Debt Recovery & SARFAESI

Centralized Electronic Listing and Auction Platform for the Sale of Assets under Liquidation Process (IBBI Circular dated 29th October, 2024)

The circular has sought for a centralised listing and auction platform where details of all assets under liquidation of CD are continuously available to the public provides an effective solution to the problems arising from use of various auction platforms by the liquidators to sell the assets and thereby making the details of a company’s assets public only at the time of the auction notice. This practice leads to information asymmetry, as potential buyers have limited time to assess the value of the assets, often resulting in lower recovery rates. This circular shall come into force with effect from 01st November 2024

Regulation 33 (1) of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) provides that, “The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I.” Further, Clause (7) of Para 1 of Schedule I of the Liquidation Regulation provides that, “From a date to be notified through circular by the Board, the liquidator shall sell the assets only through an electronic auction platform empanelled by the Board.”

To address the challenges, IBBI has collaborated with the Indian Banks’ Association (IBA) to facilitate the auction of assets through the eBKray platform which is presently owned and managed by PSB Alliance Private Limited (a consortium of 12 public sector banks). eBKray has been conducting auctions for assets mortgaged to public sector banks under the SARFAESI Act for the past five years.

Accordingly, PSB Alliance has developed a module within the eBKray platform to facilitate the listing and auction of assets under Insolvency and Bankruptcy Code, 2016. This centralized platform offers detailed information on corporate debtor assets, including photographs, videos, and geographical coordinates. By enhancing transparency and efficiency through advanced technology, eBKray aims to increase bidder participation, streamline operations, and maximize returns for creditors while improving outcomes for bidders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 5(c) (Syllabus 2022).

Section 6 of SARFAESI Act, 2002 states that:

(1)the bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets by any asset reconstruction company, to the concerned obligor and any other concerned person and to the concerned registering authority including Registrar of Companies in whose jurisdiction the mortgage, charge, hypothecation, assignment or other interest created on the financial assets had been registered.

(2)Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or financial institution, the obligor, on receipt of such notice, shall make payment to the concerned asset reconstruction company, as the case may be, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor making the payment from all liability in respect of such payment.(3)Where no notice of acquisition of financial asset under sub-section (1) is given by any bank or financial institution, any money or other properties subsequently received by the bank or financial institution, shall constitute monies or properties held in trust for the benefit of and on behalf of the asset reconstruction company, as the case may be, and such bank or financial institution shall hold such payment or property which shall forthwith be made over or delivered to asset reconstruction company, as the case may be, or its agent duly authorised in this behalf.

Therefore, DNF Bank can accept the money from Angad following the above provisions.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6(a) (Syllabus 2022).

Section 19 of the SARFAESI Act, 2002 deals with Right of borrower to receive compensation and costs in certain cases. It states that:

Section 19 provides that if the Debts Recovery Tribunal or the Court of District Judge, on an application made under section 17 or section 17A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made there under and directs the secured creditors to return such secured assets to the concerned borrowers or any other aggrieved person, who has filed the application under section 17 or section 17A or appeal under section 18 or section 18A, as the case may be, the borrower or such other person shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High Court referred to in section 18B.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(d) (Syllabus 2017).

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the ordinance enabled banks and financial institutions to manage problems of liquidity, asset liability mismatches and improvement in recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.

The SARFAESI Act, 2002 has empowered the Banks and Financial Institutions with vast power to enforce the securities charged to them. The Banks can now issue notices to the defaulters to pay up the dues if they fail to do so within 60 days of the date of the notice, the banks can take over the possession gussets like factory, land and building, plant and machinery etc. charged to them including the right to transfer by way of lease, assignment or sale and realize the secured assets. In case the borrower refuses peaceful hanging over of the secured assets, the bank can also file an application before the District Magistrate or Chief Metropolitan Magistrate for taking possession of assets. The Banks can also take over management of business of the borrower. The bank in addition can appoint any person to manage the secured assets the possession of which has been taken over by the bank. Banks can package and sell loans via “Securitisation” and the same can be traded in the market like bonds and shares.

