The Supreme Court held that borrowers’ right to redeem a mortgaged property stands extinguished, once an auction notice is issued.
SARFAESI Act, 2002
- Full Form: “Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act”.
- Key Features: It empowers banks and financial institutions to recover non-performing assets (NPAs) without court intervention.
- If a borrower defaults on a secured loan, the lender can seize and auction residential or commercial properties pledged as security, except agricultural land.
- Key achievements: Faster reclamation of liquidity and providing a framework to manage distressed assets.
Issues with SARFAESI Act
- Ambiguity in Section 13: Led to inconsistency with SARFAESI Rules creating interpretative confusion over borrower’s right of redemption.
- Legal and Judicial Delays: The slow pace of legal proceedings.
- Complexities in Asset Recovery: Lenders face challenges in identifying and liquidating collateral, e.g. transfer of assets to third parties.
- Limited Impact on Certain Borrowers: Act does not cover unsecured loans, loans below Rs. 1 Lac.
- Infringement of Borrowers’ Rights: Misusing of powers by creditors.
- Inefficacy of DRTs (Debt Recovery Tribunals) and ARCs (Asset Reconstruction Companies).
Way Forward
- Simplification of SARFAESI Rules, Prohibition Of Arbitrary And Unfair Means.
- Speedy Disposal through DRTs.
