This document summarizes key changes made to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) through an amendment act passed in 2016. Some major changes include renaming securitization companies as asset reconstruction companies, allowing non-institutional investors to invest in security receipts, expanding the definition of secured creditor and secured interest, and granting additional powers to the Reserve Bank of India to regulate and audit asset reconstruction companies. The amendments updated various definitions, widened the scope of certain provisions, and exempted asset reconstruction companies from stamp duty in certain asset acquisition transactions.

1. MUKESH CHAND GENERAL MANGER (LEGAL) SIDBI
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment)
Act, 2016 {Published in Gazette on August 16, 2016}
BACKGROUND
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Act came
into effect from June 21st, 2002 with the twin objective of :Formation and regulation of securitization and reconstruction
companies and Enforcement of Security interest by secured creditors. The Act also provided for establishment of Central
Registry for the purpose of registeration of transaction relating to securitization, reconstruction of financial assets and
security interest created over properties.
The Act was amended in January 2013 by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment)
Act, 2011. The act brought about the following major changes in the SARFAESI Act:
Ø It allowed ARCs to convert part of debt into equity [Section 9]
Ø It allowed banks to bid for any immovable property where a first auction has failed [Section 13 (5A)].
Ø Multi state Co-Operative Banks were included within the meaning of “a bank” under this Act (Section 2 (iva).
Ø Also provided for substitution of name of securitization or reconstruction company in place of the name of the
original lender in any pending suit in the D.R.T. or D.R.A.T [Section 5]
Ø In case of multiple creditors, rights can be exercised by the individual creditors only if that creditor represents
at least 60% of the debt amount Section (13 (9)).
Ø The Amended Act allowed a secured creditor to file a Caveat in the D.R.T., if an appeal is expected to be
preferred against it based on of the proceedings of the lender under the Act (Section 18 ©).
Ø The amendment has laid down guidelines for seeking assistance of Magistrate and furnishing of an affidavit
stating that the debt is proportional to the property being possessed, the borrower has indeed defaulted in
payment of the debt, the borrower has created a security interest over the property, the borrower has been
served a 60 day notice before taking any action under the act etc. (Section 14)
It provided that if the lender fails to inform the Central Registry/Central Government about the securitization of an asset
as laid down in Sections 23, 24, 25 of the Act. The Court can take cognizance of such an offence only with the approval of
the Reserve Bank of India or the Central Registry. Also such cognizance can be taken only by a court not inferior to a
Metropolitan Magistrate/Judicial Magistrate.
Major Changes Brought about by the Amendment Act of 2016
Section New Provisions Amendment
SARFAESI ACT
2 Renaming of Securitisation
Company- as “asset
reconstruction company”.
For the words "securitisation company", "reconstruction
company", "securitisation or reconstruction company" ,
"securitisation company or the reconstruction company" or
"securitisation company or a reconstruction company", the
words "asset reconstruction company" are substituted.
3(f) It prohibits sponsor of ARC
from being its holding
company or holding a
controlling interest.
New amendment paves the way for a sponsor of an ARC to hold
up to a 100% stake in the ARC if the sponsor of ARC is a fit and
proper person in accordance with the criteria as may be
specified in the guidelines issued by the Reserve Bank for such
persons.
7 At present only institutional
investors can subscribe to
SRs
The section has been amended by insertion of the words or
such other category of investors including non – intuitional
investors as may be specified by RBI. It will also enable non-
institutional investors to invest in security receipts issued by
ARCs.

2. 3(6) Existing provisions require
that every ARC to obtain
prior approval of RBI for any
substantial change in its
management or change of
location of its registered
office or change in its name.
[By substantial change in management means the change in the
management by way of transfer of shares or amalgamation or
transfer of the business of the company. Now scope has been
extended to cover changes affecting the sponsorship in the
company by way of transfer of shares]
The scope of the provisions has also been widened by
insertion of the words "including appointment of any director
on the board of directors of the asset reconstruction company
or managing director or chief executive officer thereof".
5 Existing provisions provides that
ARC can acquire financial assets
of any bank or financial
institution by issuing a
debenture or bond or any other
security in the nature of
debenture or by entering into
an agreement with such bank or
financial institution for the
transfer of such financial assets.
Exemption from
payment of
stamp duty on
assignment of
financial assets
in favour of ARC
Now new provisions has been inserted exempting such
transactions from stamp duty in accordance with the
provisions of section 8F of the Indian Stamp Act, 1899.
