The supreme court last month in a decision in itc limited v. Section 17 of sarfaesi act provides remedy before drt against. Akshat commercial pvt ltd vs kalpana chakraborty and other 20102 drtc 362 calcutta. Sep 08, 2017 the submission made by the learned counsel for the respondents that section 14 cannot be read in isolation and has to be viewed in the context of all other provisions of the act, such as sections 468, 15, 17, 18 rule 8 9 of sarfaesi rules and section 55 of the transfer of property act is acceptable. Important case law on securitisation act high court. Important information about sarfaesi act free download pdf. These exceptions and a few more are detailed out in section 31 of sarfaesi act. Time of sale, issue of sale certificate and delivery of possession, etc. In the statement of object and reasons of the securitization and reconstruction of financial assets and enforcement of security interest act,2002hereinafter sarfaesi,2002 or act,2002, it is stated that the recovery of loans was a slow process which consequently resulted in the mounting levels of nonperforming. Through sarfaesi act, secured creditors banks or financial institutions have many rights for enforcement of security interest under section of this act. Section of sarfaesi overrides section 68 and 69 of the transfer of property act, 1882 the act, 1882 but not all its provisions in relation to the rights of the lessee, under a valid lease agreement, which is created prior to the receipt of notice, under section 2, by the borrower. The first asset reconstruction company arc of india, arcil, was set up under this act.
Sarfaesi section 2 delay of 14 days in filing application drt declined to condone the delay appellant approached the high court who relegated the appellant to debt recovery appellate tribunal high court also directed the appellant to deposit 25% of the amount covered by the 2 notice matter has been pending before this court for the last two years interest of justice. An act to regulate securitisation and reconstruction of financial assets and. Technically, if the borrower is silent in questioning the possession notice issued by the bank under section 4 of the act and chooses to question the sale notice, then, the borrower has to confine himself to the procedure followed by the bank after the issuance of notice under section 4 and the issues pertaining to sale of secured asset. Sarfaesi act 2002 section enforcement of security interest. Jan 23, 2017 section of sarfaesi overrides section 68 and 69 of the transfer of property act, 1882 the act, 1882 but not all its provisions in relation to the rights of the lessee, under a valid lease agreement, which is created prior to the receipt of notice, under section 2, by the borrower. Limitation section 36 no secured creditor shall be entitled to take all or any of the measures under subsection 4 of section, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the limitation act. Therefore, the drt cannot condone any delays under section 5 of the limitation act, when it comes to applications filed beyond the 45day limitation under section 17 of the sarfaesi act. Procedure under the sarfaesi act, 2002 aishmghrana. Courts have dealt with the issue of limitation to approach the debt recovery tribunal under section 17 of sarfaesi act, 2002 and according me, it is the wonderful interpretation by courts in giving the borrower a right to challenge the banks action on all measures pursuant to section 4 of the act. Clarification on section 3a of sarfaesi act answered by expert bankingfinance lawyer. Jan 06, 2016 process flow under provisions of sarfaesi 2 and 4 a secured creditor shall be entitled to exercise all of any of the rights under sub section 4 of section of sarfaesi act without. The securitisation and reconstruction of financial assets and enforcement of security interests act, 2002 or sarfaesi act amendments have been made in 2016 because of enforcement of security interest and recovery of debts laws and miscellaneous provisions amendment act, 2016.
Important case law on securitisation act high court and. Apr 04, 2018 the supreme court last month in a decision in itc limited v. Enforcement of security interest and recovery of debts laws. Section 3a of the sarfaesi act is mandatory and omission to consider representation is fatal. In section 2 of the securitisation and reconstruction of financial assets and. Restrictive remedy under section 14 of the sarfaesi act. Notice received under section 2 of sarfaesi act, 2002 source. In exercise of the powers conferred by subsection 1 and clause b of subsection 2 of section 38 read with subsections 4, 10 and 12 of section of the securitisation and reconstruction of financial assets and enforcement of security interest 2act, 2002, the central government hereby makes the following rules, namely. The submission made by the learned counsel for the respondents that section 14 cannot be read in isolation and has to be viewed in the context of all other provisions of the act, such as sections 468, 15, 17, 18 rule 8 9 of sarfaesi rules and section.
