📌 Full Form
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
👉 Nickname: The Fast-Track Loan Recovery Law
🎯 Objectives
- Empower banks to recover bad loans (NPAs) without court delays.
- Reduce non-performing assets (NPAs).
- Enable creation of ARCs (Bad Banks) to take over stressed loans.
🔑 Applicability
✔️ Secured Loans (Home Loan, Vehicle Loan, Business Loan with collateral).
❌ Not Applicable To:
- Agricultural land 🚫🌾
- Loans < ₹1 Lakh
- Unsecured loans (e.g., Personal Loans, Credit Cards)
🏗️ Three Pillars of SARFAESI
- Securitisation – Bundling bad loans into marketable securities.
- Asset Reconstruction (ARC) – Specialized companies take over NPAs from banks.
- Enforcement of Security Interest – Bank directly seizes and sells borrower’s mortgaged asset.
🔄 SARFAESI Process (Step-by-Step)
| Step | Action | Timeframe |
|---|---|---|
| 1 | Demand Notice – Bank sends 60-day notice to borrower | 60 days |
| 2 | Possession – If unpaid, bank takes possession (symbolic or physical) | After 60 days |
| 3 | Sale Notice – 30-day public notice before auction | 30 days |
| 4 | Sale – Asset auctioned, proceeds adjust dues | After 30 days |
👉 Borrower can repay anytime before auction to reclaim asset.
⚖️ Important Sections (Memory Toolkit)
| Section | Purpose | Memory Tip |
|---|---|---|
| Sec 2 | Definitions (NPA, ARC, Borrower) | “Dictionary” |
| Sec 3 | Formation of ARCs | “Bad Bank License” |
| Sec 9 | Powers of ARCs | “ARC = Bank’s Shoes” |
| Sec 13 | Main recovery power, 60-day notice, auction | “Power ON Button” |
| Sec 14 | DM/Police help to evict | “Official Backup” |
| Sec 15 | Bank can take over company management | “CEO Swap” |
| Sec 17 | Borrower’s first appeal → DRT | “It’s Unfair!” |
| Sec 18 | Second appeal → DRAT (50% deposit) | “Round 2” |
| Sec 20 | CERSAI registry for loans | “Fraud Check” |
| Sec 31 | Exceptions (Agri land, <₹1L, unsecured) | “Not Allowed List” |
| Sec 34 | Civil courts barred | “No Local Court” |
| Sec 36 | Action must be within 12 years | “Time Limit” |
🏛️ Remedies for Borrower
- Appeal under Sec 17 → DRT within 45 days.
- Appeal under Sec 18 → DRAT (deposit 50% dues).
🚨 2016 Amendments
- NBFCs (with loan size ≥ ₹1 Cr) allowed to use SARFAESI.
- Cooperative Banks brought under SARFAESI.
⚖️ SARFAESI vs Other Routes
| Aspect | NCLT (IBC) | DRT (RDB Act) | Civil Suit |
|---|---|---|---|
| Purpose | Corporate insolvency | Bank loan recovery | General disputes |
| Law | IBC, Companies Act | RDBA, SARFAESI | CPC, 1908 |
| Speed | 330 days | Faster than civil | Very slow |
| Counterclaims | Limited | Not allowed | Allowed |
| Jurisdiction | Companies, LLPs | Debts > ₹20L | Individuals, entities |
✅ Quick Revision Key
- Notice (60 days) → Sec 13
- Police Help → Sec 14
- Appeal → Sec 17 (DRT) → Sec 18 (DRAT)
- No Civil Court → Sec 34
- Exceptions → Sec 31
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