The primary objective of the SARFAESI Act is to provide banks and financial institutions with a legal framework to deal with non-performing assets (NPAs) efficiently.
Securitization and Reconstruction Companies (ARCs)
The act allows banks to transfer NPAs to Asset Reconstruction Companies (ARCs) for the purpose of reconstruction and securitization
Enforcement of Security Interest
The act allows banks to enforce security interests in the case of default by borrowers, without court intervention
Non-Judicial Process
Banks can take possession of the secured assets without the need for a court order
Notice to Borrower
Before taking any action, the secured creditor must serve a notice to the borrower, providing an opportunity to rectify the default within 60 days.
Right to Appeal
Borrowers have the right to appeal to the Debt Recovery Tribunal (DRT) if they believe the action taken by the bank under SARFAESI is unjust.
Central Registry
The Act establishes a Central Registry to maintain records of transactions related to securitization and reconstruction of financial assets.
Limited Applicability
SARFAESI applies only to secured loans of more than one lakh rupees, and the underlying security interest must be in the form of a mortgage, hypothecation, or pledge.
Rights of Borrowers
While the act provides extensive powers to secured creditors, it also includes provisions to safeguard the rights of borrowers
Penalties
The act imposes penalties for non-compliance with its provisions, discouraging any unfair practices by banks and financial institutions during the enforcement of security interests.