NATIONAL LAW UNIVERSITY ODISHA

TRANSFER OF PROPERTY LAW

BACK PAPER PROJECT REPORT ON:

Securitization & Reconstruction of Financial Assets &

Enforcement of Security Interest Act, 2002

SUBMITTED TO: SUBMITTED BY:

Mrs. Dolly Jabbal Harshvardhan Pabri

(Prof. of Law) (2014/B.A.LL.B./016)

Ms. Tulip Suman

(Research Associate-cum-Teaching Assistant)

 Project Report On: SARFAESI ACT 2002

TABLE OF CONTENTS

ACKNOWLEGMENT....................................................................................................................3

LIST OF ABBREVIATIONS..........................................................................................................4

Background of SARFAESI Act 2002.............................................................................................. 5

Object of SARFAESI Act, 2002......................................................................................................6

Power to take possession under section 13 of SARFAESI Act, 2002............................................. 7

Right to Repeal............................................................................................................................ 9

Remedy under section 17 of the SARFAESI Act, 2002 bars writ petition:...............................10

Important Case Laws Under SARFAESI Act, 2002..................................................................10

CONCLUSION............................................................................................................................. 11

BIBLIOGRAPHY......................................................................................................................... 12

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ACKNOWLEGMENT

I would like to take this opportunity as a very proud person to express my elation over having
had an opportunity to work on as interesting a topic as “The Securitization & Reconstruction of
Financial Assets And Enforcement of Security Interest Act, 2002”. First & foremost, I take this
opportunity to thank Mrs. Dolly Jabbal, Professor of Law, National Law University Odisha, for
allotting me this challenging topic to work on. She has been very kind in providing inputs for this
work, by way of suggestions.

I would like to acknowledge the institution of National Law University Odisha, of which I am a
student, inter alia for its library catalogue.

Submitted By: Harshvardhan Pabri

Semester: IXTH
Roll No: 14ba016

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A.I.R.
Anr.
Art.
ed.
i.e.

Id.

J.
Ltd.
Ors.
p.
S.C.
s.

v.
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 Project Report On: SARFAESI ACT 2002

BACKGROUND OF SARFAESI ACT 2002

The pre-famous issue confronted by Banks and Financial Institutions is that of expanding awful
obligations euphemized as Non-performing Assets (NPAs).
To look in the overarching issue and bring out recommendations three committees set up, to be
specific, the Narasimham Committee I, Narasimham Committee II, and the Andhyarujina
1
Committee.
Narsimham Committee I was constituted in 1991, it then says that as per the global practice, an
advantage is dealt with as non-performing when the interest is past due for no less than two
quarters. Income of interest is considered in that capacity, only when it is received and not on the
accrual basis. The Committee proposed that the same ought to be trailed by the banks in India
and development is to be appeared as Non-perfoming Asset where the premium stays due for

over 180 days.2

Narasimham Committee II presented its report in April, 1998 and prescribe that Banking industry
ought to change over to universal practices with regard to recognized income by introducing a 90
3
days norm.
Andhyarujina Committee4 was constituted under the chairmanship of Sri T.R. Andhyarujina,
former Solicitor General of India, in February 1999 to detail particular proposition for offering
impact to the proposals made by the Narasimham Committee. The Committee presented its
report in May 2000, which cast the path for the end of the present SARFAESI Act, 2002, the
principle proposal of the Committee is as per the following:

(a) Banks must vest with force of taking ownership and offer of securities without the
intercession of the court as respects sold properties;
(b) The current Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ought to be
revised to make its procurements more viable; and

1 "Banks can sell secured assets of defaulters: SC". The Economic Times 8 April 2004.
2 "RBI Action Taken Report". Rbi.org.in.
3 "NEW LEGISLATION FOR RECOVERY OF DEBTS". Press Information Bureau, Government of India.
4 <http://www.dnb.co.in/Arcil2008/SARFAESI.asp>.

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(c) Revision ought to additionally be made in the Contract Act, 1872 by making procurement
of giving more opportunity to Banks and Financial Institutions to authorize their cases
under Guarantee.

OBJECT OF SARFAESI ACT, 2002

The SARFAESI Act 2002 accommodates three option techniques for recuperation of NPAs:

a) Securitization;
The term securitization has been characterized as "an instrument for obtaining of financial
resources by any securitization organization or reproduction organization from any originator,
whether by rising of assets by such securitization organization or remaking organization from
qualified institutional purchasers by issue of security representing unified interests in such
5
financial resources.

