Sarfaesi Act of 2002: A General Understanding

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In the early nineties, banks faced a lot of difficulties in recovering their loans which they have landed just because of the inordinate delay in deciding cases which were in Civil Courts and also because of other technical issues. To make banks recover their dues speedily ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ (RDDBI Act) was enacted and as a result of which the Banks got the opportunity to file an Original Application before specially constituted Debt Recovery Tribunal asking for a ‘Certificate of Recovery’ and it was treated like getting a Decree from a Civil Court in a Civil Suit seeking recovery of money. Though the RDDBI Act was enacted for the betterment of the banks and to make recovery speedily but the banks could not achieve considerable results and hence the legislature has come up with the ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ (SARFAESI Act) wherein the banks are allowed to proceed against the ‘Secured Assets’ by determining the outstanding due on their own instead of getting the ‘outstanding due’ determined by the Debt Recovery Tribunal.The main objective of the SARFAESI Act of 2002 is to enable the Banks to reduce the mounting ‘Non-performing Assets’ (NPAs). The banks or the financial Institutions have taken the success of the advantages of the provisions of SARFAESI Act of 2002. Various concerns were also raised regarding the constitutionality of the SARFAESI Act of 2002. In addition to that the impugned Act has also been referred to as draconian piece of legislation. The constitution validity was challenged and the Apex court in Mardia Chemicals vs. Union of India ([2002] 39 SCL 897) has upheld the constitutionality of the said Act. The Courts have also addressed the concerns of the borrower by interpreting section 17 of the Act which confers authority on Debt Recovery Tribunal to pass orders in an Appeal preferred by the borrowers or any aggrieved person.