DEBT RECOVERY UNDER SARFESI ACT, 2002

 DEBT RECOVERY UNDER SARFESI ACT, 2002

The SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) is a law enacted by the Indian Parliament to empower banks and financial institutions to recover their non-performing assets (NPAs) efficiently. The prerequisites for debt recovery under the SARFAESI Act include the following:

1.     SECURITY INTEREST:

The bank or financial institution should have a valid security interest in the property or asset against which the loan was granted. This security interest can be in the form of a mortgage, pledge, hypothecation, or any other type of charge.

2.      DEFAULT:

The borrower should have defaulted in repayment of the loan or any part thereof. A default is defined as failure to pay the amount due within 90 days of demand or notice.

3.      NOTICE:

The bank or financial institution should issue a notice in writing to the borrower demanding payment of the outstanding amount and specifying the consequences of non-payment. The notice should also mention the time period within which the borrower can make the payment.

4.      NO RESPONSE:

The borrower should not have responded to the notice or failed to make the payment within the time period mentioned in the notice.

5.      Securitization:

The bank or financial institution should have securitized the debt or assigned it to a securitization company or reconstruction company. The securitization or assignment should be done in accordance with the guidelines issued by the Reserve Bank of India (RBI).

Once these prerequisites are met, the bank or financial institution can proceed with the recovery of the outstanding amount by taking possession of the secured asset, selling the asset, or appointing a receiver for the management of the asset.

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