The financial sector is one of the pivots of any developing country. It is crucial to India too in accelerating the growth of its economy.

The slow rate of recovery on defaulting loans and the extremely high levels of nonperforming assets of banks and financial institutions were matters of pressing concern and eventually led to the formation of a reform. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government brought about modifications in the legal system in accordance to these concerns.

The Committees made suggestions to form new legislation for securitization and empowering banks and financial institutions to gain possession of the securities and to sell them without any intervention of the courts.

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 is a legislation that aids financial institutions and banks to auction or sell both residential and commercial properties in order to recover bad loans. This essentially means that the Act was created primarily to address the issue of Non-Performing Assets or bad assets via a variety of mechanisms.


In regards to NPA management, securitization is the process of conversion of loans into marketable securities.

(ii)Asset Reconstruction
Asset reconstruction is the process of transforming a bad or non-performing asset into a performing asset. The mechanism of asset reconstruction involves several steps which includes purchasing of bad asset by a dedicated asset reconstruction company (ARC), financing of the bad asset conversion into good asset using bonds, debentures, securities and cash etc among other steps.

(iii)Enforcement of Security without the intervention of the Court.
The Act empowers the financial institutions to take possession or auction the securities without any intervention of the Court


1. Swift and efficient recovery of Non-Performing Assets of financial institutions
2. Setting the foundation and architecture of the legal framework required for securitization activities
3. Granting financial institutions and banks the ability to secure interests without any intervention from the Courts
4. Allows banks and financial institutions to auction the properties when borrower is unable to repay the loan

e-Form CHG-1 or e-Form CHG-9 is required to be filed for application of
a.  Registration of creation
b.  Modification of charge (other than those related to debentures) including particulars of modification of charge by Asset Reconstruction Company in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 [SARFAESI]

The documents in this context are as follows:

i.  Particulars of charge
ii.  Hypothecation Deed
iii.  An Instrument created for the charge
iv.  Certificate of registration
v.  Copy of the instrument – creating or modifying the charge
vi.  Sanction Letter

In case of any e-Form to be digitally signed, either of the following is required-

a. DSC of the charge holder
b. Director Identification Number [DIN]of the Director
c. Permanent Account Number [PAN] of the manager, CEO, CFO
d. Membership Number of the Company Secretary

The SARFAESI Act aims to preserve the right to property of the borrower by maintaining that a proper, thorough process needs be followed before the borrower’s property is disposed. The underlying notion is that the financial institutions do not abuse the wide powers provided to them and that the cases of bad loans are rectified quickly and efficiently.

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