The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

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An Act no. 54 of the year 2002 being ‘The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’ was the legislation enacted by Parliament of India with the aim and object to provide for regulation of securitisation and reconstruction of financial assets and enforcement of security interest. The Act is extended to the whole of India and as per its first section the provisions of this Act was to be brought into force on 21st June, 2002. The first chapter dealing with preliminary provisions under this Act provides for the short title, extension and also for number of definitions of the terms used under the various provisions of this Act. The Act is recently, amended in the year 2013 by an Act of 2012 i.e. The Enforcement of Security Interest and Recover of Debts Laws (Amendment) Act, 2012 (Act no. 1 of 2013).

The Act under its second Chapter deals with main purpose of the Act, i.e. for regulating securitisation and reconstruction of financial assets of the Bank or other financial institutions. A bar of registration is provided to the securitisation or reconstruction companies which are dealing with business of securitisation or assets reconstruction. For registration the company should have its own fund of 2 crore rupees or more or an amount in excess of 15% of total financial assets. The application for registration should be made by the company before the Reserve Bank of India-RBI and the RBI after having regard to the conditions as have been enumerated under section 3 of the Act and also after inspecting relevant records or books, can either grant certificate of registration to such companies or reject registration on the ground of non-fulfilment those of conditions. Further, the certificate of registration so granted can be cancelled, on one or more grounds mentioned under section 4 of the Act, including cessation of carrying on the business in securitisation or assets reconstruction, cessation of receive or hold investments from a qualified institution buyer, etc.

Section 5 is important so far as it is dealing with acquisition of financial assets by such securitisation or reconstruction companies from any bank or financial institutions, either by executing bonds, debentures or otherwise by executing agreements. Further, such companies can offer security receipts to the qualified institutional buyers as per provisions of the Securities Contract (Regulation) Act, 1956 (Act no. 42 of 1956). Similarly, the companies concerned can raise funds from such qualified institutional buyers by formulating scheme for acquiring financial assets. Further, the securitisation or reconstruction companies provided with other functions like to act as an agent to the banking or financial institutions while recovering the dues from borrowers, etc.

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Any disputes relating to such securitisation or reconstruction companies in respect of non-payment of due amount with interests, etc. should be resolved by the conciliation or arbitration proceedings, as agreed between the parties. The RBI have been vested with the power to issue directions or framing of policies on the matters of income recognition, accounting standards, making provisions for bad and doubtful debts, etc.

The chapter III of the Act deals with enforcement of security interests which was created in favour of any secured creditor, without referring to the Court or Tribunal, and only as per the provisions of this Act. However, assistance can be taken from Chief Metropolitan Magistrate or District Magistrate while taking possessions over such secured assets. The Debt recovery Tribunal and Appellate debt recovery Tribunal is having jurisdiction in respect of concerned disputes. The transactions in respect securitisation, reconstruction of assets and also creation of security interests are to be registered with the Central Registry set up by the Central Government with its seal.

The chapter V of the Act deals with offences and penalties under this Act. There are certain cases provided under section 31, in the chapter containing miscellaneous provisions in respect of which the provisions of this Act should not have applicability. Similarly, section 34 provides bar on jurisdiction of Civil Courts to entertain the matters over which the debt recovery Tribunal or appellate Tribunal is having authority to decide. Even no injunction should be granted. Moreover, the provisions of Limitation Act, 1963 are having applicability in respect of claims relating to financial assets. Further section 38 empowers the Central government to make rules on the matters enlisted under it. And finally The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 (Ord. 3 of 2002) is repealed by the provision of this Act.

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by Faim Khalilkhan Pathan.