🏦 What is the SARFAESI Act?
The SARFAESI Act, 2002 empowers banks to recover bad loans (NPAs) without court intervention. Think of it as a “fast-track” debt recovery tool!
Key Objectives:
- Help banks seize and sell mortgaged assets (e.g., homes, factories).
- Speed up loan recovery to reduce NPAs.
📋 Key Features of SARFAESI
| Feature | What It Means |
|---|---|
| Applies To | Secured loans (e.g., home loans, business loans with collateral). |
| Not For | Unsecured loans (e.g., personal loans) or agricultural land. |
| Threshold | Loan amount ≥ ₹1 lakh + dues ≥ 20% of principal. |
🔄 How SARFAESI Works: 4-Step Process
- 60-Day Notice 📩
Bank sends a notice: “Repay within 60 days or lose your collateral!” - Borrower’s Right ⚖️
Can appeal to DRT within 45 days if notice is unfair. - Asset Seizure 🔒
Bank takes possession (e.g., house, car) if dues unpaid. - Auction 🏷️
Bank sells assets to recover money (e.g., SBI auctions property).
🏛️ Key Entities Under SARFAESI
| Entity | Role | Emoji |
|---|---|---|
| ARC | Buys bad loans from banks and recovers dues. | 💼 |
| CERSAI | Prevents fraud by tracking loans against properties. | 🗂️ |
⚖️ Comparison Table
| Aspect | NCLT 🏢 | DRT 🏦 | Civil Suit ⚖️ |
|---|---|---|---|
| Purpose | Corporate insolvency & company disputes | Debt recovery by banks/financial institutions | Disputes not covered under specialized laws like IBC or SARFAESI. |
| Applicable Law | Companies Act, 2013, IBC, 2016 | RDBA, 1993, SARFAESI Act, 2002 | Civil Procedure Code, 1908 |
| Jurisdiction | Companies and LLPs | Secured/Unsecured debts > Rs. 20 Lakhs | Individuals/entities for various issues |
| Time Taken | Faster (within 330 days for IBC cases) | Faster compared to civil courts | Slower due to procedural delays |
| Counterclaims | Limited | Not allowed (unless related to recovery) | Allowed |
| Specialization | Corporate and insolvency issues | Debt recovery cases | General civil matters |
🗂️ Key Sections of SARFAESI Act
| Section | Purpose | Example |
|---|---|---|
| 📖 Section 2 | Defines terms like NPA, ARC, and Secured Creditor. | “NPA = Loan unpaid for 90+ days.” |
| ⏳ Section 13 | Allows banks to issue 60-day demand notices, seize assets, and auction them. | Bank sends notice: “Repay ₹10L or lose your factory!” |
| 👮 Section 14 | Banks can seek CMM/DM help to take possession if borrower resists. | Police assist in seizing a defaulted property. |
| 💼 Section 15 | Lets banks take over management of defaulting companies. | Bank appoints CEO to revive a bankrupt business. |
| ⚖️ Section 17 | Borrowers can appeal to DRT within 45 days of asset seizure. | Borrower challenges unfair seizure in tribunal. |
| 📑 Section 18 | Appeal to DRAT (but deposit 50% dues first). | Borrower pays ₹5L to appeal a ₹10L case. |
| 🔍 Section 20 | Establishes CERSAI to track property loans and prevent fraud. | Bank checks CERSAI before approving a home loan. |
| 🚫 Section 34 | Civil courts can’t interfere in SARFAESI cases. | Case goes to DRT, not local court. |
| ⌛ Section 36 | Banks must act within 12 years of default. | Can’t recover a 15-year-old loan. |
🧠 Structure for Easy Memorization
- Notice Period: Section 13 (60 days).
- Police Help: Section 14 (CMM/DM).
- Appeals: Section 17 (DRT) → Section 18 (DRAT).
- No Civil Courts: Section 34.
- Fraud Check: Section 20 (CERSAI).
🚫 Exceptions & Limits
- No SARFAESI for:
- Loans < ₹1 lakh or dues < 20% of principal.
- Agricultural land.
- 2016 Amendments:
- NBFCs can now use SARFAESI.
- Cooperative banks included.
