The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (commonly known as the SARFAESI Act), is a key player in India's financial framework, providing a structured mechanism for banks and financial institutions to recover dues from borrowers who default on their loans. Section 6 specifically addresses the critical notice that must be issued to the obligor (borrower) and outlines the discharge of their obligations.

Notice to Obligor: A Crucial Step

Formal Notification
Section 6, Subsection 1 empowers banks and financial institutions to issue a formal notice to the obligor and any relevant parties. This notice serves as a critical communication tool, informing them of the transfer of financial assets to a securitization or reconstruction company. Essentially, it signals a change in ownership of the borrower's debt, transferring it from the original lender to the new entity.

Key Information Included
The notice must encompass essential details, including:

• Name of the Securitization or Reconstruction Company: Identifying the new entity that now holds the debt.
• Specifics of Financial Assets Acquired: Outlining the nature of the assets being transferred.
• Exact Amount Owed by the Obligor: Providing clarity on the financial obligation.

Additionally, the notice includes the contact information of the new entity, allowing the obligor to make subsequent payments directly to them.

Obligor's Responsibility to Repay

Upon receiving this notice, the obligor is mandated to direct their payments to the securitization or reconstruction company as detailed in the communication. Subsection 2 of Section 6 states that any payment made under this notice constitutes a full discharge of the obligor's liability concerning the financial asset acquired by the new entity. This provision safeguards the obligor from being subjected to double payments or additional claims related to the discharged financial asset.

Implications of Non-Receipt of Notice

If the obligor does not receive the notice as outlined in Subsection 1, any payments made thereafter to the original bank or financial institution are considered to be held in trust for the benefit of the securitization or reconstruction company. Subsection 3 of Section 6 obligates the original lender to promptly transfer these funds to the new entity. This provision protects the interests of the securitization or reconstruction company, ensuring they receive the payments owed, even if the obligor is unaware of the change in ownership of their debt.

Conclusion

In summary, Section 6 of the SARFAESI Act is pivotal in facilitating the debt recovery process by clearly delineating the notice requirements and the responsibilities of the obligor. By ensuring that securitization and reconstruction companies receive their dues from defaulting borrowers, this section streamlines the transition of debt ownership and enhances the efficiency of recovery efforts. This legal framework promotes transparency and accountability, ultimately benefiting both lenders and borrowers in the financial ecosystem