📌 Full Form
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
👉 Nickname: The Fast-Track Loan Recovery Law
🎯 Objectives
- Empower banks to recover bad loans (NPAs) without court delays.
- Reduce non-performing assets (NPAs).
- Enable creation of ARCs (Bad Banks) to take over stressed loans.
🔑 Applicability
✔️ Secured Loans (Home Loan, Vehicle Loan, Business Loan with collateral).
❌ Not Applicable To:
- Agricultural land 🚫🌾
- Loans < ₹1 Lakh
- Unsecured loans (e.g., Personal Loans, Credit Cards)
🏗️ Three Pillars of SARFAESI
- Securitisation – Bundling bad loans into marketable securities.
- Asset Reconstruction (ARC) – Specialized companies take over NPAs from banks.
- Enforcement of Security Interest – Bank directly seizes and sells borrower’s mortgaged asset.
🔄 SARFAESI Process
| Step | Action | Timeframe |
|---|---|---|
| 1 | Demand Notice – Bank sends 60-day notice to borrower | 60 days |
| 2 | Possession – If unpaid, bank takes possession (symbolic or physical) | After 60 days |
| 3 | Sale Notice – 30-day public notice before auction | 30 days |
| 4 | Sale – Asset auctioned, proceeds adjust dues | After 30 days |
👉 Borrower can repay anytime before auction to reclaim asset.
⚖️ Important Sections
| Section | Purpose | Memory Tip |
|---|---|---|
| Sec 2 | Definitions (NPA, ARC, Borrower) | “Dictionary” |
| Sec 3 | Formation of ARCs | “Bad Bank License” |
| Sec 9 | Powers of ARCs | “ARC = Bank’s Shoes” |
| Sec 13 | Main recovery power, 60-day notice, auction | “Power ON Button” |
| Sec 14 | DM/Police help to evict | “Official Backup” |
| Sec 15 | Bank can take over company management | “CEO Swap” |
| Sec 17 | Borrower’s first appeal → DRT | “It’s Unfair!” |
| Sec 18 | Second appeal → DRAT (50% deposit) | “Round 2” |
| Sec 20 | CERSAI registry for loans | “Fraud Check” |
| Sec 31 | Exceptions (Agri land, <₹1L, unsecured) | “Not Allowed List” |
| Sec 34 | Civil courts barred | “No Local Court” |
| Sec 36 | Action must be within 12 years | “Time Limit” |
🏛️ Remedies for Borrower
- Appeal under Sec 17 → DRT within 45 days.
- Appeal under Sec 18 → DRAT (deposit 50% dues).
🚨 2016 Amendments
- NBFCs (with loan size ≥ ₹1 Cr) allowed to use SARFAESI.
- Cooperative Banks brought under SARFAESI.
⚖️ SARFAESI vs Other Routes
| Aspect | NCLT (IBC) | DRT (RDB Act) | Civil Suit |
|---|---|---|---|
| Purpose | Corporate insolvency | Bank loan recovery | General disputes |
| Law | IBC, Companies Act | RDBA, SARFAESI | CPC, 1908 |
| Speed | 330 days | Faster than civil | Very slow |
| Counterclaims | Limited | Not allowed | Allowed |
| Jurisdiction | Companies, LLPs | Debts > ₹20L | Individuals, entities |
✅ Quick Revision Key
- Notice (60 days) → Sec 13
- Police Help → Sec 14
- Appeal → Sec 17 (DRT) → Sec 18 (DRAT)
- No Civil Court → Sec 34
- Exceptions → Sec 31
Quick study tips
- Memorize Section 13(2) — 60 days and Section 13(4) measures; these are repeatedly asked. India Code+1
- Remember 45 days statutory window to approach DRT / appeal route (Section 17/18 context) — commonly tested. Lexology
- Know Section 31(i) exemption for agricultural land (and the courts’ factual approach). India Code+1
- Learn roles of ARCs and CERSAI and that RBI registers ARCs. ClearTax+1
✅ SARFAESI Act MCQs
- SARFAESI stands for:
A. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
B. Securities and Reconstruction of Financial Assets and Enforcement of Securities Act
C. Securitisation and Regulation of Financial Assets and Enforcement of Securities Interest Act
D. Securities and Repossession of Financial Assets and Enforcement Act
→ Ans: A - The SARFAESI Act was enacted in:
A. 1993
B. 2002
C. 2010
D. 2016
→ Ans: B - Who is a “secured creditor” under SARFAESI?
A. Any creditor without security
B. Banks/FIs holding security interest
C. Only ARCs
D. Only RBI
→ Ans: B - Section 13(2) notice gives the borrower how many days to repay?
