August 16, 2018:
The Author, Nischay Tiwary is a 2nd Year student of Dr. Shakuntala Misra National Rehabilitation University, Lucknow, Uttar Pradesh. He is currently interning with LatestLaws.com.
Q1. What are the conditions to be fulfilled to invoke the requirements of SARFAESI Act?
Ans: To invoke the provisions of SARFAESI Act:
- There must be a debt payable by a borrower from a secured creditor under a security agreement;
- There must be a default in repayment of secured debt or any instalment thereof by the borrower;
- The borrower’s account in respect of such debt is classified by the secured creditor as ‘non-performing asset’ (NPA);
- A notice in writing is issued by the secured creditor to the borrower to discharge his liabilities within 60 days from the date of the notice( Sec.13(2) of SARFAESI Act);
- The notice shall also give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor (Sec. 13(3) of SARFAESI Act).
Q2. Can the borrower pay the principal or interest amount, in case the loan account is classified as NPA?
Ans: Yes. If arrears of interest and principal are paid by the borrower in case of loan account is classified as NPA, the account should no longer be treated as non-performing and may be classified as ‘standard’ account.
Q3. Is SARFAESI Act applicable to all NBFCs?
Ans: The Ministry of Finance vide its notification dated 5th August, 2016, in exercise of its powers under section 2(1) (m) (iv) of the SARFAESI Act, notified 196 NBFCs as financial institution for the purpose of SARFAESI Act. In addition, some of the NBFCs were earlier notified by the Central Government as public financial institutions (PFI) under section 4A of the Companies Act, 1956, such NBFCs are also allowed to exercise powers under the SARFAESI Act.
Q4. Is there a threshold for applicability of SARFAESI Act on NBFCs?
Ans: Yes, the notified NBFCs are allowed to enforce security interest of only those cases where the security interest was casted in their favour to secure a financial assistance having a principal amount of Rs. 1 crores.
Though the limit prescribed for other classes of secured creditors under the SARFAESI Act is Rs.1 lac, the limit for NBFCs has been increased to Rs.1 crores.
Q5. Who can file petition under sec. 17 of SARFAESI Act?
Ans: Any person aggrieved by the action taken by the secured creditor under Sec.13 (4) can file an application with the Debt Recovery Tribunal (DRT) under Sec.17. The words used here are any person, which means any person, other than the borrower, can also make an application if such person is aggrieved by the act of the creditor.
The appeal must be filed within a period of 45 days from the date on which action under section 13(4) has been taken by the creditor.
Q6. Can the security interest created on agricultural land be enforced?
Ans: No. As per section 31 of the SARFAESI Act, 2002, security interests created on agricultural land cannot be enforced under this Act.
Q7. What kind of power is delegated to CMM/DM under Section 14?
Ans: It is merely the power to aid and such power is executive and not judicial in nature.
Q8. Whether any special right is created in favour of the creditor by virtue of an Order under Sec. 14 of SARFAESI Act?
Ans: No extraordinary right is created in favour of the secured creditor by virtue of Section 14.
Q9. Can the Bank initiate SARFAESI proceedings against Guarantors?
Ans: Yes. (Refer Sec.2 (f) of SARFAESI Act).
Q10. Can the borrower join the auction as a bidder?
Ans: Yes. The borrower can join the auction as a bidder after fulfilling the pre-requisites laid down by the Authorized Officer for joining the auction as a bidder, which would include depositing the earnest money as provided in the auction notice.
Q11. When an account becomes an NPA?
Ans: Interest and/or instalment of principal amount remain overdue for a period of more than 90 days.
Q12. Whether the Limitation Act would be applicable to SARFAESI proceedings?
Ans: Yes. The provisions of the Limitation Act would apply to the proceedings of SARFAESI Act, 2002 by virtue of Section 36 of the SARFAESI Act, 2002.
Q13. Whether the pendency of proceedings before the Debt Recovery Tribunal under the RDB act, 1993 will save the period of limitation for a proceeding under SARFAESI Act, 2002?
Ans: No, pendency of proceedings before the Debt Recovery Tribunal under the RDB act, 1993 will not save the period of limitation for a proceeding under SARFAESI Act, 2002.
Q14. What is the time period to prefer an appeal to DRAT against any order passed by DRT under SARFAESI Act?
Ans: 30 days from the date of receipt of the order of DRT.