A Client's Guide to the SARFAESI Act, 2002
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 empowers banks and financial institutions to recover their dues in an efficient manner. While it streamlines the recovery process for lenders, it's crucial for borrowers to understand their rights and the procedures involved.
When Can the SARFAESI Act Be Invoked?
A lender can only initiate proceedings under the SARFAESI Act if the loan account is classified as a Non-Performing Asset (NPA). An account is typically classified as an NPA if the principal or interest payment is overdue by 90 days. This act applies to secured loans where the bank has a charge on assets like property or machinery.
The Process Explained
- Demand Notice: The process begins when the lender sends a demand notice to the defaulting borrower, asking to repay the outstanding dues within 60 days.
- Taking Possession: If the borrower fails to comply, the lender can take possession of the secured assets. This can be either symbolic or physical possession.
- Sale of Assets: The lender can then sell the assets through public auction or private treaty to recover the outstanding amount.
What Are Your Rights as a Borrower?
While the act is powerful, it is not without checks and balances. Borrowers have specific rights:
- Right to Representation: Upon receiving the 60-day notice, you have the right to make a representation or raise objections to the lender. The lender is obligated to reply to your representation within 15 days.
- Right to Appeal: If you are aggrieved by the lender's actions, you have the right to file an appeal with the Debt Recovery Tribunal (DRT) within 45 days.
- Right to Fair Value: The lender must ensure the secured asset is sold at a fair market value and must follow a transparent auction process.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. The provisions of the SARFAESI Act are complex and require careful legal examination. For specific advice on your situation, please consult a qualified legal professional.
If you are facing proceedings under the SARFAESI Act, our team has extensive experience in banking law and can provide the expert guidance you need. Contact us today for a consultation.