This section lays down the key definitions relevant to the interpretation and application of the SARFAESI Act. Each term is essential for understanding the legal framework surrounding asset reconstruction and enforcement of security interests.
Appellate Tribunal: Refers to the Debts Recovery Appellate Tribunal constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It addresses appeals against orders made by the Debts Recovery Tribunal.
Asset Reconstruction: This term encompasses the acquisition of rights or interests in financial assistance from banks or financial institutions by an asset reconstruction company (ARC). The primary objective is to realize and recover the financial assistance.
Asset Reconstruction Company (ARC): A company registered with the Reserve Bank of India (RBI) for conducting asset reconstruction or securitization activities.
Bank: Includes various banking institutions such as banking companies, the State Bank of India, and multi-state cooperative banks. It may also encompass any other banks specified by the Central Government.
Borrower: Defined as any individual or entity that receives financial assistance from a bank or financial institution. This includes those who provide guarantees or create security for such assistance.
Central Registry: Refers to the registry established to maintain records of security interests created by borrowers in favor of secured creditors.
Financial Assistance: Encompasses various forms of loans, advances, guarantees, letters of credit, and other credit facilities extended by banks and financial institutions.
Financial Asset: It includes debts, receivables, and any rights or interests in these assets, whether secured or unsecured.
Financial Institution: A broad category that includes public financial institutions, any institution designated by the Central Government, and non-banking financial companies.
Non-Performing Asset (NPA): An asset classified by a bank or financial institution as sub-standard due to a borrower’s inability to meet debt obligations.
Obligor: Any person liable to the originator to pay a financial asset or discharge any obligation related to it.
Originator: The original owner of a financial asset that is transferred to an ARC for securitization or reconstruction.
Secured Creditor: Includes banks, financial institutions, and ARCs holding security interests created by borrowers.
Security Interest: Refers to any rights, title, or interest in property created in favor of a secured creditor, which includes mortgages, charges, and hypothecations.
Securitization: The process of acquiring financial assets by an ARC from the originator, often involving the issuance of security receipts representing undivided interest in those assets.
Q1: What is the role of an Asset Reconstruction Company (ARC)?
A1: ARCs specialize in acquiring distressed financial assets from banks or financial institutions and recovering the value of those assets, often through restructuring or selling them.
Q2: How does "default" affect borrowers?
A2: Default occurs when a borrower fails to repay a loan, leading to the account being classified as a non-performing asset (NPA). This can damage the borrower’s credit rating and limit future borrowing opportunities.
Q3: What are the benefits of securitization?
A3: Securitization helps banks convert illiquid assets into liquid securities, improving their liquidity, reducing risk, and enhancing overall financial management.
Q4: Who qualifies as a "qualified buyer"?
A4: Qualified buyers are registered financial institutions, banks, and other entities that have been authorized by SEBI or the RBI to purchase securitized assets.
Q5: What is the significance of the Central Registry?
A5: The Central Registry helps track security interests on assets, ensuring transparency in ownership and reducing the risk of multiple claims on the same property.
Q6: How is "financial assistance" defined?
A6: Financial assistance refers to loans, advances, and other forms of credit provided by banks or financial institutions.
By understanding these definitions and concepts, stakeholders can navigate the complexities of asset reconstruction, securitization, and financial recovery more effectively