MCQ
1. What is the primary purpose of NCLT?
a) Resolving criminal disputes in companies
b) Handling insolvency and company disputes
c) Recovering debts for banks
d) Managing mergers in public sector banks
Answer: b) Handling insolvency and company disputes
2. Under which act was NCLT established?
a) Companies Act, 2013
b) SARFAESI Act, 2002
c) Insolvency and Bankruptcy Code, 2016
d) RDBA, 1993
Answer: a) Companies Act, 2013
3. Who appoints the Interim Resolution Professional (IRP) under NCLT proceedings?
a) Ministry of Finance
b) Reserve Bank of India
c) NCLT
d) High Court
Answer: c) NCLT
4. Which of the following cases can NCLT handle?
a) Recovery of small personal loans
b) Insolvency of companies and LLPs
c) Disputes involving agricultural loans
d) Criminal cases related to companies
Answer: b) Insolvency of companies and LLPs
5. What is the minimum loan amount required to initiate action under SARFAESI?
a) Rs. 50,000
b) Rs. 1 Lakh
c) Rs. 5 Lakhs
d) Rs. 10 Lakhs
Answer: b) Rs. 1 Lakh
6. What is the time period given to borrowers to respond to a demand notice under SARFAESI?
a) 30 days
b) 45 days
c) 60 days
d) 90 days
Answer: c) 60 days
7. Which type of property is exempt under SARFAESI?
a) Residential property
b) Agricultural land
c) Commercial property
d) Industrial equipment
Answer: b) Agricultural land
8. What is the role of CERSAI in SARFAESI?
a) Auctioning secured assets
b) Filing cases against defaulters
c) Registering security interests created by banks
d) Managing the repayment schedules of borrowers
Answer: c) Registering security interests created by banks
9. What is the minimum debt amount required for a case to be filed in DRT?
a) Rs. 5 Lakhs
b) Rs. 10 Lakhs
c) Rs. 15 Lakhs
d) Rs. 20 Lakhs
Answer: d) Rs. 20 Lakhs
10. DRT primarily deals with cases related to:
a) Consumer disputes
b) Corporate insolvency
c) Debt recovery by banks
d) Labor laws
Answer: c) Debt recovery by banks
11. Who can file a case in DRT?
a) Borrowers against banks
b) Banks and financial institutions
c) Government agencies
d) Private individuals
Answer: b) Banks and financial institutions
12. Appeals against DRT decisions are made to which authority?
a) Civil Court
b) Supreme Court
c) Debt Recovery Appellate Tribunal (DRAT)
d) High Court
Answer: c) Debt Recovery Appellate Tribunal (DRAT)
13. In which court are civil suits filed?
a) Criminal Court
b) Civil Court of competent jurisdiction
c) NCLT
d) DRT
Answer: b) Civil Court of competent jurisdiction
14. Which type of disputes can be resolved through civil suits?
a) Property disputes
b) Insolvency cases
c) Debt recovery for banks
d) Company law disputes
Answer: a) Property disputes
15. What is the primary drawback of civil suits?
a) High litigation costs and delays
b) Limited jurisdiction
c) Lack of legal representation
d) No provision for appeals
Answer: a) High litigation costs and delays
16. Which tribunal is specialized for recovering bank loans under SARFAESI?
a) DRT
b) NCLT
c) Civil Court
d) High Court
Answer: a) DRT
17. Which act governs the resolution of insolvency for companies in India?
a) RDBA, 1993
b) SARFAESI Act, 2002
c) Insolvency and Bankruptcy Code, 2016
d) Companies Act, 2013
Answer: c) Insolvency and Bankruptcy Code, 2016
18. Under SARFAESI, if a borrower disagrees with the proceedings, they can appeal to:
a) Civil Court
b) DRT
c) DRAT
d) High Court
Answer: b) DRT
19. What is the key distinction between DRT and civil suits?
a) DRT handles criminal cases; civil suits do not.
b) DRT focuses on debt recovery for banks; civil suits cover broader disputes.
c) Civil suits are faster than DRT proceedings.
d) DRT cannot issue recovery certificates.
Answer: b) DRT focuses on debt recovery for banks; civil suits cover broader disputes.
20. NCLT handles insolvency cases for:
a) Individuals only
b) Companies and LLPs only
c) Individuals and companies
d) Government agencies
Answer: b) Companies and LLPs only