Sarfaesi act or securitisation and reconstruction of financial assets and enforcement of securities interest act, 2002 lets the banks as well as other financial institutions of india auction commercial or residential properties for the purpose of loan recovery. Jan 23, 2019 shreesh chadha 4 th year ballb student, jindal global law school sonipat. Section 9 of the sarfaesi act provides that where a financial asset is financed by more than one secured creditor or jointly financed by a group of secured creditors, then a secured creditor may only exercise his rights pursuant to section 4 of the sarfaesi act, to enforce the security interest created in his favour. Limitation section 36 no secured creditor shall be entitled to take all or any of the measures under sub section 4 of section , unless his claim in respect of the financial asset is made within the period of limitation prescribed under the limitation act. Jun 06, 2015 the borrower gets a right to question the notice under section 4 and all subsequent measures initiated by the bank under section 17 of sarfaesi act, 2002. Time limit of 45 days provided in section 17 of sarfaesi act with in which the effected party has to approach the drt challenging the measures taken under section 4 of the act cannot be extended by taking the aid of section 5 of the limitation act. Section 3a was inserted after the judgment of the supreme court in mardia chemicals vs. In section 9 of the principal act, after clause, the following clause shall be inserted, namely. Sarfaesi act 2002 part 7 section enforcement of security. An act to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights, and for matters connected therewith or incidental thereto. Against the order passed by the district magistrate, the respondents preferred a challenge before the debts recovery tribunal who declined to exercise jurisdiction, holding that an application under section 17 of the act.
How banks misuse sarfaesi act provisions for loan recovery. The appellant, a secured creditor, invoked the jurisdiction of the district magistrate under section 14 of the sarfaesi act. Sarfaesi act section 171 of the act an efficacious. Banks and financial institutions act, 1993 51 of 1993, shall mutatis mutandis. This act makes courts intervention unnecessary in case of secured loans. Apr 08, 20 a perusal of subsection 9 of section of the sarfaesi act would show that in case of a company in liquidation the amount realised from the sale of secured assets must be distributed in accordance with the provisions of section 529a of the act. Such a right accrues only after measures are taken under subsection 4 of section of the act. Security interest enforcement rules, 2002 bare acts live. There is a question before me that if the borrower has knowledge that the bank has prepared the notice under section 4 of the sarfaesi act, 2002 and the borrower also seen the same when he went to bank to give a request letter for granting time for 40 45 days for the entire payment. The security interest enforcement rules, 2002 indian kanoon. In a criminal proceeding the suit is launched by the state against the defendant whereas the sarfaesi act empower the secured lenders to enforce security interests by nonjudicial means, the proceedings of the two are completely different. Under this act secured creditors banks or financial institutions have many right for enforcement of security interest under section of sarfaesi act, 2002.
Contract act, 1872 9 of 1872 or the transfer of property act, 1882 4 of 1882 or the. Action under sarfaesi act during pendency of civil suit during pendency of the banks civil suit, the bank can resort to simultaneous action under section 4 of the act. Shreesh chadha 4 th year ballb student, jindal global law school sonipat. Section in the securitisation and reconstruction of financial assets andenforcement of security interest act, 2002.
In view of the clear provision in the act about the time limit to file an appeal under section 17, the borrower is normally advised to file an appeal under section 4 within the. Process flow under provisions of sarfaesi 2 and 4 a secured creditor shall be entitled to exercise all of any of the rights under. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as nonperforming asset by secured creditor, then secured. Sep 12, 2017 the submission made by the learned counsel for the respondents that section 14 cannot be read in isolation and has to be viewed in the context of all other provisions of the act, such as sections 468, 15, 17, 18 rule 8 9 of sarfaesi rules and section 55 of the transfer of property act is acceptable.
