Enforcement of security interest
Also called: SARFAESI enforcement · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Enforcement of security interest is a secured lender's right to seize and sell a defaulter's collateral without going to court. Collateral is the asset pledged against a loan, such as a house or machinery. The SARFAESI Act 2002 gives lenders this power. The steps are:
- The lender sends a 60-day demand notice under Section 13(2).
- If the borrower does not pay, the lender takes possession under Section 13(4).
- The lender then sells the asset to recover its dues.
Before SARFAESI, recovery meant long court cases. This law made recovery much faster. It has also been extended to larger NBFCs.
Example
A trader defaults on a Rs 2 crore loan backed by a warehouse. The bank sends a 60-day notice. The trader still does not pay. The bank takes possession of the warehouse and auctions it, with no court case needed.
Don't confuse with
- Debt Recovery Tribunal (DRT): a special tribunal under the RDDBFI Act 1993. The lender has to file a case and get an order. SARFAESI enforcement needs no tribunal or court.
- IBC process: a collective process for all creditors that aims to rescue the company. SARFAESI lets a single secured lender enforce its own security.