Sarfaesi Act Most Effective Tool to Recover Bad Loans

8/11/2019 Sarfaesi Act Most Effective Tool to Recover Bad Loans

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Also, the rising levels of stress across the banking system was reflected in the fact that the

number of cases under all the three mechanisms saw a massive increase of 66 per cent to

10.45 lakh cases.

(This article was published on November 22, 2013)

IV. TOOLS FOR RECOVERING NPAS

Lok Adalats

To settle disputes involving account in doubtful and loss category.

Outstanding balance of Rs. 5 lacs for compromise settlement.

Proved to be quite effective for speedy justice and recovery of small loans.

Debt Recovery Tribunals (DRT)

To recover bad debt quickly and efficiently.

DRT has powers to grant injunctions against the disposal, transfer or creation of third party

interest by debtors in the properties charged to creditor and to pass attachment orders in respect of

charged properties

In case of non-realization of the decreed amount by way of sale of the charged properties, the

personal

properties if the guarantors can also be attached and sold.

It is the special court established by Central Government for the purpose of bank or any financial

institutions recovery.

The judges of the court are the retired judges of high court.

SARFAESI act, 2002

The Act provides three alternative methods for recovery of non-performing assets, namely

Securitization

o Asset reconstruction

o Enforcement of security without the intervention of the court.

NPA loans with outstanding above Rs. 1. Lac.

NPA loan accounts where the amount is less than 20% of the principal and the interest are not

eligible to be dealt with this act.

This act empowers the bank:


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To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge

their dues in full within 60 days from the day of the notice.

To give notice to any person who has acquired any of the secured assets from the borrower to

surrender the same to the bank.

To ask the debtor of the borrower to pay any sum due or becoming due the borrower.

Any security interest created over agricultural land cannot be proceeded with.

Asset Recovery Construction Industry Limited

(ARCIL)

A company which is set up with the objective of taking over distressed assets from banks or

financial institutions and to reconstruct or re-pack these assets to make those assets saleable.

To buy out troubled loan from banks and make special efforts at recovering value from the assets,

if necessary by special legislation, with special powers for recovery.

Restructuring of weak banks to divest thebad loan portfolio.

BIFR and AAIFR

BIFR has been given the power to consider revival and rehabilitation of companies under the Sick

Industrial Companies (Special Provisions) Act of 1985 (SICA), which has been repealed by passing of

the Sick Industrial Companies (Special Provisions) Repeal Bill of 2001.

The Board of Directors shall make a reference to BIFR within sixty days from the date of finalization

of the duly audited accounts for the financial year at the end of which the company becomes sick.

The company making reference to BIFR to prepare a scheme for its revival and rehabilitation and

submit the same to BIFR the procedure is same as laid down under the CPC.

The shelter of BIFR misused by defaulting and dishonest borrowers


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Sarfaesi Act Most Effective Tool to Recover Bad Loans