The other majors are:

•Securitization of financial assets and issue of security receipt

Acquire financial assets by agreements, issuance of debentures or bonds. Redeem the security receipts given to the QIBs after their realization.

•Reconstruction of financial assets

Subject of Varying RBI standards, take actions for proper management, a sale, a debt restructures, a settlement, or to take control.

•Enforcement of security interest

Enforce the secured creditor’s security interest without the need of court action.

•Other Functions

Act as a recovery agent for financial Institutions (Fts) or bank, as the manager of the secured assets appointed by the lender, or as the receiver assigned by the court.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(b) (Syllabus 2022).

As per section 3(12) of Insolvency and Bankruptcy Code, 2016 the term "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be.

Further, SARFAESI Act defines term “default” as

I.non-payment of any debt or any other amount payable by the borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor; or

II. non-payment of any debt or any other amount payable by the borrower with respect to debt securities after notice of ninety days demanding payment of dues served upon such borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of such debt securities.

The SARFAESI Act, 2002 has empowered the Banks and Financial Institutions with vast power to enforce the securities charged to them and the purpose of this Act is to enable and empower the secured creditors to take possession of their securities and to deal with them without the intervention of the court. One of the objectives of SARFAESI Act is to provide a mechanism for banks and other financial institutions to recover secured assets.

On the other hand, the purpose of Insolvency & Bankruptcy Code, 2016 is to offer a market-directed, time-bound mechanism to resolve insolvency and run the corporate debtor as a going concern, wherever possible, or exit, where required. The IBC deals with the reorganization and insolvency resolution of corporate debtors (CDs), partnership firms, and even individuals. The IBC also provides an exit mechanism for a corporate person that has not defaulted, through a voluntary liquidation process.

The statement given in the question is correct as the objectives of both Acts are different and term ‘default’ is required to be read with the purpose of both Acts in relevant context.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(b) (Syllabus 2017).

The SARFAESI Act, 2002 has empowered the Banks and Financial Institutions with vast power to enforce the securities charged to them and the purpose of this Act is to enable and empower the secured creditors to take possession of their securities and to deal with them without the intervention of the court. One of the objectives of SARFAESI Act is to provide a mechanism for banks and other financial institutions to recover secured assets.

On the other hand, the purpose of Insolvency & Bankruptcy Code, 2016 is to offer a market-directed, time-bound mechanism to resolve insolvency and run the corporate debtor as a going concern, wherever possible, or exit, where required. The IBC deals with the reorganization and insolvency resolution of corporate debtors (CDs), partnership firms, and even individuals. The IBC also provides an exit mechanism for a corporate person that has not defaulted, through a voluntary liquidation process.

The Insolvency and Bankruptcy Code lays down the following key objectives:

1.To consolidate and amend the laws relating to re-organisation and insolvency resolution of corporate persons, partnership firms and individuals to provide for a time bound insolvency resolution mechanism.

2.To ensure maximisation of value of assets.

3.To promote entrepreneurship,

4.To increase availability of credit.

5.To balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues, and

6.To establish an Insolvency and Bankruptcy Board of India as a regulator' body,

7.To provide procedure for connected and incidental matters.

Therefore, the statement given in the question is correct in the light of the objectives of both the SARFAESI Act, 2002 and the IBC, 2016 which are altogether different and cannot be interchangeable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(ii) (Syllabus 2017).

Section 16(1) of the SARFAESI Act provides that notwithstanding anything to the contrary contained in any contract or in any other law for the time being in force, no managing director or any other director or a manager or any person in charge of management of the business of the borrower shall be entitled to any compensation for the loss of office or for the premature termination under this Act of any contract of management entered into by him with the borrower.

Further, According to Section 16(2), nothing contained in sub-section (1) shall affect the right of any such managing director or any other director or manager or any such person in charge of management to recover from the business of the borrower, moneys recoverable otherwise than by way of such compensation.

In view of the above legal provision Vaibhav, the removed director of XYZ Limited can claim his unpaid salary, but he can not claim any compensation for loss of office.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(e) (Syllabus 2017).

