. - [ R. Vimala VS State Bank of India]
"Judicial Oversight" - Courts have the authority to review actions taken under Section 13, ensuring that creditors do not act arbitrarily and that borrowers' rights are respected. - [ 00600006806]
"Alternative Remedies" - Borrowers are encouraged to seek remedies under the Debt Recovery Tribunal (DRT) if they believe their rights have been violated, rather than resorting to writ petitions. - [ 00600006901]
"Fraud Allegations" - Allegations of fraud must be specifically pleaded and proven; the DRT does not have the jurisdiction to adjudicate on such matters if they fall outside the scope of the SARFAESI Act. - [ N. Santhanam VS Authorised Officer, Punjab and Sind Bank, Asset Recovery Management Branch; Chennai]
"One-Time Settlement" - The Act does not impose a legal obligation on banks to enter into one-time settlements, and borrowers cannot compel banks to settle their dues outside the statutory framework. - [ MAHESH CHAND AGARWAL VS UNION OF INDIA]
"Publication of Defaulters" - Banks are permitted to publish the photographs of defaulters as part of their recovery process, provided this is in accordance with the agreements made at the time of borrowing. - [ Monal Dineshbhai Chokshi VS State Bank of India]
"Judicial Review" - The High Court's jurisdiction under Article 226 is limited when alternative remedies are available, emphasizing the need for borrowers to utilize the DRT for grievances related to recovery actions. - [ Ashok Kumar VS Authorized Officer, Punjab National Bank]
"Enforcement of Security Interest" - The procedure for enforcing security interest is akin to executing a money decree, requiring strict adherence to the statutory provisions laid out in the Act. - [ Nantu Maity VS Allahabad Bank, rep. by its Authorised Officer/Chief Manager]
"Rights of Borrowers" - Borrowers have the right to be informed of the reasons for any rejection of their objections to notices issued under Section 13(2), ensuring transparency in the enforcement process. - [ Bank of Baroda VS Ranjan Chetia]
"Auction Sales" - Any auction sale conducted without proper notice to the borrower or in violation of the prescribed rules may be set aside by the courts, protecting the interests of the borrower. - [ R. Vimala VS State Bank of India]
"Legal Framework" - The SARFAESI Act provides a comprehensive legal framework for the recovery of debts, balancing the rights of creditors and borrowers while ensuring that due process is followed. - [ Prasanthi Cashew Company Pvt. Ltd. VS A. Abdul Salam]
"Impact of Non-Compliance" - Non-compliance with the procedural requirements can lead to significant legal repercussions, including the annulment of recovery actions and potential liability for the creditor. - [ Gurdeep Singh VS Punjab and Sind Bank]
"Role of DRT" - The DRT plays a crucial role in adjudicating disputes arising from actions taken under the SARFAESI Act, ensuring that both creditors and borrowers have a forum for redressal. - [ Bank of Baroda VS Ranjan Chetia]
"Public Interest" - The Act aims to protect public interest by facilitating the recovery of non-performing assets, thereby ensuring the financial stability of banks and financial institutions. - [ 00600006901]
"Equity of Redemption" - The doctrine of equity of redemption ensures that borrowers can reclaim their mortgaged properties by paying off their debts, reinforcing the principle that mortgages should remain redeemable. - [ 04200000217]
"Judicial Discretion" - Courts retain discretion to intervene in cases where the enforcement of security interests may lead to unjust outcomes, reflecting the need for equitable treatment of borrowers. - [ 00600006806]
"Legislative Intent" - The legislative intent behind the SARFAESI Act is to streamline the recovery process while safeguarding the rights of borrowers, ensuring that recovery actions are conducted fairly and transparently. - [ 00600006901]
"Finality of DRT Orders" - Orders passed by the DRT in relation to recovery actions are generally final, subject to appeal only on limited grounds, emphasizing the need for borrowers to act promptly in seeking redress. - [ Bank of Baroda VS Ranjan Chetia]
"Constitutional Validity" - The provisions of the SARFAESI Act have been upheld as constitutional, balancing the rights of secured creditors with the protections afforded to borrowers under the law. - [ 00600006901]
This commentary provides a comprehensive overview of Section 13 of the SARFAESI Act, highlighting its significance in the context of debt recovery and the enforcement of security interests.