However, this exemption will not apply where the acquisition
of the financial assets by the asset reconstruction company is
for the purposes other than asset reconstruction or
securitization
5 (2A) Vesting of right in ARC upon
transfer/assignment
A new sub section has been inserted which provides for
vesting of all rights, title or interest upon any tangible asset or
intangible asset to secure payment of any unpaid portion of
the purchase price of such assets or an obligation incurred or
credit otherwise provided to enable the borrower to acquire
the tangible assets or assignment or licence of intangible
asset, such right, title or interest shall vest in the ARC.
Clause (g) of
Section 2
Definition of “Debt”
widened
To include (i) unpaid portion of the purchase price in case of
hire purchase or financial lease or conditional sale or under
any other contract;
(ii) any right, title or interest on any intangible asset or license
or assignment of such intangible asset,
(j) Definition of the term
“default” also widened
Earlier the term default was defined with reference to non-
payment of principal debt or interest thereon or any other
amount payable by the borrower now it is defined with
reference to “non-payment of any debotl or any other
amount”. It would now include default in non- payment of
debt securities after service of ninety days notice after notice
of ninety days demanding payment of dues.
k The term financial
assistance expanded to
include hire
purchase/license of
intengibles
Existing definition provides the financial assistance to mean
any loan or advance granted or any debentures or bond
subscribed or any guarantees given or letters of credit
established or any other credit facility extended by Bank/FI.
This has been expanded by insertion of the words “including
funds provided for the purpose of acquisition of any tangible
asset or hire or financial lease or conditional sale or under
other contract or obtaining assignment or license of any
intangible asset or purchase of debt securities.

3. l The term financial assets
expanded to include
beneficial interest in
tangible assets given on
hire/lease/conditional sale
and in intangible assets or
license or assignment of
such intangible assets.
At present the term financial assets is defined to mean debt or
receivable and include a claim to any debt or receivables
(whether secured or unsecured) or any debt or receivables
secured by mortgage, charge on immovable property or a
mortgage, charge, hypothecation or pledge of movable
property or any right or interest in the security, any beneficial
interest in property, whether movable or immovable or in
such debt , receivables, whether such debt is existing, future,
accruing, conditional or contingent or any financial assistance.
m Debenture Trustee and ARC
added within the definition
of financial institutions
At present the term include PFI within the meaning of section
4A of the Companies Act, 1956, other institutions specified by
the Central Government, IFC, any other NBFC under 45-I(f) of
RBI Act which CG may notify. Govt has vide notification dated
August 05, 2016 notified 196 NBFCs for this purpose.
ma The term “financial lease”
has been defined
New term has been defined to mean a lease under any lease
agreement of tangible assets, other than negotiable
instrument or negotiable document, for transfer of lessor’s
right therein to the lessee for a certain time in consideration
of payment of agreed amount periodically and where the
lessee becomes the owner of such assets at the expiry of the
term of lease or on payment of the agreed residual amount, as
the case may.
na The term “negotiable
document” defined.
New definition inserted: Negotiable document to mean a
document, which embodies a right to delivery of tangible
assets and satisfies the requirements of negotiability under
any law for the time being in force including warehouse
receipt and bill of lading.
12 (B) Powers of RBI to carry out
audit and inspection of ARCs
and also impose penalties.
Provisions added for RBI to examine the statements and any
information of Asset Reconstruction Companies related to their
business and to carry out audit and inspection an impose
penalties ARC fails to comply with any directions issued by it.
2 (zd) Definition of ‘secured
creditor’ expanded
To include : consortium or group of banks /debenture trustee
/ARCs/ debenture trustee registered with the Board appointed
by any company for secured debt securities; /any other trustee
holding securities on behalf of a bank or financial institution.
2 (zf) Definition of ‘secured
interest’ expanded
To include hire purchase/lease/conditional sale/assignment or
license of intangibles.
