ARBITRATION AS A MODE OF ENFORCEMENT OF LEGAL RIGHTS, KNOW ABOUT ITS MODAL LAWS AND RULES

The SARFAESI Act, formally known as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, is a significant piece of legislation in India that allows banks and financial institutions to recover loans by taking possession of secured assets without the need to court intervention. Compiled by B S Makar, Advocate High Court, this brief overview outlines the key procedures and mechanisms under the SARFAESI Act aimed at streamlining and expediting the process of debt recovery.

Key Features of SARFAESI Act Procedure

1. Notice to the Borrower: The process begins with the bank or financial institution issuing a notice to the defaulting borrower, demanding repayment of the outstanding loan amount within 60 days.
2. Taking Possession of Assets: If the borrower fails to repay within the specified period, the lender has the right to take possession of the secured assets. The Act allows for physical possession or symbolic possession, depending on the situation.
3. Sale or Lease of Secured Assets: After taking possession, the lender can either sell or lease the secured asset to recover the defaulted loan amount. The sale can be conducted through public auction or private treaty.
4. Right to Appeal: The Act provides a mechanism for borrowers to appeal against the actions taken by the lender. Borrowers can appeal to the Debt Recovery Tribunal (DRT) within 45 days from the date of action taken by the lender.
5. Asset Reconstruction Companies (ARCs): The SARFAESI Act also facilitates the setting up of Asset Reconstruction Companies (ARCs) that specialize in acquiring and managing non-performing assets (NPAs) from banks and financial institutions.
6. Provision for Securitisation: The Act allows banks and financial institutions to securitize assets by converting them into marketable securities, thus improving liquidity.

Implications and Impact:

The SARFAESI Act represents a robust framework for the speedy recovery of non-performing assets (NPAs), thereby enhancing the overall financial health of banks and financial institutions. By minimizing the dependency on court proceedings, the Act ensures a quicker resolution of bad debt issues, which, in turn, contributes to the stability of the financial system. However, the Act also mandates strict adherence to the due process of law, ensuring that the rights of the borrowers are protected. The provisions for appeal and the role of the DRT as an adjudicating authority ensure that the enforcement of security interests is done transparently and fairly.