Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002


The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 is an Indian law. It allows banks and other financial institution to auction residential or commercial properties to recover loans. The first asset reconstruction company of India, ARCIL, was set up under this act.
Under this act secured creditors have many right for enforcement of security interest under section 13 of SARFAESI Act, 2002. If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as Non performing Asset by secured creditor,then secured creditor may require before expiry of period of limitation by written notice.

Summary

The law does not apply to unsecured loans, loans below or where remaining debt is below 20% of the original principal. This law allowed the creation of asset reconstruction companies and allowed banks to sell their non-performing assets to ARC's. Banks are allowed to take possession of the collateral property and sell it without the permission of a court.

Amendments

The act was amended by "Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Bill, 2016", passed by Lok Sabha on 2 August 2016.
Act passed by Rajya Sabha by voice vote on August 10, 2016.

Notable verdict

Mardia Chemicals Ltd. v. ICICI Bank

In Mardia Chemicals Ltd. v. ICICI Bank, on 8 April 2004, the Supreme Court of India declared the Sarfaesi Act to be constitutionally valid. The Court said that a borrower may appeal against the lender in the debt recovery tribunal, without having to deposit 75% of the amount of the debt. If the tribunal does not stay the order, the lender may sell the assets.
After this law passed, on 27 November 2002, ICICI Bank took possession of Mardia Chemical plant in Vatva, Ahmedabad district, Gujarat. ICICI Bank was owed crore, in all it owed crore to 20 lenders.