More institutions to enjoy powers to enforce security

“Banks and financial institutions at present face considerable difficulties in recovery of dues from the clients and enforcement of security charged to them due to the delays in the legal processes.”

Taking into account the above observation of the Narasimham Committee, the legislature enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act), providing for the establishment of tribunals for expeditious adjudication and recovery of debts. However, banks and financial institutions still did not have the power to take possession of secured assets and sell them. Observing that this lack of power resulted in a slow pace of recovery of defaulting loans, the legislature enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

Scope of SARFAESI Act

The SARFAESI Act enables banks and certain financial institutions to take possession of the secured assets of the borrower, take over the management of the borrower’s business and appoint persons to manage the borrower’s secured assets thereby providing them with an effective means for enforcement of security without the intervention of courts.

Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.