Economics • Banking & FinanceHard
Evaluate the mechanism of the 'Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002'. Under what condition can secured creditors enforce security interests without court intervention?
A. When the borrower's loan account is classified as a non-performing asset and notice is served demanding repayment within sixty days.✓ Correct Answer
B. When the borrower requests a voluntary debt restructuring scheme mediated by the National Company Law Tribunal.
C. When the central government declares a national financial emergency suspending commercial contracts.
D. When the total outstanding debt exceeds fifty crore rupees and involves foreign institutional lenders.
💡 Solution & Explanation
The SARFAESI Act empowers banks and financial institutions to recover dues by enforcing security interests without court intervention, provided the borrower's account is classified as a non-performing asset and a sixty-day notice is served. Secured creditors can take possession of collateralized assets and auction them to recover outstanding loans. This legislation significantly accelerated debt recovery timelines compared to traditional civil court litigation.
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