In the statement of object and reasons of the securitization and reconstruction of financial assets and enforcement of security interest act,2002hereinafter sarfaesi,2002 or act,2002, it is stated that the recovery of loans was a slow process which consequently resulted in the mounting levels of non. Securitisation act debt recovery appellate tribunal, chennai. The effect of section 37 would, therefore, be that in addition to the provisions contained under the sarfaesi act, in respect of proceedings initiated under the said act, it will be in order for a party to fall back upon the provisions of the other acts mentioned in section 37, namely, the companies act, 1956, the securities contracts. Full text of supreme court judgement on sarfaesi act. The bank also filed an application under section 2 5 of the sarfaesi act on 11. Some of the amendments to security interest enforcement amendment rules, 2002 which came into effect from november 04, 2016 rule changes effect 31 after the word delivering, the words, including hand delivery, shall be inserted delivery of notice can be effected by hand delivery. The borrower gets a right to question the notice under section 4 and all subsequent measures initiated by the bank under section 17 of sarfaesi act, 2002.
What all indians should know about the sarfaesi act. Restrictive remedy under section 14 of sarfaesi act vinod. Section 2 in the securitisation and reconstruction of financial assets and enforcement of security interest act, 2002 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. There is a question before me that if the borrower has knowledge that the bank has prepared the notice under section 4 of the sarfaesi act, 2002 and the borrower also seen the same when he went to bank to give a request letter for granting time for 40. In exercise of the powers conferred by sub section 1 and clause b of sub section 2 of section 38 read with subsections 4, 10 and 12 of section of the securitisation and reconstruction of financial assets and enforcement of security interest 2 act, 2002, the central government hereby makes the following rules, namely. The high court observed that the intent of legislature, while introducing sub section 3a was to ensure that objectionsrepresentations of a borrower against any action for enforcement of security interest are considered before a secured creditor proceeds to take possession of the secured assets in terms of section 4 of the sarfaesi act.
Supreme court rules on mandatory procedure under the. Supreme court rules on mandatory procedure under the sarfaesi act. Sir, you have mentioned the case of joint financing wrongly, 9 states. Is the period of 15 days stipulated under section 3a. Section in the securitisation and reconstruction of financial. Summary of sarfaesi act amendments introduced in 2016. Section in the securitisation and reconstruction of. Even when there is a certificate of recovery, the bank, if wants to invoke the provisions of sarfaesi act, 2002, makes a fresh demand under section 2, entertains objections, gives a reply if required and then only proceeds under section 4 of the act and the borrower gets a right to appeal to drt under section 17 of sarfaesi act. Sarfaesi securitisation and reconstruction of financial assets and enforcement of security interest act, 2002 is an act which came in 2002 to allow banks and other financial institutions to recover their nonperforming assets npas or bad loans without the intervention of the court. Sir if reply by debtor is filed in 68 days instead of 15 days what happens as in the case of blue coast hotels judgement by hon. Notice under section 4 of sarfaesi act, 2002 banking. Section 171 of sarfaesi act states, right to appeal. Clarification on section 3a of sarfaesi act lawrato.
Faqs on section 14 of the securitisation and reconstruction. The limitation act does not apply as far as applications under section 17 of the sarfaesi act are concerned. Arc, the first asset reconstruction company, was established under this act. A perusal of subsection 9 of section of the sarfaesi act would show that in case of a company in liquidation the amount realised from the sale of secured assets must be distributed in accordance with the provisions of section 529a of the act. Section of the act gives power to the secured creditor even to evict the tenant. It is our observation that the banks have been overenthusiastic in taking recourse to safraesi act provisions as a first resort of recovering the micro, small and medium enterprises msme loans, mostly violating guidelines of reserve bank of india rbi. Notice received under section 2 of sarfaesi act, 2002 pdf link. Section 2 in the securitisation and reconstruction of.
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