Law & Practice Relating to Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest By M.R. UMARJI
The SARFAESI Act has been operational for the more than thirteen years. Except for some delaying tactics adopted by borrowers, the law has proved to be very effective which is clear from the fact that 75% of total recovery of NPAs made by Banks and Financial Institutions is by use of the provisions of the SARFAESI Act. The law has been amended by the Amendment Act (44 of 2016) for introducing further reforms as under :
- removing restrictions on holding controlling interest in the capital of ARCs;
- permitting investment in security receipts issued by ARCs by noninstitutional investors;
- exemption of stamp duty on acquisition of financial assets by ARCs from Banks & FIs;
- inclusion of debenture trustee in the definition of secured creditors;
- equating lease and hire purchase transactions as equivalent to secured credit;
- extending system of extending registration of security interest, to all secured creditors, attachment orders issued by any court or any Tax Recovery Officer;
- making registration effective from the date and time of registration;
- giving priority to claims of secured interest in the Central Registry over all other claims and taxation dues; and
- compulsion to register to be withdrawn and registration to be made optional with right of enforcement extended to only registered security interests.
Although the SARFAESI Act as amended by the 2016 Amendment Act, is not total adoption of the UNCITRAL Model Law on Secured Transactions, the basic principles underlying the Model law have
been adopted in the amended SARFAESI Act.
About the Author
Mr. Madhukar R Umarji was Chief Advisor – Legal of the Indian Banks’ Association for the last twelve years and has rich experience in banking and other financial sector related laws. A post-graduate in Law from Bombay University, Mr. Umarji represents a unique combination of experience as Legal Adviser of Banks (Bank of Baroda and Dena Bank), operational banker (Dena Bank and Corporation Bank) and a Central Banker as Executive Director, Department of Non-Banking Supervision, Reserve Bank of India. He has been actively involved in the process of financial and banking sector reforms in India undertaken by the Ministry of Finance and has represented the banking industry on various Committees and Working Groups set up by the Government and RBI, including Dr. J J Irani Committee on Reforms in Company Law. He was also member of the Bankruptcy Law Reforms Committee and Task Force for setting up Resolution Corporation. He was involved with the United Nations Commission on International Trade Law in preparation of Legislative Guide on Model Law for Secured Transactions, as a delegate from India and also UNIDROIT in preparation of Model Law on Lease of Movables. Sixth Edition of his book on SARFAESI Act has been published last year.