The authorized officer shall upload the detailed terms and conditions of the sale of the movable secured assets on the web-site of the secured creditor, which shall include:

1)Details about the borrower and the secured creditor:

2)Complete description of movable secured assets to be sold with identification marks or numbers if any, on them;

3)Reserve price of the movable secured assets, if any, and the time and manner of payment;

4)Time and place of public auction or the time after which sale by any other mode shall be completed;

5)Deposit earnest money as may be stipulated by the secured creditor;

6)Any other terms or conditions which the authorised officer considers it necessary for a purchaser to know the nature and value of movable secured assets.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 6(b) (Syllabus 2017).

In the case of Canara Bank v. Sri Chandramoulishvar Spg. Mills (P) Ltd. , the NCLAT while referring to Supreme Court’s verdict in Innoventive case has ruled that when two proceedings are initiated, one under the Insolvency and Bankruptcy Code, 2016 (the Code) and the other under the SARFAESI Act, 2002, then the proceeding under the Code shall prevail.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5(b) (Syllabus 2017).

Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereto and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him -

(a)Take possession of such asset and documents relating thereto; and

(b)Forward such asset and documents to the secured creditor.

Provided that any application by the secured creditor shall be accompanied by an affidavit duly formed by the authorized officer of the secured creditor, declaring that -

i.the aggregate amount of financial assistance granted and the total claim of the bank as on the date of filing the application;

ii.the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;

iii.the borrower has created security interest over various properties giving the details of properties refer to in sub-clause (ii) above;

iv.the borrower has committed default in repayment of the financial assistance granted aggregating the specific amount;

v.consequent upon such default in repayment of the financial assistance in the account of the borrower has been classified as a nonperforming asset;

vi.affirming that the period of sixty days' notice as at the period of sixty days' notice as required by the provisions of sub-section (2) section 13, demanding payment of the defaulted financial assistance has been served on the borrower;

vii.The objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or representation had been communicated to the borrower;

viii.The borrower has not made any repayment of the financial assistance in spite of the above notice and the authorized officer is, therefore, entitled to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;

ix.That the provisions of the Act and the rules made there under had been compiled with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 6(c) (Syllabus 2017).

In terms of Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act ) once a corporate debtor defaults in repaying the loan amount taken from the bank, the bank can file the application to take over the physical possession of the property of the corporate debtor.

Section 18(f) of Insolvency and Bankruptcy Code, 2016 prescribing duties of Resolution Professional stipulates that the Resolution Professional shall take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, including assets that may or may not be in possession of the corporate debtor.

Besides Section 238 of Insolvency and Bankruptcy Code, 2016 stipulates that the provisions of this code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Considering the 'notwithstanding' provision contained in Insolvency and Bankruptcy Code, 2016, the resolution professional will have right over the property of ABC Co Ltd .

NCLAT in Encore Asset Reconstruction Company Pvt. vs. Ms. Charu Sandeep Desai & Ors , upheld that Section 18 of Insolvency and Bankruptcy Code, 2016 will prevail over Section 13(4) of the SARFAESI Act.

However, as explained in the objectives of Insolvency and Bankruptcy Code, 2016, the secured creditors may relinquish their security interest in the estate and the recoveries that are obtained are paid out through a well-defined waterfall mechanism. Thus by virtue of being a secured creditor, XYZ Bank can file its claim and participate in the resolution process so that its interest is also protected.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(iii) (Old syllabus).

Section 12 B of the SARFAESI Act, 2002 deals with the powers of Reserve Bank of India to carry out audit and inspection of an Asset Reconstruction Company (ARC), which are given below: -

(1)The Reserve Bank may, for the purposes of this Act, carry out or caused to be carried out audit and inspection of an asset reconstruction company from time to time.

(2)It shall be the duty of an asset reconstruction company and its officers to provide assistance and cooperation to the Reserve Bank to carry out audit or inspection under sub section (1).

(3)Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset reconstruction company is being conducted in a manner detrimental to public interest or to the interests of investors in security receipts issued by such asset reconstruction company, the Reserve Bank may, for securing proper management of an asset reconstruction company, by an order–

(a)remove the Chairman or any director or appoint additional directors on the board of directors of the asset reconstruction company; or

(b)appoint any of its officers as an observer to observe the working of the board of directors of such asset reconstruction company:

Provided that no order for removal of Chairman or director under clause (a) shall be made except after giving him an opportunity of being heard.

