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The SARFAESI Act is a law that "regulates the securitisation and reconstruction of financial assets, enforcement of security interests, and establishment of a central database of security interests based on property rights, as well as things incidental or connected to it."
This Act gives lenders the authority to collect their loans without the need for judicial involvement. Continue reading to know more about the same!
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The full form of this Act is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
The Central Government established the Narasimham Committees I and II and Andhyarujina Committee to examine banking sector reforms, and these committees have taken into account the requirement for changes in the legal system in these sectors.
These committees, among others, have proposed new legislation for securitisation that would allow banks and financial institutions to acquire securities and sell them without the need for court intervention.
The applicability of the SARFAESI Act, 2002 are stated below:
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Here are the features of the Securitisation Act 2002:
The following are the roles of the SARFAESI Act.
Here are the objectives of the Securitisation and Reconstruction of Financial Assets Act.
The main reasons behind the formation of the SARFAESI Act, 2002 are -
Regulation of securitisation and reconstruction of financial assets
Enforcement of the security interests for matters which are incidental thereto or connected therewith
Moreover, this Act is active and works in the entire country. The SARFAESI rules came into the presence for amending these laws.
Before they may seize property and use it to recoup their debt, banks must follow a set of procedures. In this regard, they follow the procedure stated in the SARFAESI Act for the same.
The SARFAESI Act gives banks the legal right to send borrowers notices asking them to pay off their debts within 60 days if they are unable to make loan repayments for a period of six months (this includes home loans).
The financial institution has the power to sell the property at a distress sale if the borrower is unable to pay this obligation. A person in default who feels wronged by the bank’s decision can appeal to the concerned authority within 30 days of passing the order.
The bank can sell or lease the property once it takes possession of it. The bank might also provide another entity with the authority to use the property. Before paying off the bank's past due debts, the sale's revenues are utilised. Moreover, if there is any additional money left after it, the defaulting borrower receives it.
In accordance with the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 [SARFAESI], e-Form CHG-1 or e-Form CHG-9 must be filed in order to apply for:
The following are the necessary documents:
Any e-Form that requires a digital signature must be one of the following:
Initially, the cooperative banks were not included in the list of banks to which the SARFAESI Act applied. A major notification was released in 2003 to include cooperative banks in the group of banks eligible to use the SARFAESI Act.
The Indian government revised this Act in 2013 to legally include cooperative banks in the category of institutions that may employ this Act.
Following that, petitions were filed to challenge the notification's legitimacy and the Parliament's jurisdiction to modify the SARFAESI Act, 2002. The Supreme Court decided this specific case on May 5, 2002, siding with the operational cooperative banks who had invoked the SARFAESI Act.
This action has greatly aided cooperative banks in avoiding excessive delays while recovering problematic debts subject to civil court and cooperative tribunal proceedings.
Rapid recovery of the default loans is essential for the smooth operation of the cooperative banks.
To sum it up, that is all for SARFAESI Act, 2002. It is a vital act for developing the country's economy, and broadening its scope is a necessary step to further strengthen the financial conditions of our country.