SARFAESI ACT AND ITS FEATURES
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act is an Indian law passed in 2002 to facilitate the recovery of bad loans by banks and other financial institutions.
Under this Act, banks and financial institutions are empowered to take possession of and sell the secured assets of borrowers who have defaulted on their loans. The Act provides a simplified procedure for the banks to enforce their security interest without the intervention of the court.
The SARFAESI Act applies to all types of loans, including agricultural loans, but it does not apply to unsecured loans. The Act also establishes Debt Recovery Tribunals (DRTs) and Appellate Tribunals to deal with appeals and disputes arising out of actions taken by banks under this Act.
Overall, the SARFAESI Act aims to speed up the recovery of bad loans by banks and financial institutions and to minimize the losses suffered by them due to non-payment of loans by borrowers.
The major features of the SARFAESI Act are as follows:
1. Empowerment of banks and financial institutions: The Act empowers banks and financial institutions to take possession of the collateral/security against which a loan was granted to a borrower in case of non-repayment of the loan. This provision provides a simplified and expeditious procedure to banks and financial institutions for the recovery of their dues.
2. Establishment of Debt Recovery Tribunals: The Act provides for the establishment of Debt Recovery Tribunals (DRTs) to adjudicate upon disputes arising out of the actions taken by banks and financial institutions under this Act. The DRTs are empowered to hear and decide on matters related to recovery of loans and to take appropriate steps for their enforcement.
3. Creation of Asset Reconstruction Companies (ARCs): The Act provides for the creation of Asset Reconstruction Companies (ARCs) which are specialized entities that acquire bad debts from banks and financial institutions and try to recover them through restructuring and sale of assets. The ARCs act as intermediaries between the banks and the borrowers and help to resolve the problem of bad loans.
4. Provision for the sale of secured assets: The Act provides for the sale of secured assets by banks and financial institutions in case of non-payment of loans. The sale can be conducted through public auction, private treaty, or any other method as deemed appropriate by the bank or financial institution.
5. Empowerment of banks to take over management of the borrower’s business: In case of default, the Act empowers banks and financial institutions to take over the management of the borrower’s business, provided that the borrower agrees to such action in writing
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