(4)It shall be the duty of every director or other officer or employee of the asset reconstruction company to produce before the person, conducting an audit or inspection under sub-section (1), all such books, accounts and other documents in his custody or control and to provide him such statements and information relating to affairs of the asset reconstruction company as may be required by such person within the stipulated time specified by him.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6(a) (Syllabus 2017).

"Asset Reconstruction Company" means a company registered with Reserve Bank under Section 3 of SARFAESI Act for the purposes of carrying on the business of asset reconstruction or securitisation, or both. The main objective of Asset Reconstruction Company (‘ARC’) are:

a)to act as agent for any bank or financial institution for the purpose of recovering their dues from the borrowers on payment of fees or charges,

b)to act as manager of the borrowers’ asset taken over by banks, or financial institution,

c)to act as the receiver of properties of any bank or financial institution and

d)to carry on such ancillary or incidental business with the prior approval of Reserve Bank wherever necessary.

If an ARC carries on any business other than the business of asset reconstruction or securitisation or the business mentioned above, it shall cease to carry on any such business within one year of doing such other business.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6(d) (Old syllabus).

Section 18C of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 deals with the right to lodge a caveat. It provides that:

(1)Where an application or an appeal is expected to be made or has been made section 17(1) or section 17A or section 18(1) or section 18B, the secured creditor or any person claiming a right to appear before the Tribunal or the Court of District Judge or the Appellate Tribunal or the High Court, as the case may be, on the hearing of such application or appeal, may lodge a caveat in respect thereof.

(2)Where a caveat has been lodged under sub-section (1),—

(a)the secured creditor by whom the caveat has been lodged (hereafter in this section referred to as the caveator) shall serve notice of the caveat by

registered post, acknowledgement due, on the person by whom the application has been or is expected to be made under sub-section (1);

(b)any person by whom the caveat has been lodged (hereafter in this section referred to as the caveator) shall serve notice of the caveat by registered post, acknowledgement due, on the person by whom the application has been or is expected to be made under sub-section (1).

(3)Where after a caveat has been lodged under sub-section (1), the Tribunal or the District Judge or the Appellate Tribunal or the High Court, as the case may be, shall serve a notice of application or appeal filed by the applicant or the appellant on the caveator.

(4)Where a notice of any caveat has been served on the applicant or the Appellant, he shall periodically furnish the caveator with a copy of the application or the appeal made by him and also with copies of any paper or document which has been or may be filed by him in support of the application or the appeal.

(5)Where a caveat has been lodged under sub-section (1), such caveat shall not remain in force after the expiry of the period of ninety days from the date on which it was lodged unless the application or appeal referred to in sub-section

(1)has been made before the expiry of the said period.

(Attempt all parts of either Q. No. 6 or 6A)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5(e) (Syllabus 2017).

Modification of security interest registered under the SARFAESI Act 2002

Section 24 of the SARFAESI Act, 2002 provides that whenever the terms or conditions, or the extent or operation, of any security interest registered under this Chapter are or is modified, it shall be the duty of the asset reconstruction company or the secured creditor, as the case may be, to send to the Central Registrar, the particulars of such modification, and the provisions of this Chapter as to registration of a security interest shall apply to such modification of such security interest.

Satisfaction of security interest registered under the SARFAESI Act, 2002 :

Section 25 of the Act deals with the Asset Reconstruction Company or secured creditor to report satisfaction of security interest.

(1)The asset reconstruction company or the secured creditor as the case may be, shall give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest relating to the asset reconstruction company or the secured creditor and requiring registration under this Chapter, within thirty days from the date of such payment or satisfaction.

(2)On receipt of intimation the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register.

(3)If the concerned borrower gives an intimation to the Central.

(4)Registrar for not recording the payment or satisfaction, the Central Registrar shall on receipt of such intimation, cause a notice to be sent to the asset reconstruction company or the secured creditor calling upon it to show cause within a time not exceeding fourteen days specified in such notice, as to why payment or satisfaction should not be recorded as intimated to the Central Registrar.

