The Securatisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) is another attempt by the Parliament to arm the financial institutions with powers to recover the overdue advances and reduce the non performing assets (NPA). The object, no doubt, is laudable but whether the machinery is fair and effective is the moot point. The SARFAESI Act attempts to vest on the financial institutions the powers vested in a mortgagee under section 69 of the Transfer of Property Act, 1882. It will be useful to extract the provisions of section 69, "69. Power of sale when valid.- (1) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section, have power to sell or concur in selling the mortgaged property, or any part thereof, in default of payment of the mortgage-money, without the intervention of the Court, in the following cases and in no others, namely:- (a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this behalf by the State Government, in the Official Gazette; (b) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government; (c) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, situate within the towns of Calcutta, Madras, Bombay, or in any other town or area which the State Government may, by notification in the Official Gazette, specify in this behalf. (2) No such power shall be exercised unless and until-- (a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or (b) some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due. (3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorized or improper or irregular exercise of the power shall have his remedy in damages against the person exercising the power. (4) The money which is received by the mortgagee, arising from the sale, after discharge of prior encumbrances, if any, to which the sale is not made subject, or after payment into Court under section 57 of a sum to meet any prior encumbrance, shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first, in payment of all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and, secondly, in discharge of the mortgage-money and costs and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for proceeds of sale thereof. (5) Nothing in this section or in section 69A applies to powers conferred before the first day of July, 1882. "
Under the SARFAESI Act, financial institutions are vested with powers to not only sell the mortgaged property but also in appropriate cases take over management of the business of the mortgagor. The powers conferred are wide and appear to be without any prescription of limits for its exercise. Recovery of moneys due to the financial institutions has been the object of prior enactments also. As far as State Financial Corporations are concerned, the recovery of dues prescribed under the State Financial Corporation Act, 1951 has been successfully applied for over half a century. The same cannot be said about the legislation providing for the recovery of monies due to financial institutions which do not fall under the State Financial Corporation Act. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is a major effort of the Parliament to provide a forum for quick recovery of overdue advances by financial institutions. The financial institutions and the business houses found the provisions to be adequate and useful but unfortunately the said act has not been helpful in the reduction of the non performing assets of financial institutions leading to the passing of the SARFAESI Act. It is necessary to understand and evaluate the provisions of the Debts Recovery Tribunals Act before we proceed to consider the provisions of SARFAESI Act.
Under the SARFAESI Act, financial institutions are vested with powers to not only sell the mortgaged property but also in appropriate cases take over management of the business of the mortgagor. The powers conferred are wide and appear to be without any prescription of limits for its exercise. Recovery of moneys due to the financial institutions has been the object of prior enactments also. As far as State Financial Corporations are concerned, the recovery of dues prescribed under the State Financial Corporation Act, 1951 has been successfully applied for over half a century. The same cannot be said about the legislation providing for the recovery of monies due to financial institutions which do not fall under the State Financial Corporation Act. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is a major effort of the Parliament to provide a forum for quick recovery of overdue advances by financial institutions. The financial institutions and the business houses found the provisions to be adequate and useful but unfortunately the said act has not been helpful in the reduction of the non performing assets of financial institutions leading to the passing of the SARFAESI Act. It is necessary to understand and evaluate the provisions of the Debts Recovery Tribunals Act before we proceed to consider the provisions of SARFAESI Act.
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