In Mardia Chemicals Ltd., v. Union of India6 the Supreme Court held that the act of
securitization of obligations is in vogue everywhere throughout the world. There are
establishments who accept use of securitization. Such establishments take over the financial
resources and in turn issue securities. Essentially to say that, securitization is framework to
change over securities into money, yet it is not quite the same as exchange of debatable

instruments or noteworthy cases as present in consistently rehearse in the business field.7

b) Asset reconstruction;
The second idea pondered under the SARFAESI Act, 2002 is reconstruction of financial assets,
characterized as "assets reconstruction", which implies procurement by any securitization
organization or reconstruction organization of any rights or interest of any bank or financial
foundation in any financial assistance with the end goal of acknowledgment of such financial

assistance.8

5 Section 2(1)(z) of the SARFAESI Act, 2002.

6
Mardia Chemicals Ltd., v. Union of India AIR 2004 SC 2371.
7 <http://archive.financialexpress.com/news/icici...mardia-chemicals.../65938>
8 Section 2(1)(b) of the SARFAESI Act, 2002.

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The idea of 'financial assistance' indicates any advance or progress conceded or any debentures
or bonds subscribed or any insurance given or letters of credit set up or some other credit office
9
reached out by any bank or financial organization.

SARFAESI Act 2002 vs. RDDBFI Act 1993

In Garlon Polylab Industries Ltd. v. State Bank of India 10 it has been held by the Allahabad High
Court that SARFAESI Act, 2002 being a special act overrides procurements of Recovery of
Debts Due to Banks and Financial Acts, 1993 or whatever other Act of Parliament or State
Legislature relating to the field it covers.

POWER TO TAKE POSSESSION UNDER SECTION 13 OF SARFAESI

ACT, 2002

Endless supply of record of the secured leaser as non-performing asset, who defaults in the
installment of secured debt or any portion thereof, the Bank or Financial Institution gives a
former notice to the defaulting borrower including the mortgagors and underwriters under
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section 13(2) calling upon them to pay the whole due sum inside of a time of sixty days.
The notice alluded under section 13(2) should give points of interest of the sum payable by the
borrower and the secured assets planned to be authorized by the secured leaser in the occasion of
12
non-installment of secured debts by the borrower.
The approved officer of the bank/secured loan boss should consider such representation or
protests and if in the wake of considering such representation or complaint secured lender
reaches the conclusion that such representation or protest is not satisfactory or legitimate, he
might inside of one week from the date of its receipt of such representation or complaint the
13
explanations behind rejection it, to the borrower.

9 Section 2(1)(k) of the SARFAESI Act, 2002.

10
Garlon Polylab Industries Ltd. v. State Bank of India 2003(3) BC 626 (AII) (DB).
11 Section 13(2) of the SARFAESI Act, 2002.
12 Section 13(3) of the SARFAESI Act, 2002.
13 Section 13(3A) of the SARFAESI Act, 2002.

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(i) To take ownership of the secured assets of the borrower including the privilege to
exchange by method for lease, task or deal for discharging the secured asset. With regards
to taking ownership of the property, there are two things like taking typical ownership

and taking genuine ownership.14

(ii) To assume control over the administration of the matter of the borrower including the
privilege to exchange by method for lease, task or deal for discharging the secured asset.15

(iii) Appoint the manager, to manage the secured asset whose possession has been
taken.16

(iv) Requiring cash from any individual who has procured any of the secured assets
from the
borrower and from whom any cash is because of the borrower, to pay to the secured leaser, by
notice in composing.17
In the event that the secured loan boss gets the ownership of the secured asset or assume control
over the administration under section 13(4), it might vest in the transferee all rights in or in
connection to, the secured asset exchanged as though the exchange had been made by the
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proprietor of such secured asset.
The deal continue should, without any agreement in actuality, be held by the secured bank in
trust, to be connected, firstly, in the installment of such costs, charges and costs and also, in
release of the dues of the secured leaser and the deposit of the cash got might be paid to the
individual entitled thereto as per his rights and interests.19
On the off chance that the borrower paid or tendered the dues with all costs, charges and costs to
the secured loan bosses then secured leaser should not sold or exchanged the secured asset.20
On the off chance that the dues are not completely fulfilled from the deal continues of the
secured assets, the secured bank might record an application before the Debt Recovery Tribunal

14 13(4)(a) of the SARFAESI Act, 2002.

15 13(4)(b) of the SARFAESI Act, 2002.
16 13(4)(c) of the SARFAESI Act, 2002.
17 13(4)(d) of the SARFAESI Act, 2002
18 13(6) of the SARFAESI Act, 2002.
19 Section 13(7) of the SARFAESI Act, 2002.
20 Section 13(8) of the SARFAESI Act, 2002.