(5)If no cause is shown, the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register.

(6)If cause is shown, the Central Registrar shall record a note to that effect in the Central Register, and shall inform the borrower that he has done so.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(iii) (Old syllabus).

(a)According to Section 2(1)(z)of the SARFAESI Act, 2002, Securitisation means acquisition of financial assets by any asset reconstruction company from any originator, whether by raising of funds by such asset reconstruction company from qualified buyers by issue of security receipts representing undivided interest in such financial assets or otherwise

(b)According to Section 2(1)(zd)of the SARFAESI Act, 2002, Secured Creditor means :

(i)any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (1)

(ii)debenture trustee appointed by any bank or financial institution; or

(iii)an asset reconstruction company whether acting as such or managing a trust setup by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or

(iv)debenture trustee registered with the Board appointed by any company for secured debt securities; or

(v)any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.

(c)According to Section 2(1)(zg) of the SARFAESI Act, 2002, Security Receipt means a receipt or other security, issued by a asset reconstruction company to any qualified buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitization.

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© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(iv) (Old syllabus).

(i)Reserve Bank of India (RBI) is the Authority to cancel the registration granted to an Asset Reconstruction Company in terms of Section 4 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).

(ii)Omega Ltd can prefer an appeal to the Central Government within a period of 30 days of cancellation communicated to it. The Central Government shall give such company an opportunity of being heard before disposal of such application.

(iii)If the Asset Reconstruction Company (ARC) is holding investments for qualified institutional buyers, after cancellation of registration, it shall be deemed to be ARC until it repays the entire investments held by it together with interest, if any, within such period as the RBI directs.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(d) (Syllabus 2017).

(i)Section 16(1) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) disentitles any director, manager or Managing Director from claiming any compensation for loss of office.

(ii)According to Section 16(2) of the Act, the aforesaid provision does not affect the rights of such person to recover from the business of borrower, moneys recoverable otherwise than by way of compensation.

(iii)In the given case, Suresh, the removed executive director can claim his unpaid salary but not any compensation for loss of office.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 5(a) (Syllabus 2017).

Section 31 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) excludes the following for the purpose of attachment or enforcement under the said Act.

(i)A lien on any goods, money or security given by or under the Indian Contract Act, 1872 or Sale of Goods Act, 1930 or any law for the time being in force;

(ii)A pledge of immovable within the meaning of Section 172 of Indian Contract Act, 1872;

(iii)Creation of any security in any air craft as defined in clause (1) of Section 2 of Air Craft Act, 1934;

(iv)Creation of security interest in any vessel as defined in clause (55) of Section 3 of Merchant Shipping Act, 1958;

(v)Any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930;

(vi)Any property not liable to attachment (excluding the properties specifically charged with the debt recoverable under this Act) or sale under the first proviso to subsection (1) of Section 60 of Code of Civil Procedure, 1908;

(vii)Any security interest for securing repayment of any financial asset not exceeding one lakh rupees;

(viii)Any security interest created on agricultural land;

(ix)Any case in which the amount due is less than twenty per cent of the principal amount and interest thereon.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(c) (Syllabus 2017).

On receiving the communication from Reserve Bank of India as to cancellation of Registration, the Asset Reconstruction Company (ARC), if aggrieved may appeal to Central Government within thirty days of receipt of any such order. However, the said company has obligation to repay the entire investments held by it together with interest. Till such time it will be deemed to be recognised as a Reconstruction Company for the investments held by it on behalf of qualified buyers. Repayment needs to be made within such period as may be permitted by the Reserve Bank of India in the ‘Order of Cancellation’ of registration.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(c) (Old syllabus).

