Author Details:- 

Anantha mounika
5th year ( 9th semester)
BA LLB 5ydc
Telangana social welfare residential law college for women, Hyderabad.

Abstract

In India,The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act),2002 was enacted in 2002. Chapter 1 is Preliminary explains section 1 & 2.

Chapter 2 is Regulation Of Securitisation and Reconstruction Of Financial Assets of Banks And Financial Institutions explains sections 3 – 12B. Chapter 3 is Enforcement of security interest explains sections from 13 -19. Chapter 4 and 4A is Central registry & Registration by secured creditors and other creditors explained from the sections 20- 26A & 26B – 26E. Chapter 5 is Offences and penalties explains sections from 27- 30D. Chapter 6 is miscellaneous and explains from section 31 -42. There are laws similar to the SARFAESI ACT in other countries. In other countries the laws are enacted for the recovery of NPA, NPL,ARC and secured transactions by the bank or secured creditor.

Key words: non performing assets (NPA), secured creditor, borrower, rights and duties of secured creditor and borrower, Authorised officer, ARC(asset reconstruction company). Non performing loans (NPL) and secured transactions.

Introduction-

In India there are many laws on the recovery of NPA and ARC by the secured creditor on the claim of borrower default without the intervention of court. The intervention of court is only necessary when they didn’t follow the laws properly which are enacted by the government and auction or possession of the agricultural land. The laws are SARFAESI ACT (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002), Security interest (enforcement) rules,2002, Insolvency and Bankruptcy Code, 2016 (IBC), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Removal of difficulties) order,2004, Recovery of Debts and Bankruptcy Act, 1993 (RDB Act),Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (central registry) rules,2011, DRT rules,1993, DRAT rules,1993. There are also laws which are similar to the SARFAESI ACT as well as other acts in the US, UK, Australia, Canada, Hong Kong, Singapore and South Korea.

Background of Legal Concept in India and other Countries-

In India, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act),2002 was enacted in 2002. Before this act there were no proper laws on the secured loans by the borrower,to recover the non performing assets and to possession and impose security interest on the non performing assets.This act was enforced for the recovery of non performing assets and possession of the property. Because many cases are pending on non recovery of non performing assets (NPA) and lack of strict and standard laws for the secured creditor and borrower. This act was amended multiple times for the application of collectively enhanced the effectiveness of the SARFAESI Act, making it more robust and applicable to a broader range of financial institutions and situations, while also balancing the rights of borrowers.

In South Korea,the 1997 financial crisis is a watershed event in corporate and financial restructuring in Korea. Unprepared financial liberalisation originated in various risk build-ups throughout the financial system, whereas corporate profitability gradually declined as the long high-powered growth era ended. Financial regulation and supervision were not adequate from the international standpoint so that risk management practices of financial institutions were poor. The contagion from Southeast Asian countries made Korea exposed to corporate credit risks and maturity and currency mismatches, among others, entailing her to undergo firstly currency, then banking and finally economic crises. In the face of such a full-blown crisis, at first, Korea made all-out efforts to resolve the shortage of foreign currency liquidity and to prevent bank-runs in financial institutions.The main objective of this report is to introduce Korea’s experiences in the resolution of non performing assets after the 1997 financial crisis.This crisis brought the laws on NPA,NPL,ARC,KDIC,DIF & KAMCO.[2]

There are also many laws introduced on the recovery of NPA,NPL & ARC in other countries by giving importance to financial status to the country as well as individuals. The countries have laws similar to the SARFAESI ACT as in India are the US,UK,Canada, Australia, South Korea,Hong Kong and Singapore.

Comparative Analysis (Differences & Similarities)-

In India, The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act),2002 consists of 6 chapters and 42 sections. This act was enacted for the recovery of non performing assets and possession of the property on the borrower defaulted.

There are various countries that handle asset recovery and secured transactions, similar to India’s SARFAESI Act.

South Korea does not have a direct equivalent to India’s SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002). However, it does have laws that govern secured transactions and creditor rights. Here are some key elements that parallel aspects of the SARFAESI Act are the Civil Execution Act & Bankruptcy and Insolvency Act.

Comparative analysis between the india and south korea

In India,for the recovery of non performing assets and loans, auction and possession of the asset on the default of borrower by the secured by following the provisions of the acts. SARFAESI ACT (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) Security interest (enforcement) rules,2002. Insolvency and Bankruptcy Code, 2016 (IBC), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Removal of difficulties) order,2004 Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (central registry) rules,2011 DRT rules,1993 DRAT rules,1993.