9 Additional measures for
assets reconstruction
a) the proper management of the business of the borrower, by
change in, or take- over of, the management of the business of
the borrower; [It enables secured creditors to take over a
company and restore its business on acquisition of controlling
interest in the borrower company]
(b) the sale or lease of a part or whole of the business of the
borrower;
(c) rescheduling of payment of debts payable by the borrower;
(d) enforcement of security interest in accordance with the
provisions of this Act;
(e) settlement of dues payable by the borrower;
(f) taking possession of secured assets in accordance with the
provisions of this Act;
(g) conversion of any portion of debt into shares of a borrower
company:

4. Provided that conversion of any part of debt into shares of a
borrower company shall be deemed always to have been valid,
as if the provisions of this clause were in force at all material
times.
13 Requirement of NPA not to
be applicable in case of debt
securities
Requirement of classification of secured debt as NPA not
applicable to debt securities; and to debenture trustee.
14 DM/Magistrate to pass
order within 30 days (can be
extended by another 30
days)
Section 14 amended for passing of order by DM on the
application of secured creditor for assistance, within 30 days of
filing of application + another 30 days.
17(1A) Jurisdiction For application against action under SARFAESI Act: a) where
cause of action has arisen, (b) where secured assets is located,
or the branch where account is maintained is located.
17(3)/19 Power of DRT to restore
possession to
Borrower/other aggrieved
person
The existing section 17 contains provisions only for restoration
of possession of secured assets to borrower where action of
secured creditor under section 13 is held by DRT to be invalid.
Now specific provisions have been added to include
restoration of possession to borrower or other aggrieved
person.
17 Powers to DRT to deal with
issue of lease/tenancy over
secured assets
New provisions have been incorporated for conferring powers
on DRTs to pass appropriate order where it is satisfied that
tenancy right or leasehold rights claimed in secured asset (a)
has expired or stood determined; or (b) is contrary to section
65A of the Transfer of Property Act, 1882; or (c) is contrary to
terms of mortgage; or (d) is created after the issuance of notice
of default and demand by the Bank under sub-section (2) of
section 13 of the Act.
23 Time limit for filing of
charge to go (as filing date is
now being recognized as the
effective date of the charge)
After amendment come into effect, the time limit of 30 days
prescribed under section 23 as also the power of the Central
Registry to extend the time for filing of charge will be removed
as the charges will be effective from the date of registeration
with the Central Registry. Further, the Central Government by
notification require registeration of transaction relating to
different types of security interest created on different kinds
of properties (at present such transactions are limited to
mortgages).
NEW CHAPTER IV A REGISTERATION OF CHARGES
26B Central Registry: Power to
Central Govt to
extend/integrate provisions for
registration of charges with
various registering authorities
The Act creates a Central Registry to maintain records of
transactions related to secured assets to integrate records of
property registered under various registration systems with this
central registry under Companies Act, 2013, Registration Act,
1908 and Motor Vehicles Act, 1988. It aims at creating a
database of creation, modification and satisfaction of charge,
by borrower in respect of all creditors, which will disclose all
encumbrances on property across all lenders. However, it will
be only the “secured creditor” as per the definition of the Act,
who will be able enforce their security interest under
SARFAESI Act.
26C Registration of
charge/attachment order etc to
be a Public Notice
Charge not to have effect
Registration of transaction of creation, modification,
satisfaction of charge of security interest by secured creditor or
other creditor or filing of attachment orders to constitute a
Public Notice.

5. unless registered - Section 26 D Secured creditors will not be able to take over possession the
securities unless it is registered with the central registry.
Further, these creditors, after registration of security interest,
will have priority over others in repayment of dues. However,
after the commencement of the Insolvency and Bankruptcy
Code, 2016, in cases where insolvency and bankruptcy
proceedings are pending in respect of secured assets of the
borrower, the distribution of proceeds from sale of secured
assets shall be subject to the order of priority as provided in
that Code.
26(4) Govt dues/Tax Dues to be
registered with the Central
Registry and will not have
priority
Unless such default /demand is registered with Central
Registry prior to creation of charge in favour of the Bank/FIs,
tax dues will not have priority over the dues of Banks/FIs.
{Now every tax authority of Central /State/Local
Government/authority entitled to issue attachment order on
the defaulter property is required to file with the Central
Registry such attachment orders with particulars of assessee
and details of tax or other Government Dues.
26(5) Attachment orders to be filed
with the Central Registry
If any person obtains any order for attachment of property
from any court or other authority empowered to issue
attachment order, such person may file particulars of such
attachment order with the Central Registry on payment of fee.
