Beginner’s Guide to the SARFAESI Act, 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, is legislation that helps financial institutions to ensure asset quality in numerous ways. This means that the Act was framed so as to address the problem of NPAs (Non-Performing Assets) or bad assets via distinct procedures and mechanisms. The law is known by its short-form SARFAESI Act or simply SARFAESI. The SARFAESI Act gives elaborate provisions for the formation and activities of Asset Securitization Companies and Asset Reconstruction Companies. The Act even provides the scope of their activities, capital requirements, funding, etc. RBI is the regulator for these institutions. As a lawful mechanism to insulate assets, the Act addresses the interests of secured creditors (like banks, financial institutions, etc.). The Act also gives directives and powers to various institutions to manage the bad asset problem. The SARFAESI Act mainly provides legal recourse for matters dealing with registration of asset reconstruction companies, acquisition of rights in financial assets, measures for assets reconstruction and resolution of disputes. This paper furnishes an insight into the basics of the SARFAESI Act 2002.