A. 30 days
B. 45 days
C. 60 days
D. 90 days
→ Ans: C - Which section empowers the creditor to take possession/sale of assets?
A. 13(1)
B. 13(3)
C. 13(4)
D. 17
→ Ans: C - Which is NOT permitted under Section 13(4)?
A. Take possession
B. Take over management
C. Ask third parties to pay dues
D. Arrest borrower
→ Ans: D - Appeals against SARFAESI actions lie with:
A. Civil Court
B. DRT / DRAT
C. Consumer Forum
D. NCLT
→ Ans: B - Time limit for borrower to appeal to DRT:
A. 30 days
B. 45 days
C. 60 days
D. 90 days
→ Ans: B - Which property is exempt from SARFAESI?
A. Industrial unit
B. Agricultural land
C. Office premises
D. Warehouse
→ Ans: B - ARCs are regulated by:
A. SEBI
B. RBI
C. MCA
D. IRDA
→ Ans: B - Purpose of CERSAI:
A. Auction properties
B. Register security interests
C. Act as ARC
D. Monitor credit scores
→ Ans: B - Authorised Officer under SARFAESI is:
A. Any clerk
B. Bank officer (Chief Manager level or above)
C. Magistrate
D. Auditor
→ Ans: B - Before sale of secured asset, AO must:
A. Fix reserve price via approved valuer
B. Sell without valuation
C. Approach court
D. Ask borrower permission
→ Ans: A - SARFAESI allows banks to:
A. Sell assets without court intervention
B. Arrest borrower
C. Cancel land title
D. Write off loan automatically
→ Ans: A - SARFAESI applies to:
A. Unsecured loans
B. Secured loans only
C. All loans
D. Govt. grants
→ Ans: B - Appeals under SARFAESI are covered under:
A. Sec 5
B. Sec 17–18
C. Sec 31
D. Sec 50
→ Ans: B - Can banks proceed against guarantors before 13(4) measures?
A. No
B. Yes
C. Only after 3 years
D. Only with court order
→ Ans: B - Sale proceeds of asset are:
A. Kept by AO
B. Adjusted against dues
C. Given back to borrower fully
D. Deposited in govt. fund
→ Ans: B - DRTs were established under:
A. SARFAESI Act
B. RDDBFI Act, 1993
C. IBC 2016
D. NI Act
→ Ans: B - ARCs buy NPAs using:
A. Only cash
B. Security Receipts (SRs) / cash
C. Govt. bonds
D. Bank equity
→ Ans: B - SARFAESI is applicable to NBFCs:
A. Never
B. Yes, via RBI notification & conditions
C. Always automatically
D. Only foreign NBFCs
→ Ans: B - Possession of movable assets is taken under:
A. NI Rules
B. Security Interest (Enforcement) Rules 2002
C. Income Tax Rules
D. Companies Rules
→ Ans: B - Symbolic possession under SARFAESI:
A. Not recognised
B. Must be displayed by REs
C. Gives automatic ownership
D. Allows sale without procedure
→ Ans: B - Section to require third parties to pay creditor:
A. Sec 10
B. Sec 13(4)(d)
C. Sec 25
D. Sec 31
→ Ans: B - Effect of DRT stay on SARFAESI sale:
A. No effect
B. Stops further action
C. Forces auction
D. Transfers title
→ Ans: B - Common ground for challenging SARFAESI:
A. Procedural defects in notices
B. Borrower’s personal issues
C. Bank’s profit margin
D. Loan age
→ Ans: A - Agricultural land exemption is under:
A. Sec 5
B. Sec 31(i)
C. Sec 50
D. Sec 13(1)
→ Ans: B - CERSAI registers:
A. Stock trades
B. Security interests
C. Insurance policies
D. Demat accounts
→ Ans: B - Authorised Officer is appointed by:
A. Borrower
B. Bank
C. Court
D. Registrar
→ Ans: B - Section 31 provides:
A. Exemptions (agricultural land, small loans)
B. Mandatory auction
C. Loan waivers
D. Govt. guarantees
→ Ans: A - Banks transfer NPAs via:
A. Consumer forum
B. ARC sale (securitisation/reconstruction)
C. Police complaint
D. Savings account
→ Ans: B - Security interests must be registered with:
A. SEBI
B. CERSAI
C. NCLT
D. ROC
→ Ans: B - Purchaser under SARFAESI receives asset:
A. Free from known encumbrances
B. After 50 years
C. Only after borrower approval
D. Without title
→ Ans: A - Primary purpose of SARFAESI:
A. Enforce security interest & reconstruct assets
B. Regulate stock market
C. Set interest rates
D. Nationalise banks
→ Ans: A - SARFAESI challenges must go through:
