The SARFAESI Act, 2002 vested the power of enforcement of security interest, without the intervention of the courts, in banks and financial institutions. Chapter III of the Act deals with the enforcement of security interests.

In case the borrower fails to discharge his / her liability in full within 60 days period from the date of notice, Section 13(4) of the Act vests the following rights / powers on the secured creditors to recover his / her secured debts:

  1. Take possession of the secured assets of the borrower, including the right to transfer by way of lease, assignment or sale for realising the secured asset;
  2. Take over the management of the business of the borrower, including the right to transfer by way of lease, assignment or sale for realising the secured asset;

    'Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of the whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;

  3. Appoint any person (hereafter referred to as the manager), to manage the secured assets, the possession of which has been taken over by the secured creditor;
  4. Require, at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower to pay the secured creditor so much of the money as is sufficient to pay the secured debt.

Though various rights have been provided under Section 13(4), banks generally resort to only taking possession and selling the secured assets of the borrowers to realise their dues. Interestingly, even the Act or rules made thereunder; namely, Security Interest (Enforcement) Rules, 2002, did not provide guidelines as to how to lease out secured assets or the way management of the business of the borrowers is to be taken over to give effect to the provisions of Section 13(4). Whereas the Act and rules elaborately provided various provisions as to the sale of secured assets only, both movable and immovable.

Section 13(2) of the Act mandated the issuance of a notice to the borrower to discharge his / her liabilities in ‘full’ within 60 days from the date of notice as a precondition to exercising all or any of the rights under Section 13(4) of the Act. This is analogous to Section 69 of the Transfer of Property Act 1882, under which a similar right is available to enforce security without the intervention of the court, which is to be exercised after issuing notice. However, this right under the said Act is available only in certain cases, and the period of notice prescribed therein is three months. Otherwise, earlier, the power to take possession of the secured assets was vested in Civil Courts alone in the execution of decrees. Subsequently, such power to take possession, in the cases / accounts involving INR 10 lacs and above (presently, the same is INR 20 lacs and above) vested in Debts Recovery Tribunals (DRTs) established under Recovery of Debts and Bankruptcy Act, 1993.

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