Minimum criteria required for initiating Recovery Proceedings under Sarfaesi Act
To initiate a recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) -
- Borrower must be in default to pay the loan amount.
- The outstanding loan amount must be higher than Rs. 1 lakh.
- The loan account must be classified as a Non-Performing Asset (NPA) by the Secured creditor
- The Secured Creditor can initiate the recovery process by issuing a notice to the borrower under sub section 2 of Section 13 of the SARFAESI Act, giving them 60 days to repay the dues of loan amount.
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If the borrower fails to comply the notice issued by the Secured Creditor, the Secured Creditor can take possession of the secured assets under sub-section 4 of section 13 of SARFAESI Act and proceed to sell or lease them to recover the outstanding loan amount
- The loan must be secured by an asset of the borrower and the secured creditor has the right to enforce the security interest under SARFAESI Act
The SAEFAESI Act will not be applicable to certain cases.
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The SARFAESI Act doesn't apply to certain cases, such as NPA loan accounts where the amount is less than 20% of the principal and interest.
- As per a notification dated January 12, 2021, NBFCs can use the SARFAESI Act for loan recovery only when they have a minimum debt of Rs. 20 lakhs or more.
The SAEFAESI Act for Non-Banking Financial Company (NBFC)
- As per a can use the SARFAESI Act for loan recovery only when they have a minimum debt of Rs.20 lakhs or more.