Sage-Tips

Is sarfaesi applicable after IBC?

After the IBC was introduced in 2016, it has been observed that lenders prefer it to the SARFAESI Act. Even after the amendments to the SARFAESI Act, several problems remain unanswered, and the Act has struggled to demonstrate its efficacy in numbers.

Has sarfaesi Act been repealed?

(1) The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 (Ord. 3 of 2002) is hereby repealed.

Why Lenders prefer IBC over sarfaesi Act for recovery of dues?

The number of cases admitted till September 2019 was 2,542. [31] Therefore, mainly because of the fact that IBC provides a speedy remedy and is also efficient for reviving the business and safeguarding the interests of all the stakeholders, it is preferred over the SARFAESI Act.

Which method does sarfaesi Act provides for recovery from NPA?

The Act provides for 2 broad methods for recovery of NPAs. This includes either taking the possession of the secured assets of the borrower (with the right to lease, assign or sell the secured assets) or taking over the management or business of the borrowers until the NPA is recovered.

How is sarfaesi different from IBC?

While the Sarfaesi Act addresses the manner in which assets can be dealt by financial institutions, the IBC addresses the concerns of all creditors; both operational and financial as well as the secured and unsecured creditors.

What is difference between sarfaesi and IBC?

Is it compulsory to declare account as NPA before invoking SARFAESI Act?

In the case of SARFAESI ACT, it is compulsory that the account against which the recovery proceedings are to be initiated should be declared as NPA before invoking the said act. But the relevant question is whether the banks and financial institutions have to follow any guidelines of RBI before the declaration of account as NPA.

What does SARFAESI Act does not mention about substandard assets?

SARFAESI ACT does not mention anything about the asset which ceases to generate income for the bank. Besides, section 2 (1) (O) of SARFAESI ACT does not define Substandard Assets, Doubtful Assets and Loss Assets.

What are the benefits of recovery in NPA accounts?

The operating and net profit of the bank would improve. The capital structure of the bank would be strengthened. Recovery in NPA accounts improves the efficiency and profitability ratios of the bank and thereby improves Bank’s rating.

Why did banks have a hard time recovering NPA in 1993?

Prior to 90s, banks had very hard time recovering bad loans. Because often, borrowers (loan takers) would file frivolous cases in civil courts, then … taarikh pe taarikh, taarikh pe taarikh….. proceeding would go on for years. So 1993, Government established Debt Recovery Tribunals to deal with NPA matters.