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CAIIB Paper 4 BRBL Module C Unit 4 : Definitions Under SARFAESI Act, 2002 (New Syllabus)
IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Definitions Under SARFAESI Act, 2002”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.
In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module C (IMPORTANT ACTS/LAWS & LEGAL ASPECTS OF BANKING OPERATIONS – PART B) Unit 4 : Definitions Under SARFAESI Act, 2002, Aspirants must go through this article to better understand the topic, Definitions Under SARFAESI Act, 2002 and practice using our Online Mock Test Series to strengthen their knowledge of Definitions Under SARFAESI Act, 2002. Unit 4 : Definitions Under SARFAESI Act, 2002
- The preamble of a statute indicates the purpose of the statute. The SARFAESI Act as per its preamble is ‘an Act to regulate securitization and reconstruction of financial assets and the enforcement of security interest and to provide for a Central database of security interests created on property rights
- As per the SARFAESI Act, any person aggrieved by the order passed by the ‘Debt Recovery Tribunal’ can file an appeal to the authority called as the ‘Appellate Tribunal’ i.e. Debts Recovery Appellate Tribunal (DRAT) within 45 days from the date on which a copy of the order aggrieved has been passed or deemed to have been passed by the Tribunal is received upon depositing 50% of the claim amount. (It can be reduced to 25% if considered on justifiable grounds by DRAT).
- The Asset Reconstruction is the acquisition by any Asset Reconstruction Company of any right or interest, of any bank or financial institution, in any financial assistance, for the purpose of realization of such financial assistance.
- Asset Reconstruction Company” means a company registered with Reserve Bank under section 3 for the purposes of carrying on the business of asset reconstruction or securitization, or both and having net owned fund of not less than Rs. two crore or such other higher amount as the Reserve Bank, may, by notification, specify.
- Central Registry means the registering office, set up or caused to be set up by the Central Government. With this proposed set up, all the transactions of asset securitization, reconstruction as well as transactions of creation of security interests, will have to be registered with this authority.
- All creditors including secured creditors may file particulars of transactions by which security interest is created with central registry. Such registration or filing of attachment orders will be deemed to be public notice from the date of filing with the Central Registry. The time limit of 30 days to file particular of securitization, Asset reconstruction or creation of security interest with CERSAI has been done away with.
Debt Recovery Tribunal
- The Recovery of Debts Due to Banks and Financial Institutions Act (RDDBFI Act), 1993 provides for establishment of Debts Recovery Tribunals (DRTs) and Debts Recovery Appellate Tribunals (DRATs) with for expeditious adjudication and recovery of debts due to banks and financial institutions, insolvency resolution and bankruptcy of individuals and partnership firms and connected matters therewith.
- The Act is applicable to cases where the amount of debt due to any bank or financial institution defined under the Act or a consortium of banks or financial institutions is 20 Lakh or more.
- Recently the e-DRT project has been implemented in all DRTs and DRATs. e-DRT provides access to e-filing, e-payment of fees, cause list generation and a case information system that enables viewing of case status, orders and judgments.
- When the borrower does not pay any principal debt or any interest on the principle debt or any other amount payable to the secured creditor and due to such non-payment the account of such a borrower is classified as a non-performing asset (NPA) in the books of accounts of the secured creditor, as per the RBI guidelines, it is called default.
- For getting the right of security enforcement, under this Act, there should be a default committed by the borrower. The creditor must also be a secured creditor.
- Hypothecation (Section 2 (n)) means: a charge in or upon any moveable property, existing or future, created by a borrower in favor of a secured creditor without delivery of possession of the moveable property to such creditor as a security for financial assistance and includes floating charge and crystallization of such charge into fixed charge on moveable property.
- Securitization means acquisition of financial asset by the Asset reconstruction company from the originator. Such an acquisition may be by raising of funds by such an Asset reconstruction company from the qualified buyers by issue of security receipts.
- This is a process where non-liquidated financial assets are converted into marketable securities, i.e., security receipts that can be sold to the investors.
“Security interest” means right, title or interest of any kind, upon property created in favor of any secured creditor and includes –
- Any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or
- Such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset”.
- The security receipt evidences the purchaser’s undivided right, title and interest in the security. These receipts are transferable in the market. By this Act, a new type of transaction in the financial market has been created for transfer of the security interest.
- The ARC shall issue SRs only to QBs; and hold and administer the financial assets for the benefit of the QBs.
- Sponsor is an entity holding not less than ten per cent of the paid-up equity capital of Asset Reconstruction Company.