SARFAESI Act (The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) was enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest created in respect of Financial Assets to enable realization of such assets.
The SARFAESI Act provides for the manner for enforcement of security interests by a secured creditor without the intervention of a court or tribunal. If any borrower fails to discharge his liability in repayment of any secured debt within 60 days of notice from the date of notice by the secured creditor, the secured creditor is conferred with powers under the SARFAESI Act to
a) take possession of the secured assets of the borrower, including transfer by way of lease, assignment or sale, for realizing the secured assets
b) takeover of the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured assets,
c) appoint any person to manage the secured assets possession of which is taken by the secured creditor, and
d) require any person, who has acquired any of the secured assets from the borrower and from whom money is due to the borrower, to pay the secured creditor so much of the money as if sufficient to pay the secured debt.
The Central Government has prescribed Security Interest (Enforcement) Rules, 2002 pursuant to the powers conferred on it under the SARFAESI Act. The foregoing enforcement measures must be exercised by a secured creditor in accordance with the Enforcement Rules and are further subject to guidelines issued by the RBI.
In exercise of powers conferred by SARFAESI Act, 2002, Reserve Bank of India has issued guidelines to registration, measures of asset reconstruction, prudential norms, acquisition of financial assets etc., namely 'The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003'. The Guidelines are available at the Downloads segment.