DISPUTE RESOLUTION MECHANISMS IN VALUATION UNDER THE SARFAESI ACT

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, enacted in 2002, provides banks and financial institutions in India with a powerful tool to recover dues from non-performing assets (NPAs) efficiently. Central to the SARFAESI Act is the process of asset valuation, crucial for determining the asset’s fair value before enforcement.

Key Points:

1. Objective of Valuation: The primary aim of valuation under the SARFAESI Act is to determine the realizable value of the secured asset. This valuation plays a pivotal role in the enforcement of security interest by the lender.
2. Role of Registered Valuers: Valuation under SARFAESI is conducted by registered valuers who are appointed by the lender. These valuers must adhere to the guidelines set by the Insolvency and Bankruptcy Board of India (IBBI).
3. Types of Valuation: Valuation can be either ‘fair value’ or ‘reserve price’. Fair value is the estimated price that the asset would fetch in the open market, while reserve price is the minimum price at which the lender can sell the asset through auction.
4. Challenges and Disputes: Disputes often arise regarding the valuation process, primarily concerning the fairness and accuracy of the valuation conducted. Borrowers may challenge the valuation if they believe it does not reflect the true market value of the asset.
5. Dispute Resolution Mechanisms:
   • Reconsideration by Valuer: If the borrower disputes the valuation, the lender may allow the borrower to present objections to the valuer, who then reconsider the valuation.
   • Grievance Redressal Mechanism: The SARFAESI Act provides for a grievance redressal mechanism through which borrowers can appeal to higher authorities within the lending institution.
   • Judicial Intervention: Borrowers can approach the Debt Recovery Tribunal (DRT) or the High Court if they feel aggrieved by the valuation. Courts can review the valuation process and ensure procedural fairness.
6. Legal Safeguards: The SARFAESI Act mandates that the valuation process must be transparent and conducted in accordance with established norms. This ensures that borrowers have avenues to challenge unfair valuations.
7. Impact on Borrowers and Lenders: Fair valuation is crucial as it directly impacts the amount recoverable by the lender. For borrowers, a fair valuation ensures that their assets are not undervalued, thereby protecting their interests.
8. Recent Developments and Amendments: Amendments to the SARFAESI Act and related regulations continue to refine the valuation process, aiming to strike a balance between lender interests in quick recovery and borrower rights to fair valuation.

While the SARFAESI Act empowers lenders to recover debts efficiently, the valuation process is pivotal and subject to scrutiny and challenge. Effective dispute resolution mechanisms ensure that the valuation process remains fair and transparent, safeguarding the interests of both lenders and borrowers in the Indian financial ecosystem.