(1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him—"
(a) take possession of such asset and documents relating thereto; and
(b) forward such assets and documents to the secured creditor.
Section 14 of the SARFAESI Act, 2002, provides a mechanism for secured creditors to recover possession of secured assets swiftly and efficiently, primarily through administrative and executive assistance. It is designed to facilitate the enforcement of security interests without resorting to lengthy judicial proceedings, thereby aiding in the speedy recovery of dues by financial institutions and banks.
Section 14 authorizes the Chief Metropolitan Magistrate (CMM) or District Magistrate (DM) to assist secured creditors in taking possession of secured assets upon their request. The section emphasizes that the role of these magistrates is ministerial and administrative, not adjudicatory. The section also allows delegation of certain functions to subordinate officers and prescribes procedural safeguards, including verification of compliance and application of natural justice principles.
The section itself does not prescribe specific punishments. However, misuse or abuse of powers under Section 14, such as illegal dispossession or violation of principles of natural justice, can attract criminal liability under general criminal laws, including provisions related to wrongful dispossession or abuse of authority.
Jurisdiction of Magistrates - The role of CMM/DM under Section 14 is purely ministerial and executive, not adjudicatory, and they cannot decide on the legality of the underlying transaction [G. P. Ispat Private Limited, Through Director, Gurpreet Singh Chandhok VS Authorized Officer and Chief Manager, State Bank of India].
Non-Adjudicatory Nature - Section 14 is an enabling, non-adjudicatory provision designed to facilitate possession, not to adjudicate disputes or determine rights of parties [G. P. Ispat Private Limited, Through Director, Gurpreet Singh Chandhok VS Authorized Officer and Chief Manager, State Bank of India].
Delegation of Powers - The power to take possession can be delegated to subordinate officers, but the magistrate's role remains limited to verification and facilitation [Joy Kali Oil Industries Pvt. Ltd. VS Union of India].
Verification of Compliance - The magistrate must verify compliance with statutory requirements based on the materials on record; this verification is ministerial and not judicial [Radaan Textiles VS District Magistrate and District Collector].
Role of Advocate Commissioners - Appointment of Advocate Commissioners for taking possession is permissible, and their actions are protected when done under lawful orders of the magistrate [NKGSB Cooperative Bank Limited VS Subir Chakravarty].
Natural Justice Principles - While natural justice requires giving an opportunity to persons in possession or in dispute, the magistrate's role is limited to verifying facts, not adjudicating disputes [Joy Kali Oil Industries Pvt. Ltd. VS Union of India].
Scope of Magistrate’s Order - Orders under Section 14 are executive in nature; they lose their force upon expiry of the stipulated time unless extended, and the magistrate must act within the bounds of law [Mangalagiri Textile Mills Private Limited VS State Bank of India].
Protection of Rights - The section does not permit arbitrary or illegal dispossession; any such action can be challenged under criminal or civil law [Gurdeep Singh VS Punjab and Sind Bank].
Appeal and Judicial Review - Orders passed under Section 14 are subject to judicial review for legality, procedural compliance, and adherence to principles of natural justice [Radaan Textiles VS District Magistrate and District Collector].
Alternative Remedies - Courts generally discourage entertaining writ petitions when effective alternative remedies, such as appeals under Section 17 or civil suits, are available [THREE LINE PROPERTIES VS V. K. SREERAM MADHAVAN].
Inapplicability to Non-Security Interests - Section 14 applies only to security interests created in favor of secured creditors; it does not extend to unsecured claims or non-secured assets [Mangalagiri Textile Mills Private Limited VS State Bank of India].
Protection Against Abuse - The powers under Section 14 are to be exercised with caution, ensuring compliance with procedural safeguards and natural justice to prevent misuse [Radaan Textiles VS District Magistrate and District Collector].
