Asset Seizure
Under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), banks and financial institutions have the right to seize a borrower’s assets in cases where there is a default on loans. This provision allows them to take possession of the property without the need to approach the courts, except in cases involving agricultural land. The aim is to expedite the recovery process and enforce security interests on non-performing assets (NPAs), thereby protecting the interests of the lenders.
1.Asset Reconstruction
SARFAESI provides financial institutions with the ability to reconstruct or restructure non-performing assets (NPAs) to make them viable and marketable. Through asset reconstruction, banks can transform distressed loans into recoverable or profitable assets, often involving strategies such as debt restructuring, sale of bad loans to asset reconstruction companies (ARCs), or converting debt into equity. This allows financial institutions to recover their dues while ensuring that the businesses or properties involved have a chance to survive or be sold in a more efficient manner.
2.Auction
When a borrower fails to repay their dues, SARFAESI empowers banks to auction the seized assets in order to recover the outstanding loan amount. The auction process ensures that the bank can recover the dues by selling the property to the highest bidder. The proceeds from the sale are used to settle the borrower’s outstanding debt. If the proceeds from the auction are insufficient to cover the full loan amount, the lender can pursue additional legal action to recover the balance.
SARFAESI is a crucial legal tool in India that enables financial institutions to take swift and effective action in the recovery of loans from defaulting borrowers, while also providing an opportunity to reconstruct or liquidate assets for the benefit of both creditors and debtors.