Some important terms covered under the SARFAESI Act

Some important terms covered under the SARFAESI Act :

(1) Bank:

All the banking companies, Nationalised banks, the State Bank of India and its subsidiary banks, Regional Rural Banks, co-operative banks etc.

(2) Borrower:

(i) any person who has availed financial assistance from a bank and/or financial institution (ii) any person who has given guarantee (iii) any person who has created any mortgage or pledge as a security for the financial assistance granted by any bank or financial institution (iv) any person who becomes the borrower of a securitization company or reconstruction company, because the company has acquired any interest or right of any bank or financial institution, on account of financial assistance granted to a borrower

(3) Central Registry:

The register office set up by the Central Government for the purpose of registration of all the transactions of asset securitization, reconstruction and transactions of creation of security interests. The registration system will operate on a priority of registration basis, i.e., ‘first come first served basis’ the first person who registers gets priority over the persons who registers at a later date.

(4) Financial assistance:

Whenever any bank or financial institution allows a borrower;

(i) to avail of a loan or advance (ii) makes subscription of debenture or bonds (iii) issues a letter of credit (iv) issues letter of credit (v) extends any other credit facility, it is called financial assistance.

The Act covers;

– Any financial assistance which is due (principle debt or any other amount payable)

– The right of security enforcement is for a default committed by the borrower, and the creditor is a secured creditor. In other words, any unsecured creditor has no right under this Act

-The debt should be classified by the bank as Non- Performing Asset

(5) Financial Asset:

Financial asset means debt or receivables and includes:

(a) any debt or receivable secured by mortgage of or charge in immovable property or

(b) a claim to any debt or receivables or part thereof whether secured or unsecured or

(d) any right or interest in the security, whether full or part, securing debt

(e) any beneficial interest in any movable or immovable property or in debt, receivables whether is existing, future, accruing, conditional or contingent or

(f) any other financial assistance

(6) Qualified Institutional Buyer:

Qualified Institutional Buyer means a financial institution, insurance company, bank, state financial corporation, state industrial development corporation, trustee or securitisation company or reconstruction company which has been granted a certificate of registration under sub-section (4) of section 3 or any asset management company making investment on behalf of mutual fund or pension fund or a foreign institutional investor registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or regulations made there under, or any other body corporate as may be specified by the Board;

The Act is applicable only in case of a Non Performing Asset (NPA) of a borrower classified by a bank or financial institution as sub-standard, doubtful or a loss asset as per the RBI’s guidelines.

The term ‘hypothecation’ is defined under this Act as a charge in or upon any movable property (existing or future) created by a borrower in favour of a secured creditor.

Reconstruction company formed for the purpose of asset reconstruction and registered under the Companies Act,1956 is called Reconstruction company.

The Act covers three important aspects viz., (i) Securitization (ii) Reconstruction of Financial assets and (iii) Enforcement of security interest

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