A. Consumer forum
B. DRT / DRAT
C. Lok Adalat
D. Panchayat
→ Ans: B
Other Questions
1. What is the primary purpose of NCLT?
a) Resolving criminal disputes in companies
b) Handling insolvency and company disputes
c) Recovering debts for banks
d) Managing mergers in public sector banks
Answer: b) Handling insolvency and company disputes
2. Under which act was NCLT established?
a) Companies Act, 2013
b) SARFAESI Act, 2002
c) Insolvency and Bankruptcy Code, 2016
d) RDBA, 1993
Answer: a) Companies Act, 2013
3. Who appoints the Interim Resolution Professional (IRP) under NCLT proceedings?
a) Ministry of Finance
b) Reserve Bank of India
c) NCLT
d) High Court
Answer: c) NCLT
4. Which of the following cases can NCLT handle?
a) Recovery of small personal loans
b) Insolvency of companies and LLPs
c) Disputes involving agricultural loans
d) Criminal cases related to companies
Answer: b) Insolvency of companies and LLPs
5. What is the minimum loan amount required to initiate action under SARFAESI?
a) Rs. 50,000
b) Rs. 1 Lakh
c) Rs. 5 Lakhs
d) Rs. 10 Lakhs
Answer: b) Rs. 1 Lakh
6. What is the time period given to borrowers to respond to a demand notice under SARFAESI?
a) 30 days
b) 45 days
c) 60 days
d) 90 days
Answer: c) 60 days
7. Which type of property is exempt under SARFAESI?
a) Residential property
b) Agricultural land
c) Commercial property
d) Industrial equipment
Answer: b) Agricultural land
8. What is the role of CERSAI in SARFAESI?
a) Auctioning secured assets
b) Filing cases against defaulters
c) Registering security interests created by banks
d) Managing the repayment schedules of borrowers
Answer: c) Registering security interests created by banks
9. What is the minimum debt amount required for a case to be filed in DRT?
a) Rs. 5 Lakhs
b) Rs. 10 Lakhs
c) Rs. 15 Lakhs
d) Rs. 20 Lakhs
Answer: d) Rs. 20 Lakhs
10. DRT primarily deals with cases related to:
a) Consumer disputes
b) Corporate insolvency
c) Debt recovery by banks
d) Labor laws
Answer: c) Debt recovery by banks
11. Who can file a case in DRT?
a) Borrowers against banks
b) Banks and financial institutions
c) Government agencies
d) Private individuals
Answer: b) Banks and financial institutions
12. Appeals against DRT decisions are made to which authority?
a) Civil Court
b) Supreme Court
c) Debt Recovery Appellate Tribunal (DRAT)
d) High Court
Answer: c) Debt Recovery Appellate Tribunal (DRAT)
13. In which court are civil suits filed?
a) Criminal Court
b) Civil Court of competent jurisdiction
c) NCLT
d) DRT
Answer: b) Civil Court of competent jurisdiction
14. Which type of disputes can be resolved through civil suits?
a) Property disputes
b) Insolvency cases
c) Debt recovery for banks
d) Company law disputes
Answer: a) Property disputes
15. What is the primary drawback of civil suits?
a) High litigation costs and delays
b) Limited jurisdiction
c) Lack of legal representation
d) No provision for appeals
Answer: a) High litigation costs and delays
16. Which tribunal is specialized for recovering bank loans under SARFAESI?
a) DRT
b) NCLT
c) Civil Court
d) High Court
Answer: a) DRT
17. Which act governs the resolution of insolvency for companies in India?
a) RDBA, 1993
b) SARFAESI Act, 2002
c) Insolvency and Bankruptcy Code, 2016
d) Companies Act, 2013
Answer: c) Insolvency and Bankruptcy Code, 2016
18. Under SARFAESI, if a borrower disagrees with the proceedings, they can appeal to:
a) Civil Court
b) DRT
c) DRAT
d) High Court
Answer: b) DRT
19. What is the key distinction between DRT and civil suits?
a) DRT handles criminal cases; civil suits do not.
b) DRT focuses on debt recovery for banks; civil suits cover broader disputes.
c) Civil suits are faster than DRT proceedings.
d) DRT cannot issue recovery certificates.
Answer: b) DRT focuses on debt recovery for banks; civil suits cover broader disputes.
20. NCLT handles insolvency cases for:
a) Individuals only
b) Companies and LLPs only
c) Individuals and companies
d) Government agencies
Answer: b) Companies and LLPs only