30A Powers of RBI (adjudicating
Authority) to impose penalties
on ARCs
Adjudicating Authority of RBI is empowered to impose penalty
if ARC fails to comply with its orders . Appeal against such
orders imposing penalty may be filed with Appellate Authority
within a period of 30 days. Penalties may be recovered from
ARC by debiting the current account with RBI or by liquidating
securities held with RBI or by issuing garnishee orders.
The Recovery of Debt Due to Banks and Financial Institutions Act, 1993
2(ga) Debt securities defined. To mean debt securities listed in accordance with regulations
made by SEBI
(ja) Property defined
"property" means—
(a)immovable property;
(b)movable property;
(c) any debt or any right to receive payment of money, whether
secured or unsecured;
(d) receivables, whether existing or future;
(e) intangible assets, being know-how, patent, copyright, trade
mark, license, franchise or any other business or commercial
right of similar nature, as may be prescribed by the Central
Government in consultation with Reserve Bank;’;
19 Filing of recovery application
before DRT/DRATs
Application to include the following additional details:
a) True copies of all documents relied upon;
b) Statement of account duly certified under Bankers
Books of Evidence Act, 1891
c) Particulars of the assets/securities
d) Estimated Value of such securities
e) If the estimated value of the assets is not sufficient to
satisfy the debt claimed, then it should state the

6. particulars of other properties or assets owned by any
of the defendants and
f) Also seek an order directing the defendants to
disclose to the Tribunal particulars of other properties
or assets owned by defendants
19(10A) Pleadings to be supported by
an affidavit
Every application, written statement, claim of set off, counter
claim, reply to the counter claim or any other pleadings shall
need to be supported by an affidavit sworn by the applicant or
defendant verifying the facts and pleadings, statement,
documents and other documentary evidence.
19 (10A)
Proviso
Evidence to be filed
simultaneously along with
application
Any evidence of witnesses to be led by any party, affidavit of
such witness shall be filed simultaneously by the party with
the application or written statement or replies.
Written statement to be filed
within 30 days & Declaration of
assets
Defendants to file written statement within 30 days of service
of summons and also declare assets;
DRT can also pass order restraining defendants from
transferring or disposing of such assets pending disposal of
application for attachment of assets.
19 (13)(A) Attachment/Interim Orders For interim orders particulars and estimated value of the
property sought to be attached is required to be given.
Not to transfer assets Defendants cannot sell or transfer their assets after service of
notice, except in the ordinary course of business.
Arrest/Detention in civil prison If defendant fails to declare assets after passing of such an
order by DRT, he can be put in civil prison for a term not
exceeding three months.
Certificate on admission DRT can pass order for recovery based on admission of the
party and also order sale of assets.
Appointment of Receiver DRT can now order appointment of Receiver for attachment
and sale of assets of defendants.
Company in Liquidation DRT to deal with disposal of assets of a company under
liquidation as per section 326 of the Companies Act
19A
New
Section
Digital filing of applications and
documents
New provisions have been inserted for enabling filing of
recovery applications, documents and written statements in
electronic form by using digital signature. DRT to maintain a
common website for this purpose. Electronic form of
documents will be as defined under clause (p) of section 2 of IT
Act, 2000.
Passing of order and service
through online system
Any summons, notice or communication or intimation as may
be required to be served or delivered under this Act, may be
served or delivered by transmission of pleadings and
documents by electronic form and authenticated in such
manner as may be prescribed.
(2) Any interim or final order passed by the Tribunal or
Appellate Tribunal displayed on the website of such Tribunal or
Appellate Tribunal shall be deemed to be a public notice of such
order and transmission of such order by electronic mail to the
registered address of the parties to the proceeding shall be

7. deemed to be served on such party.
19(20) DRT to pass final order within
30 days of date of conclusion of
hearing
DRT, may after giving the applicant and the defendant, an
opportunity of being heard, in respect of all claims etc, within
thirty days of conclusion of the hearing, pass interim or final
orders as it deem fit which may include order for payment of
interest upto the date of actual payment/realisation.
DRT to specify the assets
In passing order under sub section 20, DRT shall specify the
assets of the borrower over which security interest is created
and direct the Recovery Officer to distribute the sale proceed of
such assets as provided in sub section 20AB.
20AB Utilisation of sale proceed of
the assets
Sale proceeds from sale of secured assets shall be distributed in
the following orders of priority, namely:—
(i) the costs incurred for preservation and protection of secured
assets, the costs of valuation, public notice for possession and
auction and other expenses for sale of assets shall be paid in
full;
(ii) debts owed to the bank or financial institution.
