SARFAESI Act

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Act of the Parliament of India enacted to consolidate and amend the law relating to securitization and reconstruction of financial assets and enforcement of security interest.

The Act provides for the establishment of a Central Registry of Securitization, Reconstruction and Enforcement of Security Interest (CERSAI) and for the regulation of securitization and reconstruction companies and asset reconstruction companies. The Act also provides for the enforcement of security interest by secured creditors.

The Act has been amended several times since its enactment. The most recent amendment was made in 2016.

The following are the sub topics of SARFAESI Act:

Short title, extent and commencement
Definitions
Establishment of Central Registry of Securitization, Reconstruction and Enforcement of Security Interest
Regulation of securitization and reconstruction companies
Regulation of asset reconstruction companies
Enforcement of security interest
Offences and penalties
Miscellaneous
Power to make rules
Power to remove difficulties
Act not to apply to certain cases
Saving
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an Act of the Parliament of India enacted to consolidate and amend the law relating to securitization and reconstruction of financial assets and enforcement of security interest.

The Act has been amended several times since its enactment. The most recent amendment was made in 2016.

The following are the sub topics of SARFAESI Act:

Short title, extent and commencement
Definitions
Establishment of Central Registry of Securitization, Reconstruction and Enforcement of Security Interest
Regulation of securitization and reconstruction companies
Regulation of asset reconstruction companies
Enforcement of security interest
Offences and penalties
Miscellaneous
Power to make rules
Power to remove difficulties
Act not to apply to certain cases
Saving
Short title, extent and commencement

The short title of the Act is the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Act extends to the whole of India. The Act came into force on the 26th day of May, 2002.

Definitions

The Act defines the following terms:

“Asset” means any tangible or intangible property of any kind, including but not limited to, goods, MoneyMoney, accounts receivable, securities, Intellectual Property Rights, and any other right or interest of any kind in or to property, whether movable or immovable, tangible or intangible, present or future, and whether or not denominated in Indian rupees;
“Bank” means any banking company as defined in section 5 of the Banking Regulation Act, 1949;
“Borrower” means any person who owes any money or other financial obligation to a secured creditor;
“Central Registry” means the Central Registry of Securitization, Reconstruction and Enforcement of Security Interest established under section 4 of the Act;
“Creditor” means any person who has a security interest in any asset;
“Debt” means any liability, whether present or future, certain or contingent, arising from any loan, advance, invoice, bill of exchange, promissory note, HundiHundi, or other instrument, or from any other transaction for the payment of money;
“Financial asset” means any debt or receivable, whether secured or unsecured, and whether or not denominated in Indian rupees, and includes but is not limited to, any of the following:
- Loans and advances;
- Bills of exchange, promissory notes, and other negotiable instruments;
- Accounts receivable;
- Securities;
- Intellectual property rights; and
- Any other right or interest of any kind in or to property, whether movable or immovable, tangible or intangible, present or future, and whether or not denominated in Indian rupees;
“Mortgagee” means a person who has created a mortgage;
“Mortgagor” means a person in whose favour a mortgage is created;
“Notice” means a notice in writing, and includes a notice served by electronic means;
“Person” includes an individual, firm, Hindu undivided family, company, association, body corporate, trust, society, or any other legal person;
“Secured creditor” means a creditor in whose favour a security interest has been created;
“Security interest” means a right in the nature of a charge which secures payment or performance of an obligation;
“Security interest agreement” means an agreement creating a security interest;
“Transferee” means a person to whom a security interest is transferred.
Establishment of Central Registry of Securitization, Reconstruction and Enforcement of Security Interest

The Central Registry is a body corporate established under the Act. The Central Registry is responsible for maintaining a register of securitization transactions, reconstruction transactions, and enforcement proceedings. The Central Registry is also responsible for providing information from the register to the public.

Regulation of securitization and reconstruction companies

A securitization company is a company that securitizes financial assets. A reconstruction company is a company that reconstructs financial assets. Securitization and reconstruction companies are regulated by the Reserve Bank of India.

Regulation of asset reconstruction companies

An asset reconstruction company is a company that acquires financial assets from banks and other financial institutions and attempts to recover the value of those assets. Asset reconstruction companies are regulated by the Reserve Bank of India.

Enforcement of
What is SARFAESI Act?

What are the objectives of SARFAESI Act?

The objectives of SARFAESI Act are to:

Promote securitization and reconstruction of financial assets
Facilitate the enforcement of security interest
Protect the interests of secured creditors
Promote the development of the financial sector

What are the key provisions of SARFAESI Act?

The key provisions of SARFAESI Act are:

The establishment of a Central Registry of Securitization, Reconstruction and Enforcement of Security Interest (CERSAI)
The regulation of securitization and reconstruction companies and asset reconstruction companies
The enforcement of security interest by secured creditors
The imposition of penalties for contravention of the Act

What are the benefits of SARFAESI Act?

The benefits of SARFAESI Act are:

It provides a framework for the securitization and reconstruction of financial assets
It facilitates the enforcement of security interest
It protects the interests of secured creditors
It promotes the development of the financial sector

What are the challenges of SARFAESI Act?

The challenges of SARFAESI Act are:

It has been criticized for being too harsh on borrowers
It has been criticized for being too complex
It has been criticized for being too bureaucratic

What is the future of SARFAESI Act?

The future of SARFAESI Act is uncertain. The Act has been amended several times since its enactment, and it is possible that it will be amended again in the future. It is also possible that the Act will be repealed and replaced with a new law.
Question 1

The SARFAESI Act was enacted in the year:

(A) 2002
(B) 2003
(CC) 2004
(D) 2005

Answer
(A)

Question 2

The SARFAESI Act provides for the establishment of a Central Registry of Securitization, Reconstruction and Enforcement of Security Interest (CERSAI). CERSAI is a:

(A) Government body
(B) Private body
(C) Semi-government body
(D) None of the above

Answer
(A)

Question 3

The SARFAESI Act provides for the regulation of securitization and reconstruction companies and asset reconstruction companies. These companies are regulated by the:

(A) Reserve Bank of India
(B)
(C) Insurance Regulatory and Development Authority of India
(D) None of the above

Answer
(A)

Question 4

The SARFAESI Act provides for the enforcement of security interest by secured creditors. The secured creditor can enforce the security interest by:

(A) Taking possession of the secured asset
(B) Selling the secured asset
(C) Both (A) and (B)
(D) None of the above

Answer
(C)

Question 5

The SARFAESI Act has been amended several times since its enactment. The most recent amendment was made in the year:

(A) 2014
(B) 2015
(C) 2016
(D) 2017

Answer
(C)

Question 6

The SARFAESI Act is applicable to all secured creditors. This means that the Act is applicable to:

(A) Banks
(B) Financial institutions
(C) Non-banking financial companies
(D) All of the above

Answer
(D)

Question 7

The SARFAESI Act provides for a number of safeguards for borrowers. These safeguards include:

(A) The right to be heard before the security interest is enforced
(B) The right to appeal against the enforcement of the security interest
(C) Both (A) and (B)
(D) None of the above

Answer
(C)

Question 8

The SARFAESI Act has been praised for its effectiveness in recovering bad loans. However, the Act has also been criticized for being too harsh on borrowers. Do you agree with this criticism?

(A) Yes
(B) No
(C) I am not sure

Answer
(A)

Question 9

The SARFAESI Act has been challenged in court on a number of occasions. The Supreme Court has upheld the constitutional validity of the Act in a number of cases. Do you think the SARFAESI Act is a good law?

(A) Yes
(B) No
(C) I am not sure

Answer
(A)