Role of the Court - The courts have consistently held that Section 14's provisions are procedural and administrative, and do not confer jurisdiction to decide on the validity of the underlying transaction or dispute [Alpha Beta Shiksha Samiti (Regd. ) through its Secretary Smt. Manisha Gautam wife of Shri Sunil Gautam VS State of Rajasthan through District Collector and District Magistrate].
Validity of Orders - Orders passed in compliance with Section 14 are valid unless shown to be illegal, arbitrary, or in violation of principles of natural justice [Mangalagiri Textile Mills Private Limited VS State Bank of India].
Scope of Judicial Intervention - Judicial review is limited to examining procedural compliance and legality; the courts do not re-assess the merits of the underlying debt or transaction [Alpha Beta Shiksha Samiti (Regd. ) through its Secretary Smt. Manisha Gautam wife of Shri Sunil Gautam VS State of Rajasthan through District Collector and District Magistrate].
Time-bound Action - Orders under Section 14 must be executed within the time specified, and failure to do so can be challenged for violation of procedural safeguards [Mangalagiri Textile Mills Private Limited VS State Bank of India].
Role of the Court in Disputes - Disputes regarding possession or ownership should be resolved through civil or criminal courts, not through Section 14 proceedings [Bank of Baroda VS Ranjan Chetia].
Legal Consequences of Non-Compliance - Unauthorized or illegal dispossession under Section 14 can lead to criminal liability, including charges of wrongful dispossession [G. P. Ispat Private Limited, Through Director, Gurpreet Singh Chandhok VS Authorized Officer and Chief Manager, State Bank of India].
Summary - Section 14 is a facilitative, administrative provision aimed at expediting recovery, with safeguards to prevent abuse, and does not replace judicial or civil remedies for disputes or invalid transactions.
Note: The above commentary synthesizes legal principles and judicial pronouncements from various case laws and authoritative sources, emphasizing the administrative, non-adjudicatory nature of Section 14, procedural safeguards, and the importance of compliance with natural justice and statutory requirements.
(1) 1[When the management of business of a borrower is taken over by a securitisation company or reconstruction company under clause (a) of section 9 or, as the case may be, by a secured creditor under clause (b) of sub-section (4) of section 13] the secured creditor may, by publishing a notice in a newspaper published in English language and in a newspaper published in an Indian language in circulation in the place where the principal office of the borrower is situated, appoint as many persons as it thinks fit—"
(a) in a case in which the borrower is a company as defined in the Companies Act, 1956 (1 of 1956), to be the directors of that borrower in accordance with the provisions of that Act; or
(b) in any other case, to be the administrator of the business of the borrower.
(2) On publ
(1) Notwithstanding anything to the contrary contained in any contract or in any other law for the time being in force, no managing director or any other director or a manager or any person in charge of management of the business of the borrower shall be entitled to any compensation for the loss of office or for the premature termination under this Act of any contract of management entered into by him with the borrower."
(2) Nothing contained in sub-section (1) shall affect the right of any such managing director or any other director or manager of any such person in charge of management to recover from the business of the borrower, moneys recoverable otherwise than by way of such compensation.
(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, 1[may make an application along with such fee, as may be prescribed] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken\:"
2[Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.]
3[Explanation.—For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not enti
In the case of a borrower residing in the State of Jammu and Kashmir, the application under section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application."
Explanation.—For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons shall not entitle the person (including borrower) to make an application to the Court of District Judge under this section.]
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1. Ins. by Act 30 of 2004, sec. 11 (w.r.e.f. 11-11-2004).
Any borrower residing in the State of Jammu and Kashmir and aggrieved by any order made by the Court of District Judge under section 17A may prefer an appeal, to the High Court having jurisdiction over such Court, within thirty days from the date of receipt of the order of the Court of District Judge:
Provided that no appeal shall be preferred unless the borrower has deposited, with the Jammu and Kashmir High Court, fifty per cent. of the amount of the debt due from him as claimed by the secured creditor or determined by the Court of District Judge, whichever is less:
Provided further that the High Court may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent. of the debt referred to in the first proviso.]
