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The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is a crucial legislation that empowers banks and financial institutions to recover their dues from defaulting borrowers. Among the key provisions of this act are Sections 13(2) and 13(4), which lay down the procedures for the enforcement of security interest by banks and financial institutions. In this article, we will take a closer look at these sections and understand their implications for borrowers and lenders.

What is Section 13(2) of SARFAESI Act?

Section 13(2) of the SARFAESI Act empowers banks and financial institutions to issue a notice to the borrower in case of default in repayment of any secured loan. The notice should specify the amount of outstanding dues and demand repayment within 60 days. The borrower has the right to make representations against the notice before the secured creditor.

If the borrower fails to comply with the notice or make representations against it, the bank or financial institution can proceed with the enforcement of security interest without any further notice. This can include taking possession of the secured asset, selling it and recovering the dues.

What is Section 13(4) of SARFAESI Act?

Section 13(4) of the SARFAESI Act provides for the right of the borrower to make representations to the secured creditor against the measures taken under Section 13(2). The representations can be made within 45 days from the date of receipt of the notice under Section 13(2). The secured creditor has the obligation to consider the representations made by the borrower and communicate the decision within 15 days.

In case the secured creditor does not communicate the decision or rejects the representations made by the borrower, the latter has the right to approach the Debt Recovery Tribunal (DRT) within 45 days from the date of receipt of the decision or from the date on which the decision was to be communicated.

Implications for Borrowers and Lenders

Sections 13(2) and 13(4) of the SARFAESI Act have significant implications for both borrowers and lenders. For lenders, these provisions provide a faster and more efficient mechanism for the recovery of dues in case of defaults by borrowers. The notice under Section 13(2) serves as a warning to the borrower and provides an opportunity to repay the dues before the enforcement of security interest. It also protects the interests of the lender by allowing for the sale of the secured asset to recover the dues.

For borrowers, these provisions can be detrimental in case of default. The notice under Section 13(2) can result in the loss of the secured asset and can adversely impact the credit score of the borrower. The right to make representations under Section 13(4) provides some relief to the borrower by allowing them to challenge the measures taken by the lender.

Conclusion

Sections 13(2) and 13(4) of the SARFAESI Act are crucial provisions that enable banks and financial institutions to recover their dues from defaulting borrowers. While these provisions provide a faster and more efficient mechanism for recovery of dues, they can also be detrimental to the interests of borrowers in case of default. It is therefore essential for borrowers to be aware of their rights and obligations under these provisions and take appropriate measures to avoid defaulting on their loans.