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THE SECURITISATION & RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT-2002 - FEATURES AT GLANCE

THE ACT PROVIDES LEGAL FRAMEWORK FOR :

* SECURITISATION
* ASSETS RECONSTRUCTION
* ENFORCEMENT OF SECURITY INTERESTS WITHOUT THE INTERVENTION OF THE COURTS
* REGISTRATION OF ABOVE TRANSACTIONS BY A CENTRAL REGISTRY TO BE SET UP BY THE GOVERNMENT.

SECURITISATION AND ASSETS RECONSTRUCTION
*THE ACT ENABLES ANY COMPANY WITH A CAPITAL OF RS. 200 LACS TO UNDERTAKE SECURITISATION OR ASSET RECONSTRUCTION OF FINANCIAL ASSETS.
* SUCH COMPANY HAS TO OBTAIN REGISTRATION FROM RBI
* THE ACT PROVIDES FOR ACQUISITION OF FINANCIAL ASSETS BY ISSUE OF DEBENTURES BY ANY SECURITISATION COMPANY (SCO) OR ASSETS RECONSTRUCTION COMPANY(RCO)
* ON ACQUISITION OF FINANCIAL ASSETS THE LAW PROVIDES FOR CONSEQUENCES WHICH HAS THE EFFECT OF SCO OR RCO STEPPING INTO THE SHOES OF THE BANK/FINANCIAL INSTITUTION
* FINANCIAL ASSETS IS DEFINED AND IT INCLUDES FUTURE RECEIVABLES

NOTICE TO BORROWERS
* NOTICE TO BORROWERS IS OPTIONAL
* IF NOTICE IS GIVEN PARTICULARS HAVE TO FILED WITH THE CONCERNED REGISTRY WHERE ORIGINAL CHARGES ARE REGISTERED
* IF NOTICE IS NOT GIVEN NO INTIMATION TO REGISTRY IS REQUIRED AND BANK/FI CONTINUES TO RECOVER THE LOAN AND PAY TO

ISSUES OF SECURITY RECEIPTS
* SCO/RCO CAN ISSUE SECURITY RECEIPTS TO QUALIFIED INSTITUTIONAL BUYERS WHICH ARE PASS THROUGH CERTIFICATES
* SUCH SECURITY RECEIPTS ARE SECURITY WITHIN THE MEANING OF TERM "SECURITIES" AS DEFINED IN SECTION 2(h) OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956
* LEGAL RECOGNION TO INVESTMENTS IN SECURITISED INSTRUMENTS
* SCO/RCO SHALL HAVE SAME POWERS OF RECOVERY AS BANKS/FIS AND CAN APPROACH DRT.

ASSET RECONSTRUCTION
* ON ACQUISITION OF FINANCIAL ASSETS RCO CAN TAKE POSSESSION, APPOINT A MANAGER, LEASE OR SELL
* ENTER INTO COMPROMISE AND SETTLEMENT
* CHANGE THE MANAGEMENT OF THE UNIT BY REPLACING THE BOARD OF DIRECTORS * LEGAL FRAME WORK IS PUT IN PLACE FOR

REGULATION
* ALL SCOs AND RCOs SHALL BE UNDER THE REGULATORY CONTROL OF THE RBI AND NEED TO BE REGISTERED WITH RBI BEFORE COMMENCING BUSINESS