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Any fee levied and collected for preferring, before the commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004, an appeal to the Debts Recovery Tribunal or the Appellate Tribunal under this Act, shall be deemed always to have been levied and collected in accordance with law as if amendments made to sections 17 and 18 of this Act by sections 11 and 12 of the said Act were in force at all material times.]
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1. Ins. by Act 30 of 2004, sec. 13 (w.r.e.f. 11-11-2004).
(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal 2[under section 17, may prefer an appeal along with such fee, as may be prescribed] to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal."
2[Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:]
3[Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent. of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-fiv
If the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the concerned borrowers, such borrower shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18B.]
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1. Subs. by Act 30 of 2004, sec. 14, for sub-section “19. Right of borrower to receive compensa
(1) The Central Government may, by notification, set-up or cause to be set-up from such date as it may specify in such notification, a registry to be known as the Central Registry with its own seal for the purposes of registration of transaction of securitisation and reconstruction of financial assets and creation of security interest under this Act."
(2) The head office of the Central Registry shall be at such place as the Central Government may specify and for the purpose of facilitating registration of transactions referred to in sub-section (1), there may be established at such other places as the Central Government may think fit, branch offices of the Central Registry.
(3) The Central Government may, by notification, define the territorial limits within which an office of the Central Registry may exercise its functions.
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(1) The Central Government may, by notification, appoint a person for the purpose of registration of transactions relating to securitisation, reconstruction of financial assets and security interest created over properties, to be known as the Central Registrar."
(2) The Central Government may appoint such other officers with such designations as it thinks fit for the purpose of discharging, under the superintendence and direction of the Central Registrar, such functions of the Central Registrar under this Act as he may, from time to time, authorise them to discharge.
(1) For the purposes of this Act, a record called the Central Register shall be kept at the head office of the Central Registry for entering the particulars of the transactions relating to—"
(a) securitisation of financial assets;
(b) reconstruction of financial assets; and
(c) creation of security interest.
(2) Notwithstanding anything contained in sub-section (1), it shall be lawful for the Central Registrar to keep the records wholly or partly in computer floppies, diskettes or in any other electronic form subject to such safeguards as may be prescribed.
(3) Where such register is maintained wholly or partly on computer floppies, diskettes or in any other electronic form, under sub-section (2)
The particulars of every transaction of securitisation, asset reconstruction or creation of security interest shall be filed, with the Central Registrar in the manner and on payment of such fee as may be prescribed, within thirty days after the date of such transaction or creation of security, by the securitisation company or reconstruction company or the secured creditor, as the case may be\:"
Provided that the Central Registrar may allow the filing of the particulars of such transaction or creation of security interest within thirty days next following the expiry of the said period of thirty days on payment of such additional fee not exceeding ten times the amount of such fee.
Whenever the terms or conditions, or the extent or operation of any security interest registered under this Chapter are or is modified, it shall be the duty of the securitisation company or the reconstruction company or the secured creditors, as the case may be, to send to the Central Registrar, the particulars of such modification, and the provisions of this Chapter as to registration of a security interest shall apply to such modification of such security interest."
(1) The securitisation company or reconstruction company or the secured creditor as the case may be, shall give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest relating to the securitisation company or the reconstruction company or the secured creditor and requiring registration under this Chapter, within thirty days from the date of such payment or satisfaction."
1[1A) On receipt of intimation under sub-section (1), the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register.]
(2) 2[If the concerned borrower gives an intimation to the Central Registrar for not recording the payment or satisfaction referred to in sub-section (1), the Central Registrar shall on receipt of such intimation], cause a notice to be sent to the securitisation c
(1) The particulars of securitisation or reconstruction or security interest entered in the Central Register of such transactions kept under section 22 shall be open during the business hours for inspection by any person on payment of such fee as may be prescribed,"
(2) The Central Register referred to in sub-section (1) maintained in electronic form, shall also be open during the business hours for the inspection by any person through electronic media on payment of such fee as may be prescribed.