It is true that there are certain exceptions. Section 31 of the SARFAESI Act, 2002 specifies that none of the provisions will be applicable in the following instances:

(a)a lien on any goods, money or security given by or under the Indian Contract Act, 1872 or the Sale of Goods Act, 1930 or any other law for the time being in force;

(b)a pledge of movables within the meaning of section 172 of the Indian Contract Act, 1872;

(c)creation of any security in any aircraft as defined in clause (1) of section 2 of the Aircraft Act, 1934;

(d)creation of security interest in any vessel as defined in clause (55) of section 3 of the Merchant Shipping Act, 1958;

(e)any rights of an unpaid seller under section 47 of the Sale of Goods Act, 1930;

(f)any properties not liable to attachment (excluding the properties specifically charged with the debt recoverable under this Act) or sale under the first proviso to sub-section (1) of section 60 of the Code of Civil Procedure, 1908;

(g)any security interest for securing repayment of any financial asset not exceeding one lakh rupees;

(h)any security interest created in agricultural land;

(i)any case in which the amount due is less than twenty percent of the principal amount and interest thereon.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(iv) (Old syllabus).

Section 4 of the SARFAESI Act, 2002 dealing with the cancellation of certificate of registration, provides as under:

(1)The Reserve Bank may cancel a certificate of registration granted to asset reconstruction company, if such company -

(a)ceases to carry on the business of securitisation or asset reconstruction; or

(b)ceases to receive or hold any investment from a qualified buyer; or

(c)has failed to comply with any conditions subject to which the certificate of registration has been granted to it; or

(d)at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub­section (3) of section 3; or

(e)fails to –

i.comply with any direction issued by the Reserve Bank under the provisions of this Act; or

ii.maintain accounts in accordance with the requirements of any law or any direction or order issued by the Reserve Bank of India under the provisions of this Act; or

iii.submit or offer for inspection its books of account or other relevant documents when so demanded by the Reserve Bank; or

iv.obtain prior approval of the Reserve Bank required under sub-section

(6)of section 3 of the Act.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(a) (Syllabus 2017).

Security Interest

According to section 2(zf) of the SARFAESI Act, 2002, ‘Security interest’ means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes —

(i)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

(ii)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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(i) (Old syllabus).

‘Asset Reconstruction Company’, means a company registered with Reserve Bank of India under section 3 of SARFAESI Act, 2002 for the purposes of carrying on the business of asset reconstruction or securitization or both. The buying of impaired assets from banks or financial institutions by ARCs will make their balance sheets cleaner and they will be able to use their time, energy and funds for development of their business. ARCs may be able to mix up their assets, both good and bad, in such a manner to make them saleable.

The main objective of asset reconstruction company (ARC) is to act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrowers on payment of fees or charges, to act as manager of the borrowers’ asset taken over by banks, or financial institution, to act as the receiver of properties of any bank or financial institution and to carry on such ancillary or incidental business with the prior approval of Reserve Bank of India wherever necessary. If an ARC carries on any business other than the business of asset reconstruction or securitization or the business mentioned above, it shall cease to carry on any such business within one year of doing such other business.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(iv) (Old syllabus).

Section 13 of SARFAESI Act, 2002 deals with enforcement of security interest by a creditor which provides as under:

(a)Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non­performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under section 13(4) of the Act.

(b)If on receipt of the notice, the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower.

In case the borrower fails to discharge his liability in full within the period specified above, the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:

(i)take possession of the secured assets of the borrower

(ii)takeover the management of the business of the borrower

(iii)appoint any person (hereafter referred to as the manager)

(iv)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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(c) (Syllabus 2017).

Pegasus Assets Reconstruction (P) Ltd v. Haryana Concast Ltd. , civil appeal nos. 3646 of 2011, 9293-9294 OF 2014 AND 14736 TO 14738 of 2015, date December 29, 2018, [2015] 64 taxmann.com 394 (SC) Considering section 283 of the Companies Act, 2013 / Section 456 of Companies Act, 1956 read with section 13 of the SARFAESI Act, 2002, the Supreme Court in the matter of winding-up and custody of company's property opined that SARFAESI Act, 2002 is a complete code in itself and there is no lacuna or ambiguity in it to warrant reading something more into it or to borrow anything from Companies Act, 2013. The Court mentioned that as per section 13 of the SARFAESI Act, a secured creditor has right to enforce its security interest without intervention of Court or Tribunal and the powers under Companies Act, 2013 cannot be wielded by Company Judge to interfere with proceedings by a secured creditor who has opted to stay outside winding-up process to realize its secured interests as per provisions of SARFAESI Act.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(ii) (Old syllabus).