In South Korea,for the recovery of non performing assets and loans, auction and possession of the asset on the default of borrower by the following acts. Civil Execution Act: This act allows creditors to enforce judgments by seizing and auctioning a debtor’s assets through a court-supervised process, similar to SARFAESI’s enforcement mechanism. Bankruptcy and Insolvency Act: This act includes provisions for the rehabilitation and liquidation of distressed companies and is managed by the court. It focuses on debt restructuring to help a company regain solvency. Special Act on Corporate Restructuring: This act provides a framework for out-of-court restructuring of financially distressed companies, typically through agreements between creditors and debtors. Act on Security Over Movable Property and Claims: This act allows creditors to secure loans by using movable assets or claims as collateral, providing an alternative to traditional immovable property collateral.

Comparative analysis between other countries on the laws of recovery of non performing assets and non performing loans, possession and auction of the mortgage property by the secured creditor.

S.no	Laws on recovery of NPA,NPL,ARC of other countries
1.	United States Uniform Commercial Code (UCC), Article 9: Governs secured transactions involving personal property. Under this code, creditors can repossess collateral without court intervention (subject to certain requirements) if a borrower defaults, which resembles the non-judicial enforcement process of SARFAESI. Bankruptcy Code (Chapter 11): Used for restructuring distressed companies, allowing debtors to continue operations while formulating a plan to repay creditors.
2.	United Kingdom Enterprise Act 2002: Governs insolvency procedures and enhances creditor rights. It gives creditors certain powers to appoint administrators in cases of default. The process is generally court-supervised but allows out-of-court options. Law of Property Act 1925: Provides lenders the ability to appoint receivers to recover debts from mortgaged properties, similar to SARFAESI’s securitization options for recovery.
3.	Australia Personal Property Securities Act 2009 (PPSA): Establishes a framework for secured transactions. Creditors can repossess movable assets without court intervention in cases of default. Corporations Act 2001: Governs corporate insolvency and creditor rights, with provisions for restructuring and liquidation.
4.	Canada Personal Property Security Acts (PPSAs): Adopted by provinces, it enables lenders to secure transactions against movable assets. Creditors can seize assets without court intervention if stipulated in the security agreement. Bankruptcy and Insolvency Act: Allows for both restructuring and liquidation of insolvent entities under court supervision.
5.	Singapore Insolvency, Restructuring and Dissolution Act 2018: Provides for the restructuring or liquidation of companies and rights of secured creditors. Security Interests in Personal Property: Lenders can enforce security over movable assets without court intervention if there’s a default.
6.	Hong Kong Companies (Winding Up and Miscellaneous Provisions) Ordinance: Allows for court-supervised liquidation and provides creditors rights to claim assets in cases of default. Mortgagee Rights: Similar to SARFAESI, mortgagees have the right to sell a debtor’s property to recover dues if there’s a default.

Implications of Differences-

In India for the recovery of NPA and ARC by the secured creditor implemented laws of the Insolvency and Bankruptcy Code, 2016 (IBC), the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, 2002 (SARFAESI Act), and the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). Similar to these acts there are also other acts in other countries. In the US there is Uniform Commercial Code (UCC),Article 9 and Bankruptcy Code (Chapter 11). In the UK there is the Enterprise Act 2002 and the Law of Property Act 1925. In the Australia Personal Property Securities Act 2009 (PPSA) and

Corporations Act 2001. In Canada there are Personal Property Security Acts (PPSAs) and Bankruptcy and Insolvency Act. In Singapore there are

Insolvency, Restructuring and Dissolution Act 2018 and

Security Interests in Personal Property. In Hong Kong there are Companies (Winding Up and Miscellaneous Provisions) Ordinance and Mortgagee Rights. In South Korea there are Civil Execution Act,Bankruptcy and Insolvency Act, Special Act on Corporate Restructuring, and Act on Security Over Movable Property and Claims. These all acts are implemented in other countries for the recovery of NPA, NPL, ARC and secured transactions by giving the rights to secured creditor and borrower. These all acts are similar to the SARFAESI ACT in India.

Conclusion

In India, the SARFAESI ACT was enacted in 2002 for the recovery of non performing assets and possession of the property from the borrower. Before this act there were no proper laws in India for the recovery of non performing assets and security interest from the borrowers. This act made for the rights of secured creditor and borrower. Secured creditor can claim the non performing assets for the default of the borrower by following the provisions of SARFAESI ACT without the intervention of court. There are also similar laws in other countries provided for the recovery of non performing assets and secured loans by secured creditors. Because the recovery of non performing assets (NPA) will increase the economy of the country and financial status. There are laws or statutes for the recovery of non performing assets, rights of the secured creditor etc in the south korea,US,UK, Canada, Singapore, Australia & Hong kong.Each country varies in its approach, but many have frameworks that support non-judicial asset recovery and restructuring options, like SARFAESI, to empower secured creditors while balancing borrower rights.While the laws differ from SARFAESI, they collectively aim to support creditor rights and asset recovery through both judicial and extrajudicial means in South Korea and other countries.

Reference

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