If a default is made—"
(a) in filing under section 23, the particulars of every transaction of any securitisation or asset reconstruction or security interest created by a securitisation company or reconstruction company or secured creditor; or
(b) in sending under section 24, the particulars of the modification referred to in that section; or
(c) in giving intimation under section 25,
every company and every officer of the company or the secured creditor and every officer of the secured creditor who is in default shall be punishable with fine which may extend to five thousand rupees for every day during which the default continues.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was enacted to facilitate the securitisation and reconstruction of financial assets, enabling secured creditors to enforce their security interests without court intervention. Section 27 specifically addresses penalties for non-compliance with the provisions of the Act.
Section 27 outlines the penalties applicable to companies, their officers, and secured creditors who fail to comply with certain obligations under the SARFAESI Act. It establishes a framework for accountability in the enforcement of security interests.
The scope of Section 27 encompasses:- Companies and Officers: It applies to every company and its officers, as well as secured creditors and their officers.- Nature of Defaults: It addresses various defaults related to the filing of transactions concerning securitisation or asset reconstruction.
The penalties for non-compliance under Section 27 can include:- Fines: Monetary penalties imposed on the defaulting parties.- Criminal Liability: Potential imprisonment for officers in cases of severe non-compliance.
If any securitisation company or reconstruction company fails to comply with any direction issued by the Reserve Bank 1[under section 12 or section 12A], such company and every officer of the company who is in default, shall be punishable with fine which may extend to five lakh rupees and in the case of a continuing offence, with an additional fine which may extend to ten thousand rupees for every day during which the default continues."
-----------------------------------
1. Subs. by Act 30 of 2004, sec. 16, for “under section 12” (w.r.e.f. 11-11-2004).
If any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both."
No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class shall try an offence punishable under this Act."
Section 30 of the SARFAESI Act, 2002, primarily deals with the cognizance and trial of offences punishable under the Act. It specifies the courts authorized to try such offences and establishes procedural safeguards for enforcement actions by financial institutions. This section plays a crucial role in ensuring the legal enforceability of security interests and the penal consequences of non-compliance with the provisions of the Act.
Note: The references are primarily from the provided sources, particularly "", which contains relevant legal provisions and commentary on Section 30 of the SARFAESI Act, 2002.
The provisions of this Act shall not apply to—"
(a) a lien on any goods, money or security given by or under the Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;
(b) a pledge of movables within the meaning of section 172 of the Indian Contract Act, 1872 (9 of 1872);
(c) creation of any security in any aircraft as defined in clause (1) of section 2 of the Aircraft Act, 1934 (24 of 1934);
(d) creation of security interest in any vessel as defined in clause (55) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958);
(e) any conditional sale, hire-purchase or tease or any other contract in which no security int
No suit, prosecution or other legal proceedings shall lie against any secured creditor or any of his officers or manager exercising any of the rights of the secured creditor or borrower for anything done or omitted to be done in good faith under this Act.
(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company, for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly\:"
Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or conniv
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).
Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) establishes a clear jurisdictional barrier preventing civil courts from entertaining suits or proceedings related to matters that fall under the purview of the Debts Recovery Tribunal (DRT) or the Appellate Tribunal. This provision is crucial in streamlining the recovery process for secured creditors and ensuring that disputes regarding secured assets are resolved within the specialized framework of the DRT.
Section 34 states: "No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine." This effectively bars civil courts from intervening in matters that are specifically addressed by the DRT.
The scope of Section 34 is broad, encompassing all matters related to the enforcement of security interests and recovery of debts that are within the jurisdiction of the DRT. This includes actions taken under Section 13(4) of the SARFAESI Act, which allows secured creditors to take possession of secured assets.
Section 34 does not prescribe specific punishments; rather, it establishes a procedural framework that limits the jurisdiction of civil courts. Violations of this jurisdictional bar may lead to the dismissal of suits filed in civil courts.