•The Recovery of Debts & Bankruptcy Act, 1993 was enacted to provide for speedy adjudication of matters relating to recovery of debts due to banks and financial institutions.

•The Act provides for setting up separate tribunals to hear such matters and these are termed as Debt Recovery Tribunals (DRT). A DRT shall consist of one person, known as the Presiding Officer, along with one or more Recovery Officers who shall operate under superintendence of the Presiding Officer.

•On receipt of the decree from the Presiding Officer, the Recovery Officer is duty bound to make recovery in the manner provided under the Act.

•In the case of UOI vs. Delhi High Court Bar Association , it was held that realization of dues by Recovery Officers shall be made in accordance with the Income-tax Rules, 1962. A detailed procedure for recovery is contained in these Rules, including provisions relating to arrest and detention of the defaulter.

•Further, as per Section 30, any person aggrieved by the order of the Recovery Office has the right to appeal to the Tribunal. Thus, there is an appellate forum available against any order of the Recovery Officer.

•Hence, sufficient safeguard has been provided in the event of the Recovery Officer acting in an arbitrary or an unreasonable manner.

•Thus, it cannot be said that the Recovery Officer acts in an arbitrary manner.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(b) (Syllabus 2017).

The main purpose of SARFAESI Act, 2002 is to enable and empower the secured creditors to take possession of their securities and to deal with them, without the intervention of Court.

•The secured creditors may also authorize any securitization or reconstruction company to acquire financial assets of any bank or financial institution.

•Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides for assistance for taking possession of secured asset from the Chief Metropolitan Magistrate or the District Magistrate.

•The Chief Metropolitan Magistrate or the District Magistrate is empowered to facilitate taking possession of secured asset. The possession of secured asset may be for sale or transferring the asset for recovery of funds.

•For the purpose of taking possession or control of secured assets, the secured creditor may make a written application to the Magistrate (within jurisdiction).

•Such application shall be supported by an affidavit with details such as total financial assistance provided, amount due, nature of security interest existing, proof of default, status of NPA, copy of notice sent to the defaulting party etc.

•On receiving such application & affidavit, the Magistrate shall pass necessary orders (in 30 days) for taking possession of such asset and related documents. Due to any reasons duly written, such order cannot be passed within 30 days, the same may be sent within 60 days.

•The Magistrate may authorize any subordinate officer to take possession of the secured assets and forward the same to the secured creditor.

•The Magistrate is empowered to use force, in case of any wrongful resistance. Any action or order of the Magistrate is not questionable in any court or before any authority.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(a) (Syllabus 2017).

When it is proved to the satisfaction of the Debt Recovery Tribunal (Tribunal) that the claim of the applicant has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties or where the defendant has repaid or agreed to repay the claim of the applicant, further, the Tribunal may after giving the applicant and the defendant, an opportunity of being heard, in respect of all claims, setoff or counter-claim, if any, and interest on such claims, within thirty days from the date of conclusion of the hearings, pass interim or final order as it deems fit which may include order for payment of interest from the date on which payment of the amount is found due up to the date of realisation or actual payment. The Tribunal after it appeared to be just and convenient, the Tribunal may, by order. —

a.Appoint a receiver of any property

b.Remove a person from the possession or custody of the property,

c.Commit the same to the possession, custody or management of the receiver

d.Confer upon the receiver all such powers as the Tribunal thinks fit

e.Appoint a commissioner for preparation of inventory

Where a certificate of recovery is issued against a company as defined under the Companies Act, 2013 and such company is under liquidation, the Tribunal may by an order direct that the sale proceeds of secured assets of such company be distributed in the same manner as provided in section 326 of the Companies Act, 2013 or under any other law for the time being in force.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(b) (Syllabus 2017).

Section 179(2) of the Insolvency and Bankruptcy Code, 2016 provides that the Debt Recovery Tribunal shall, have jurisdiction to entertain or dispose of –

a.any suit or proceeding by or against the individual debtor;

b.any claim made by or against the individual debtor;

c.any question of priorities or any other question whether of law or facts, arising out of or in relation to insolvency and bankruptcy of the individual debtor or firm under this Code.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(b) (Syllabus 2017).