ENFORCEMENT OF SECURITIES
EXTENT OF APPLICATION OF THE PROVISIONS
* ALL BANKS AND FINANCIAL INSTITUTIONS EXCEPT CO.OP BANKS, RRBs AND NBFCS
* ALL TYPES OF SECURITY INTERESTS INCLUDING HYPOTHECATION AND MORTGAGE BY DEPOSIT OF TITLE DEEDS
* INVESTMENTS IN SECURED DEBENTURES OR BONDS ARE ALSO INCLUDED IN THE DEFINATION OF SECURED DEBT AND POWERS OF RECOVERY CAN BE EXERCISED BY DEBENTURE TRUSTEES ALSO
* ACTION CAN BE TAKEN AGAINST GUARANTORS WHO HAVE GIVEN SECURITIES FOR GUARANTEE OBLIGATIONS
* SECURED LOANS AND ADVANCES INCLUDING OBLIGATIONS ARISING OUT OF LETTERS OF CREDIT/GUAR ANTEES ISSUED ARE COVERED EXCEPT THE FOLLOWING:
* LOANS BELOW RS. 1 LAC
* LOANS SECURED BY PLEDGE OR LIEN OVER ANY PROPERTY
* HIRE PURCHASE AND LEASE TRANSACTION
* ANY LOANS SECURED BY AGRICULTURAL LANDS
* LOANS WHERE OUTSTANDING IS LESS THAN 20% OF THE PRINCIPAL AND INTEREST THEREON
* CLASSIFICATION OF THE ACCOUNT AS NON PERFORMING ASSETS IS TREATED AS DEFAUTER INITIATING RECOVERY ACTION
* ACT DEFINES NPA LINKING IT WITH ASSET CLASSIFICATION DIRECTIONS ISSUED BY RBI FROM TIME TO TIME.

WHO CAN TAKE ACTION
* ANY OFFICER AUTHORISED BY THE BOARD OF DIRECTORS OR TRUSTEES OF THE SECURED CREDITOR CAN EXERCISE THE RIGHTS CONFERRED ON SECURED CREDITORS.

BIFR PROCEEDINGS
* IF SECURED CREDITORS 75% IN VALUE DECIDE TO ENFORCE SECURITIES, THE BIFR PROCEEDINGS SHALL ABATE
* FOR FUTURE CASES, IF ENFORCEMENT ACTION IS INITIATED NO REFERENCE CAN BE FILED BEFORE BIFR

PROCEDURE FOR ENFORCEMENT
* NOTICE OF SIXTY DAYS TO BE GIVEN TO BORROWERS TO DISCHARGE HIS LIABILITIES IN FULL
* AFTER SERVICE OF NOTICE, IF BORROWER RAISES ANY OBJECTION OR PLACES FACTS FOR CONSIDERATION OF THE BANK, THE SAME SHOULD BE CONSIDERED WITH DUE APPLICATIONS OF MIND AND REASONS FOR NOT ACCEPTING THE OBJECTIONS MUST BE COMMUNICATE TO THE BORROWER (AS PER SU PREME COURT JUDGEMENT IN MARADIA CHEMICALS)
* NO DISTINCTION BETWEEN WILFUL AND NON WILFUL DEFAULTERS
* IF NOTICE IS NOT COMPLIED WITH BANKS/FI CAN TAKE PHYSICAL POSSESSION OF SECURITIES
* IF THERE IS ANY RESISTANCE POLICE HELP CAN BE TAKEN TO TAKE POSSESSION
* SALE OF ASSETS IN THE MANNER PRESCRIBED BY RULES
* LIMITATION APPLIES FOR ACTION OF TAKING POSSESSION UNDER SECTION 13(4)

APPEAL AGAINST BANK/FI ACTION
* BORROWERS OR ANY THIRD PARTY AGGRIEVED BY BANKS'/FIS' ACTION CAN APPEAL TO THE CONCERNED DRT
* THE REQUIREMENT OF DEPOSIT OF 75% OF AMOUNT CLAIMED BEFORE ENTERTAINING AN APPEAL (PETITION) UNDER SECTION 17 OF THE ACT HAS BEEN STRUCT DOWN (AS PER SUPREME COURT JUDGMENT IN MARDIA CHEMICALS)
* THERE IS A SECOND APPEAL PROVIDED TO APPELLATE DRT AGAINST THE ORDERS OF DRT

THERE IS AN ENABLING PROVISION FOR THE CENTRAL GOVERNMENT TO SET UP A CENTRAL REGISTRY FOR REGISTRATION OF :
* SECURITISATION
* ASSET RECONSTRUCTION
* SECURITY INTEREST CREATION


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