SARFAESI Act 2002 - Banks

 

SARFAESI Act 2002

Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest

Rules

This is the full form of the sarfaesi act 2002. If you are a commerce student or anyone pursues upsc or psc to get a job, it is essential to read about the sarfaesi act which is a golden weapon or tool for the banks now. And the people who are going to take some money from the banks should know the powers of the banks to recover the money and the procedures for that. It will be helpful to be care and aware of the risk if we show some negligence in the loan repayment. What are sarfaesi act 2002 and the procedure of the sarfaesi act 2002? Should we people need to afraid of it? Let’s have a study on the sarfaesi act 2002 and some information which will be useful in exams and banking career.

It is a bill introduced and later became act in 2002. Exactly the sarfaesi act 2002 came into effect from 21st June, 2002. The main aim of passing the bill in the parliament is to reduce the recover measures of banks against the loans due to the court cases and to easily possess, sale the land or assets that are surrendered as security.

The other ways to recover the loan amount from the defaulter before the sarfaesi act 2002 came into effect is approaching the civil court, Debt Recovery Tribunal or the Lok Adalath. Friends, I am talking about the sarfaesi act which is prevailing in the India. The main problem of defaulters are they couldn't arrange the funds as they planned because of the interest. 

The advantage of this act is it’s speedy. The actions and the results are within no time, which is much better for the banks than approaching the courts or any other authorities. As like the other cases in the court, it doesn’t take much time and the key factor is defaulter cannot approach any of the civil courts in India because cases on sarfaesi act cannot be taken by the civil courts. There is no option for stay order from anywhere. Stay order means an order from an authority to stay down the procedure which is already initiated or going to initiate.

In India, the honorable courts have no power to interfere in the sarfaesi act 2002 proceedings but the DRT – Debt Recovery Tribunal can do that. The Debt Recovery Tribunal can interfere in the sarfaesi proceedings only if the bank took the possession of the land which surrendered as security. This means, defaulter can’t do anything until the bank takes possession of the security if the sarfaesi act 2002 initiated proceedings.

Conditions to initiate the SARFAESI ACT 2002

• The loan should be NPA – Non Performing Asset
• There should be a land or an asset as security of the loan which can be movable or immovable
• The outstanding amount of the loan should be more than 1 Lakh rupees.
• The outstanding amount should be more than the 20 % of the loan amount
• Sarfaesi Act 2002 couldn’t initiate on the agricultural lands                                                   (This provision of the act can be misused by the defaulter by approaching the Debt Recovery Tribunal that the land possessed by the bank is an agricultural land and the land should be in return by producing the revenue documents showing the agricultural land as evidence. But it seems that the agricultural land which is used for non agricultural purpose will come under the act. Revenue documents is not a valid evidence for an agricultural land and an agricultural land is one which continuously cultivating)

Procedure of Sarfaesi Act 2002

1. Demand Notice will be issued by an officer to the defaulter to repay the amount in 60 days.
2. If the defaulter couldn’t repay the amount in 60 days, bank will take the possession of the land
3. Bank will inform the details of possession and auction going to be conducted through at least two main newspapers.
4. Bank will give 30 days to repay the amount & if he couldn’t, the property will be sold through an e-auction.
5. Bank closes the loan with the amount from the auction

Solutions

• After the bank takes the possession, defaulter can approach the Debt Recovery Tribunal
• If the decision of the DRT is against the defaulter, he can approach the Debt Recovery Appellate Tribunal by producing the 50% of the amount

The act is so powerful and easy procedure for banks to recover the loan amount in time. The NPA is the loan that is due for 90 days as per the latest circular of Reserve Bank of India.

Latest Supreme Court Judgement 2020

The five-judge constitution bench of the Supreme Court of India mentioned that the all co-operative banks in India can use the power of SARFAESI ACT 2002 to recover the loan amount against the defaulters on 5th May,2020. The co-operative banks who conducts the banking business got the chance to grow more because they got more power in this sector of recovery.