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SARFAESI Act
The Jammu and Kashmir government contended in the High Court that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act that parliament passed in 2002 wasn\'t applicable in the state due to its special status under Article 370 of the Constitution, which grants special autonomous status to the state of Jammu and Kashmir.Â
The Jammu and Kashmir government contended in the High Court that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act that parliament passed in 2002 wasn't applicable in the state due to its special status under Article 370 of the Constitution, which grants special autonomous status to the state of Jammu and Kashmir.
Passed in 2002, the Act states: "If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as non-performing asset (NPA) by secured creditor, then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement."
"Where he does not dischage dues in full within 60 days, then without intervention of any court or tribunal secured creditor may take possession (including sale, lease, assignment) of secured asset, or take over management of business of borrower or appoint manager for secured asset or without taking any of these actions may also proceed against guarantor or sell the pledged asset, if any," the Act says.
Secured creditors have many rights under the Section 13 of the Act. If a borrower makes any default in repayment of loan or any installment and his account is classified as by secured creditor, then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement.
Where he does not dischage dues in full within 60 days, then without intervention of any court or tribunal, secured creditor may take possession (including sale, lease, assignment) of secured asset, or take over management of business of borrower or appoint manager for secured asset or without taking any of these action may also proceed against guarantor or sell the pledged asset, if any.
The law does not apply to unsecured loans, loans below Rs 100,000 or where remaining debt is below 20% of the original principal. It allows creation of asset reconstruction companies (ARC) and allowed banks to sell their NPAs to ARCs. Banks can take possession of the collateral property and sell it without the permission of a court.
