To formalize the operations of the securitization market in India and to ensure financial discipline and control in respect of the rights and obligation of the players, the legislature passed SARFAESI Act, 2002 (Securitization and Reconstruction of Financial assets and Enforcement of Security Interest Act)

1. Enforcement of
Security Interest
under SARFAESI Act
₹
₹
by:
NAVYA CHOPRA

2. INTRODUCTION
overrides previous
Recovery of Debts due to
Banks and Financial
Institution Act, 1993
To formalize the operations of the securitization market in India and to ensure financial discipline and control
in respect of the rights and obligation of the players, the legislature passed SARFAESI Act, 2002
(Securitization and Reconstruction of Financial assets and Enforcement of Security Interest Act)
regulates securitization and
reconstruction of financial
assets and enforcement of
security interest.
As per recommendations made by the
Narsimham Committee and the
Andhyarujina Committee
enacted on June 21, 2002,
passed on December 17, 2002.

3. ENFORCEMENT OF SECURITY INTEREST
The transfer of possession, ownership, or
title in accordance with a security interest is
the enforcement of a security interest.
S. 13 (2): When a borrower who is obligated
to a secured creditor under a security
agreement defaults on paying back, and the
secured creditor classifies the borrower's
account related to that debt as a non-
performing asset, the secured creditor may
demand the borrower by written notice to
fully discharge his obligations to the secured
creditor within 60 days of the date of the
notice failing.
Section 13, SARFAESI ACT

4. JUDICIAL PRONOUNCEMENTS
•It challenged the constitutionality of SARFAESI
Act; S. 13, 15, 17 and 34 were particularly
criticised for being arbitrary
•The Supreme Court held the Act to be
constitutionally valid
•The Court highlighted that the Parliament should
be given priority when evaluating whether a
legislation is necessary, and it rejected any
comparisons made between the RDB Act and the
SARFAESI Act
•As a result of this judgement, a new section
13(3A) was added in the year 2004
Mardia Chemicals v.
Union of India

5. JUDICIAL PRONOUNCEMENTS
a secured creditor cannot use
force when exercising his
powers under S.13(4).
M/s Transcore v. Union of
India and Anr.
Right to an administrative hearing
is necessary; it is essential to
ensure that the people who are
harmed receive a fair deal from
those who have been given the
authority to impose drastic
measures to make recovery.
State of Orissa v. Dr. (Miss)
Binapani Dei
an application under Section
17(1) of the SARFAESI Act may
be filed both in opposition to the
possession notice issued under
Section 13(4) of the SARFAESI
Act and the order issued under
Section 14 of the SARFAESI Act
United Bank of India v.
Satyawati Tondon

6. 1 2 3 4 5 6
Under Section 13 (2),
a notice is to be issued
to the borrower/co-
borrowers/guarantors/s
urely
After the expiry of 60
days, in case the
amount due is not
paid, the bank can
take possession
The borrower can seek
any clarification and the
bank is legally bound to
answer the queries
The Act gives opportunity
to a debtor to get whatever
details he requires from the
creditor thereby avoiding
any arbitrary decision by
the creditors
The notice under the Act
can be issued only by an
‘Authorised Officer’ of
the bank who will be an
official in the rank of
Scale IV and above.
Such publication is to
be made within 7 days
of taking possession of
the property
STEPS FOR ENFORCEMENT
7
The property of which
possession is taken can
be sold only after
obtaining valuation
through Government
approved valuer and
thereafter publishing the
sale notice in two news
papers

7. NEED TO DISCUSS
THIS TOPIC
The Act is very important in the present economic
scenario as only when mobility of money takes
place and simultaneously development also takes
place. When money is held up in non-performing
assets, the hand of lending bankers were tied up
resulting in crippling of credit development and
economic activities.

8. CONCLUSION
Since independence, the government has taken a number
of ad hoc actions to combat illness in the financial
sector, most notably by nationalising banks and
implementing relief programmes. The Government has
implemented a number of methods to purge the banking
system of the NPA threat and revive a thriving financial
and banking industry.
Under the authority granted by the SARFAESI Act,
2002, the Reserve Bank of India provided guidelines and
directives relating to registration, measures of ARCs,
functions of the firm, prudential standards, purchase of
financial assets, and associated things.