But after IB Code for the cases
covered under the code the
proceed with be utilised as per
the IB Code
After the commencement of the Insolvency and Bankruptcy
Code, 2016, in cases where insolvency and bankruptcy
proceedings are pending in respect of secured assets of the
borrower, the distribution of proceeds from sale of secured
assets shall be subject to the order of priority as provided in
that Code
19(22) PO to issue certificate of
recovery along with final order
DRT is now required to issue RC along with the final order
specifying the amount of recovery.
19(24) Time limit for conclusion of
proceedings before DRT
At present DRT is required to make endeavour to dispose of the
applications finally within 180 days from the date of receipt of
the application. Now the section is amended to lay down that
every effort shall be made by it to complete the proceedings in
two hearings.
22A RC to be deemed to be decree
of court
Any recovery certificate issued by the Presiding Officer under
sub-section (22) shall be deemed to be decree or order of the
Court for the purposes of initiation of winding up proceedings
against a company registered under the Companies Act, 2013 or
Limited Liability Partnership registered under the Limited
Liability Partnership Act, 2008 or insolvency proceedings against
any individual or partnership firm under any law for the time
eing in force, as the case may be.
27 DRT to have powers to grant
time to repay dues
Notwithstanding that a certificate has been issued to the
Recovery Officer for the recovery of any amount, the Presiding
Officer, may by an order, grant time for payment of the
amount, provided the defendant makes a down payment of not
less than twenty-five per cent. of the amount specified in the
recovery certificate and gives an unconditional undertaking to
pay the balance within a reasonable time, which is acceptable
to the applicant bank or financial institution holding recovery
certificate.
No Appeal: In case defendant agrees to pay the amount and is
allowed time by DRT under the above provisions, he would
forfeit right to file appeal against the order of Tribunal.
In default by the defendant in payment of dues as per above,
stay of proceeding shall be withdrawn and the RO shall take
steps for recovery of remaining amount of debt due and
payable.
20 Limitation for filing of Appeal in Appeals to be filed within 30 days instead of 45 days.

8. normal cases
31A Minimum Deposit of 50% of the
amount of debt dues as
determined by the Tribunal for
filing of appeal
Where an appeal is preferred against any order of the Recovery
Officer, under section 30, by any person from whom the
amount of debt is due to a bank or financial institution or
consortium of banks or financial institutions, such appeal shall
not be entertained by the Tribunal unless such person has
deposited with the Tribunal fifty per cent of the amount of debt
due as determined by the Tribunal. DRT can not waive this.
However, could be reduced to 25%.
31B New
provisions
Priority to Secured Creditors New provisions in the form of section 31B is being inserted to
provide for priority of rights of secured creditors to realise the
secured debt by sale of assets over which security interest is
created, in priority over all other debts and Government dues
including revenue, taxes, cesses, and rates due to the Central
Government, State Government or local authority. (But after
implementation of IB code the priority will be as per the said
Act)
22A New Provisions- Uniform
Procedure for DRTs/DRATs
Central Government may lay down uniform procedure for
conducting the proceedings before DRTs and DRATs.
25 Modes of Recovery
At present following modes of recoveries are provided under
section 25 (a) attachment and sale of movable or immovable
properties of the defendant; (b) arrest of the defendant and his
detention in prison (c) appointing receiver for the management
of the movable or immovable properties of defendant. Now a
new clause (aa) has been inserted providing for “taking
possession of property over which security interest is created or
any other property of the defendant and appointing receiver for
such property and to sell the same”. Additional clause inserted
for the Central Government to provide for any other mode of
recovery.
Amendment in Stamp Act, 1899
8E New sub section 8F inserted
Amends the Indian Stamp Act to exempt deeds of assignment
signed at the time of an ARC buying a loan from a bank from the
levy of stamp duty
Amendment in Depository Act, 1996
7 New provisions inserted in the
form of sub section 1A and 1B
to provide for issue of shares
Every depository to register transfer of security in favour of
ARCs and to register issue of new share in favour of
Banks/FIs/ARCs by way of conversion of part of their debt into
share pursuant to reconstruction of debts of the company
agreed between the company and the Bank/FI/ARC
NOTE: Notification for coming into fore of various provisions yet to be issued