Section 20 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993 deals with Appeal to the Appellate Tribunal. It states that:

(1)Save as provided in sub-section (2), any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to an Appellate Tribunal having jurisdiction in the matter.

(2)No appeal shall lie to the Appellate Tribunal from an order made by a Tribunal with the consent of the parties.

(3)Every appeal under sub-section (1) shall be filed within a period of 30 days from the date on which a copy of the order made, or deemed to have been made, by the Tribunal is received by him and it shall be in such form and be accompanied by such fee as may be prescribed :

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of 30 days if it is satisfied that there was sufficient cause for not filing it within that period.

(4)On receipt of an appeal under sub-section (1) or under sub-section (1) of section 181 of the Insolvency and Bankruptcy Code, 2016, the Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(5)The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned Tribunal.

(6)The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within 6 months from the date of receipt of the appeal.

Deposit of amount of debt, on filling appeal

According to Section 21 of the Act, where an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution or a consortium of banks or financial institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal 50% of the amount of debt so due from him as determined by the Tribunal under section 19:

Provided that the Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to be deposited by such amount which shall not be less than 25% of the amount of such debt so due to be deposited under this section.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(iii) (Old syllabus).

Section 25 of the Recovery of Debts and Bankruptcy Act, 1993 provide the modes of recovery of debts by the Recovery Officer. These are

(a)attachment and sale of the movable or immovable property of the defendant;

(b)taking possession of property over which security interest is over created or any other property of the defendant and appointing receiver for such property and to sell the same

(c)arrest of the defendant and his detention in prison;

(d)appointing a receiver for the management of the movable or immovable properties of the defendant;

(e)Any other mode of recovery as may be prescribed by the Central Government.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(b) (Old syllabus).

Regulation 37 of the IBBI (Liquidation Process) Regulations, 2016 deals with realisation of security interest by a secured creditor (Global Finance Bank Ltd.).

(i)Global Finance Bank Ltd. who seeks to realize its security interest shall intimate the liquidator of the price at which he proposes to realise its secured asset.

(ii)The liquidator shall inform the Global Finance Bank Ltd. within twenty one days of receipt of the intimation, if a person is willing to buy the secured asset before the expiry of thirty days from the date of intimation at a price higher than the price intimated.

(iii)Where the liquidator informs the Global Finance Bank Ltd. of a person willing to buy the secured asset, Global Finance Bank Ltd. shall sell the asset to such person.

(iv)If the liquidator does not inform Global Finance Bank Ltd. or the person does not buy the secured asset, Global Finance Bank Ltd. may realise the secured asset in the manner it deems fit, but at least at the price intimated.

(v)Where the secured asset is realised under (iii) above, Global Finance Bank Ltd. shall bear the cost of identification of the buyer.

(vi)Where the secured asset is realised under (iv) above, the liquidator shall bear the cost incurred to identify the buyer.

(vii)The provisions of this Regulation shall not apply if Global Finance Bank Ltd. enforces its security interest under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Recovery of Debts and Bankruptcy Act, 1993.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(a) (Syllabus 2017).

Before the enactment of the Insolvency and Bankruptcy Code, there were multiple overlapping laws and adjudicating forums dealing with financial failure and insolvency of companies and individuals in India. The framework for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delays in resolution. The legal and institutional framework did not aid lenders in effective and timely recovery or restructuring of defaulted assets and causes undue strain on the Indian credit system.

Prior to the enactment of the Insolvency and Bankruptcy Code, the provisions relating to insolvency and bankruptcy for companies were made in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provided for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and their respective Appellate Tribunals. Liquidation of companies was handled by the High Courts. Individual bankruptcy and insolvency was dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920.

The liquidation of companies was handled under various laws and different authorities such as High Court and Debt Recovery Tribunal had overlapping jurisdiction which was adversely affecting the debt recovery process.

The objective of the Insolvency and Bankruptcy Code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner. An effective legal framework for timely resolution of insolvency and bankruptcy will not only encourage entrepreneurship but will also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(d) (Syllabus 2017).