MCQ Test: SARFAESI Act - 1 - Bank Exams MCQ

Section 20 Central Registry-(1) The Central Government may, by notification, set up or cause to be set up from such date as it may specify in such notification, a registry to be known as the Central Registry with its own seal for the purposes of registration of transaction of securitisation and reconstruction of financial assets and creation of security interest under this Act.

ARCs are the specialized agencies which facilitate bad loan resolution of banking system.

Section 10 Other functions of asset reconstruction company (1) Any asset reconstruction company registered under section 3 may (a) act as an agent for any bank or financial institution for the purpose of recovering their dues from the borrower on payment of such fees or charges as may be mutually agreed upon between the parties; (b) act as a manager referred to in clause (c) of sub-section (4) of section 13 on such fee as may be mutually agreed upon between the parties; (c) act as receiver if appointed by any court or tribunal: Provided that no asset reconstruction company shall act as a manager if acting as such gives rise to any pecuniary liability.

The Reserve Bank of India (RBI) may cancel the Certificate of Registration granted to an asset reconstruction company (ARC) under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 if either of the following circumstances occur:

a. Ceases to receive or hold any investment from a qualified buyer: An ARC must continuously receive or hold investments from qualified buyers to carry out its business activities. If an ARC ceases to receive or hold such investments, the RBI may cancel its Certificate of Registration.

b. Ceases to carry on the business of securitization or asset reconstruction: The primary purpose of an ARC is to engage in the securitization or asset reconstruction of financial assets. If an ARC discontinues or ceases to carry on this business activity, the RBI may cancel its Certificate of Registration.

c. Failed to comply with any conditions subject to which the certificate of registration has been granted: When the RBI grants a Certificate of Registration to an ARC, it may impose certain conditions that the ARC must comply with. If the ARC fails to meet any of these conditions, the RBI has the authority to cancel its Certificate of Registration.

Therefore, any one of the above circumstances can lead to the cancellation of an ARC's Certificate of Registration by the RBI.

Section 5A -Transfer of pending applications to any one of Debts Recovery Tribunals in certain cases- If any financial asset, of a borrower acquired by a asset reconstruction company, comprise of secured debts of more than one bank or financial institution for recovery of which such banks or financial institutions has filed applications before two or more Debts Recovery Tribunals the asset reconstruction company may file an application to the Appellate Tribunal having jurisdiction over any of such Tribunals in which such applications are pending for transfer of all pending applications to any one of the Debts Recovery Tribunals as it deems fit.

As per the section 29 of the SARFAESI act, if any person contravenes or Attempts to contravene or abets the contravention of the provisions of this act or of any rules made there under, he shall be punishable with imprisonment for a term which may extend to one year or with fine, or with both.

As per section 18 of the SARFAESHI Act, 2002, Appeal to Appellate Tribunal:

(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to the Apellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal;

PROVIDED that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower

PROVIDED FURTHER that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:

PROVIDED ALSO that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five percent of debt referred to in the second provision

(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts due to Banks and Financial Institution Act, 1993 (51 of 1993) and rules made there under,

Once the account is classified as a NPA the secured creditor issues a demand notice u/s 13(2) of the SARFAESI Act for repayment of the outstanding dues as set out in the demand notice within 60 days. The borrower may raise objections to the said notice in writing within 60 days and the secured creditor has to consider and reply to the aid objection u/s 13 (3A). In case of non-payment within the statutory period of 60 days, the authorized officer shall thereafter be entitled to take possession of the secured assets u/s 13(4).

Section 243 of the Insolvency and Bankruptcy Code, 2016 (IBC) repealed the Presidency Towns Insolvency Act, 1909, and Provincial Insolvency Act, 1920. This section of the IBC specifically deals with the repeal and savings provisions related to the prior insolvency laws.

Repealing these acts was a significant step towards consolidating and modernizing the insolvency framework in India under a unified code, the IBC. The IBC provides a comprehensive and streamlined mechanism for insolvency resolution, liquidation, and bankruptcy proceedings for individuals, companies, and partnerships, replacing the earlier legislation governing insolvency.

Insolvency and Bankruptcy Code 2016 proposes a paradigm shift from the existing 'Debtor in possession' to a 'Creditor in control' regime. 
The code aims to address insolvencies in a strict time-bound manner in which the evaluation and viability determination must be completed within 180 days.
A moratorium period of 180 days (extendable up to 270 days) is applicable for the big enterprises. 
A moratorium period for small and startup firms under Insolvency and Bankruptcy Code 2016 is 90 days which can be extended for 45 days.
This act proposed a qualified Insolvency Professional (IP) as intermediaries to oversee the process of the procedures.