This commentary highlights the critical aspects of Section 34 of the SARFAESI Act, emphasizing its role in delineating the jurisdictional boundaries between civil courts and the DRT, thereby facilitating a more efficient recovery process for secured creditors.
The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
Section 35 of the SARFAESI Act, 2002, is a crucial provision that establishes the supremacy of the Act over other laws in force, ensuring that the mechanisms for securitisation and enforcement of security interest are not hindered by conflicting statutes. This section underscores the legislative intent to provide a robust framework for banks and financial institutions to recover dues efficiently, overriding any inconsistent laws.
Section 35 states:"The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."This non-obstante clause explicitly affirms the overriding effect of the SARFAESI Act over all other laws that may be inconsistent with its provisions.
Section 35 itself does not specify any punishment for contravention. Its primary function is legislative supremacy. However, violations of the Act’s provisions, such as illegal dispossession or non-compliance with prescribed procedures, can attract penal provisions under other sections of SARFAESI or related laws, including criminal liability for wrongful dispossession.
In Summary:Section 35 of the SARFAESI Act, 2002, enshrines the principle that the Act’s provisions shall prevail over all other laws to the extent of inconsistency, thus providing a comprehensive and effective legal framework for the enforcement of security interests by banks and financial institutions. Its broad scope and overriding effect are vital for achieving the legislative aim of speedy recovery, but courts have adopted a harmonious interpretation to ensure fundamental rights and other laws are not unduly affected unless explicitly intended.
No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963 (36 of 1963)."
Section 36 of the SARFAESI Act, 2002, sets the limitation period within which a secured creditor can initiate measures for enforcement of security interest, such as sale or transfer of secured assets. It aligns the enforcement process with the Limitation Act, 1963, particularly Article 136, which prescribes a 12-year limitation for execution of decrees. The provision aims to balance the rights of lenders to recover dues efficiently while preventing stale claims.
Section 36 states that no secured creditor shall be entitled to take any measures under sub-section (4) of Section 13 unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963. Essentially, it mandates that actions like sale or transfer of secured assets must be initiated within the statutory limitation period, which is generally 12 years from the date the debt becomes due, as per Article 136 of the Limitation Act.
Section 36 does not prescribe specific penal sanctions but acts as a procedural safeguard. If a secured creditor attempts to enforce a claim after the limitation period, such action is legally invalid and can be challenged in courts or tribunals, leading to dismissal of proceedings or injunctions against enforcement.
In conclusion, Section 36 of the SARFAESI Act, 2002, is a crucial statutory provision that ensures enforcement actions are initiated within the prescribed limitation period, aligning with Article 136 of the Limitation Act, 1963. It acts as a safeguard against stale claims, promotes timely enforcement, and maintains legal certainty in recovery proceedings.
The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force."
(1) The Central Government may, by notification and in the Electronic Gazette as defined in clause (s) of section 2 of the Information Technology Act, 2000 (21 of 2000), make rules for carrying out the provisions of this Act."
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:—
(a) the form and manner in which an application may be filed under sub-section (10) of section 13;
(b) the manner in which the rights of a secured creditor may be exercised by one or more of his officers under sub-section (12) of section 13;
1[(ba) the fee for making an application to the Debts Recovery Tribunal under sub-section (1) of section 17;
&
The provisions of sub-sections (2), (3) and (4) of section 20 and sections 21, 22, 23, 24, 25, 26 and 27 shall apply after the Central Registry is set up or cause to be set up under sub-section (1) of section 20."
(1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions not inconsistent with the provisions of this Act as may appear to be necessary for removing the difficulty\:"
Provided that no order shall be made under this section after the expiry of a period of two years from the commencement of this Act.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before each House of Parliament.
The enactments specified in the Schedule shall be amended in the manner specified therein."
(1) The Securitisation and Reconstruction of financial Assets and enforcement of security Interest (Second) Ordinance, 2002 (Ord. 3 of 2002) is hereby repealed. "
(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance shall be deemed to have been done or taken under the corresponding provisions of this Act.
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