2022-09-08 13:34:49

Amendments by CBDT in SARFAESI Act, 2002

Introduction

In India, Banks have been granted the ability to acquire the security supplied by the defaulting borrower against the loan and sell it to recover losses without the intervention of any court of law which is providing them with a method to dramatically decrease their non-performing assets under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. It is also known as the SARFAESI Act, of 2002. In the event of a borrower’s default then the law allows the bank to seize and auction off the security against the loan.

Applicability of SARFAESI Act, 2002

This Act is to regulate the securitization and reconstruction of financial assets and enforcement of security interests and to provide for a central database of security interests which is created on the property rights and for matters connected therewith or incidental thereto. The Act deals with some rules and regulations which are given following:

Registration and regulation of Asset Reconstruction Companies by the RBI.
Facilitating securitization of financial assets of banks and financial institutions with or without the benefit of essential securities.
Promotion of seamless transferability of financial assets by the Asset Reconstruction Companies to acquire the financial assets of banks and financial institutions through the issuance of debentures or bonds or any other security as a debenture.
Entrusting the Asset Reconstruction Companies to raise funds which are to issue the security receipts to qualified buyers.
It is facilitating the reconstruction of financial assets acquired during the exercising powers of enforcement of securities or change of the management or other powers that are proposed to be conferred on the banks and FIs.
Presentation of any securitization company or asset reconstruction company registered with the RBI as a public financial institution.
Defining the ‘security interest’ is any type of security which is the mortgage and change on immovable properties given for the due repayment of any financial assistance provided by any bank or financial institution.
Classification of the borrower’s account as a non-performing asset in accordance with the directions given or under guidelines that the RBI issues from time to time.
The authorized officers will exercise the rights of a secured creditor on this behalf in accordance with the rules which is made by the Central Government.
An appeal against the action of any bank or any financial institution concerned with the Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal.
The Central Government may set up or cause to be set up a Central Registry for the purpose of registration of transactions that relate to the securitization, asset reconstruction, and creation of the security interest.
Non-application of the proposed legislation to security interests in agricultural lands, a loan which is less than Rs.1Lakh, and cases where 80% of the loans are repaid by the borrower.

Objectives of SARFAESI Act, 2002

Well Planned and speedy recovery of Non-Performing Assets of the banks and Financial Institutions.
When the borrower fails to repay their loans then banks and financial institutions allow to auction properties (commercial or residential property).

Documents Required of SARFAESI

E-Form CHG-1 or E-Form CHG-9 that is required to be filed for application of:

a. Registration of creation

b. Modification of charge which includes all the particulars of modification of charge by Asset Reconstruction Company in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. The documents required in this context are given below:

Particulars of charge
Certificate of registration
An instrument created for the charge
Copy of the instrument – creating or modifying the charge
Hypothecation Deed
Sanction Letter

In case of any e-Form is to be digitally signed then the following documents are required:

DSC of the charge holder
Director Identification Number of the Director
PAN number of the manager, CEO, and CFO
Membership Number of the Company Secretary

Amendment by CBDT

1. In exercise of the powers which is conferred by Section 10(46) of the Income-tax Act, 1961 the Central Government hereby notifies that the ‘Central Registry of Securitization Asset Reconstruction and Security Interest of India’ (PANAAECC5770G) in which a body set up under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of the specified income arising to that body which is given following:-

Fee income from Security Interest transaction.
Fee income from transactions on Central KYC Records Registry.
RTI application fee
Interest income is earned on fixed deposits and on (a) to (c) above.

2. This notification shall be effective to the conditions which are mentioned under the Registry of Securitization Asset Reconstruction and Security Interest of India-

It shall not engage in any commercial activity.
Activities and the nature of the specified income shall remain uninterrupted throughout the Financial Years.
It shall file the income tax return in accordance with the provision of section 139(4c) (g) of the Income-tax Act, 1961.

3. This notification shall be deemed to have been applied for the financial years 2018-2019, 2019- 2020, 2020-2021, and 2021-2022 and shall be also applicable to the financial year 2022-2023.

Conclusion

It concluded that the Central Government established the Narasimham Committees I and II and Andhyarujina Committee to investigate banking sector reforms. These committees assessed the requisite for changes in the legal framework in the financial sector. These committees proposed new laws for Securitization and permitting the financial institutions to hold the securities and sell them in a timely manner without the involvement of a court and recommendations which formed the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) Act, 2002. In the event of a borrower’s default then the law allows the bank to seize and auction off the security against the loan under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.