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(DRT) having locale or able court, as the case might be for the recovery of the equalization sum
from the borrower.21

RIGHT TO REPEAL
Any individual bothered by virtue of any measure taken under section 13(4) by the secured bank
might make an application, alongside imperative charges, to the Debt Recovery Tribunal inside

of forty five days from the date on which such measures has been taken.22

On the off chance that the Debt Recovery Tribunal, in the wake of looking at the actualities and
circumstances of the case and proof created by the gatherings, arrives at the conclusion that the
measures under section 13(4) are in repudiation of the provision of the Act, it might pronounce
23
the same invalid and restore the ownership of the secured advantage for the borrower.
Also, if the Debt Recovery Tribunal finds the measures taken by the secured loan boss under
section 13(4) in similarity with the provision of this Act, it might permit the secured lender to
24
continue with the measure taken by him.
Previously stated application must be arranged off as speedily as could be allowed inside of sixty
days from the date of such application. Be that as it may, it might stretch out such period for
motivations to be recorded in composing, for four months from the date of the making of the
application.25
On the off chance that the borrower is the occupant of the State of Jammu and Kashmir, the
application under section 17 should be made to the Court of District Judge in that State having
26
jurisdiction over the borrower.

21 Section 13(10) of the SARFAESI Act, 2002.

22 Section 17 of the SARFAESI Act, 2002.
23 Section 17(3) of the SARFAESI Act, 2002.
24 Section 13(4) of the SARFAESI Act, 2002.
25 Section 13(5) of the SARFAESI Act, 2002.
26 Section 17A of the SARFAESI Act, 2002.

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REMEDY UNDER SECTION 17 OF THE SARFAESI ACT, 2002 BARS WRIT PETITION:
27
In V. Sriramulu v Karur Vyasa Bank Ltd it was held that proceeding under section 13(4) does
not do any public duty and is not amenable to a mandamus writ petition and the individual
28
suffered has the freedom to file a claim under section 17 .
In Barak Valley Tea Co. v. Union of India 29 it was held that any individual aggrieved with an act
under section 13(4), may redeem remedy under section 17 and this legal remedy cannot be
avoided by filing the writ petition.

IMPORTANT CASE LAWS UNDER SARFAESI ACT, 2002

30
Mardia Chemicals Ltd v. Union of India laid down a robust basis for the implementation of
SARFAESI Act, 2002. The Apex Court upheld the constitutional validity of the Act, thereby
ending a large number of pending litigation.
In Sushil Kumar Agarwal v. Allahabad Bank31 it was held by the DRT that the phrase “without
intervention of court” is more significant.
In Transcore v. Union of India32, it was decided by the Apex Court that the purpose of
SARFAESI Act, 2002 and DRT Act, 1993 is similar, namely recovery of debts.
33
In ICICI Bank v. Shanti Devi Sharma , while admitting that banks have enormous controls
under the Act, the Apex Court held that the banks also have equal responsibilities cannot approve
unfair means for repossession of protected assets.
In ATV Projects India Ltd. v. State of Maharashtra34, it was held that a borrower cannot invoke
extraordinary jurisdiction of the high court under article 226 to circumvent the legal process
provided under special statute.

27 2006(4) BC 222 (AP).

28 Section 17 of the SARFAESI Act, 2002.
29 2006 (133) Comp. Cas. 937 (Gau).
30 2004 (4) SCC 311.
31 2004 (2) BC 94 (DRT, Ranchi).
32 (2008) 1 SCC 125.
33 (2008) 7 SCC 532.
34 (2007) 6 Mah LJ 231 (Bom).

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CONCLUSION

As we say over no law which manages the recovery of the credit dispensed by the Banking and
Financial Institutions are finished in itself, in the event that we discuss the normal cash recovery
suit filed under the CPC in the Civil Court it will take a long to decide, and the laws which
particularly manages the recovery matters like Recovery of Debts Due to Banks and Financial
Institutions Act 1993, it just able to manages the unsecured loan and for secured loan the remedy
under it is not up to the imprint and then again the procedure under the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 deals
particularly with the secured loan i.e. asset and there are lots of complications under the Act for
obtaining possession without the mediation of the court and for taking quiet and legal ownership
the Banks and Financial Institutions have to file an application before the District Magistrate,
which is itself a time taking procedure. So far as the provision of section 138 of Negotiable
Instrument is concerned, it is equipped just to put a defaulter behind the bars and don't give any
speedy remedy to the recovery of the debt. Thus, in all the aforesaid remedies are not complete in
itself and dependent on others, which lead to the multiplicity of the litigation and which directly
or indirectly responsible of the pendency of cases in the Court of Law.

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BIBLIOGRAPHY
BOOKS
 Dr. Saxena, Poonam Pradhan, Property Law, Lexis Nexis Butterworths
Wadhwa, Nagpur, 2nd Edition, 2011.
 Mulla, Transfer of Property Act, Lexis Nexis Butterworths Wadhwa,
Nagpur, 11th Edition, 2013.

WEBSITES
 www.dolr.nic.in
 www.scconline.com
 www.manupatrafast.in

ARTICLES
 http://archive.financialexpress.com/news/icici...mardia-chemicals.../65938
 Banks can sell secured assets of defaulters: SC". The Economic Times 8 April
2004.

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