SIMPLIFYING 'SARFAESIA, 2002'

To expedite recoveries by the Banks, the law called as Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, 2002, popularly called as SARFAESIA has been enacted.

- Hareesh Kumar Kolichala

A secured creditor Bank can enforce its securities without intervention of courts and by following the procedure as prescribed under the said Act. Similar power was given earlier to the State Financial Corporations, under Section 29A of the State Financial Corporations Act, 1953.

Without intervention of the courts though appears to be simple but in actual practice, it is a challenge. This article discusses the practical difficulties of enforcement of securities and the need for more simplification of the Act so that Banks can find it easy to enforce the securities.

Chapter III of the Act and Enforcement of The Security Interest (Enforcement) Rules, 2002 deals with the procedure of Enforcement of Secured assets by the Secured Creditors.

Section 13(2) provides that to proceed under the Act, the account should have been classified as Non-performing Asset (NPA). What is a non-performing asset is explained by the RBI prudential norms. As per the said guidelines, NPA is a loan or an advance where interest and/or installment of principal remain overdue for a period of more than 90 days in respect of term loans.