Introduction
The RDDBFI Act was passed in 1993 on the advice of various committees and sub-committees. This Act came into force on June 24, 1993. The Act required the establishment of Debt Recovery Tribunals in “Calcutta, Delhi, Jaipur, Bangalore, Ahmedabad, Chennai, Guwahati, Patna, Jabalpur, and Bombay”. The first and only Appellate Tribunal was set up in Bombay to hear appeals. The committees’ reports are duly considered when enacting the laws.
SARFAESI Act, 2002
The SARFAESI Act was approved by the President on December 17th and published in the Indian Gazette Noification on December 18th. This Act was first published in the Gazette of India on June 21, 2002. So the Act came into force on June 21, 2002.[1] The Act aimed to implement the “Narasimham Committee-ll and Andhyarujina Committee’s” recommendations.
3.2.1. Goals and Objectives
One essential factor in India’s rapid economic growth has been the financial industry. Since the SARFAESI Act was enacted over an existing Act (the RDDBFI Act, 1993), the following objectives and grounds were stated:
- Although India’s banking industry was progressively embracing global prudential and accounting standards, certain aspects of the Indian banking and financial sector remained behind those of other nations.
- No legal provision for assisting bank and financial institution securitisation.
- Unlike international banks, Indian banks and financial institutions could not buy and sell securities.
- Then-current commercial practises and banking sector reforms are incompatible.
- The delayed pace of loan recovery led to an increase in NPA for banks and financial institutions.
Objectives
There were many objectives behind passing of the Act. Some important of them are clearly visible in the preamble to the Act.
The objectives are:
- “to regulate securitisation and reconstruction of financial assets;
- to enforce security interest;
- to deal with the issues connected with securitisation and reconstruction of financial assets and enforcement of security interest and incidental thereto; to enable banks and financial institutions of India to –
- realise long-term assets;
- manage problems of liquidity;
- manage asset-liability mismatches:
- improve recovery of debts by exercising powers to take possession of securities and sell them without judicial intervention; and
- reduce NPAs by adopting measures for recovery or reconstruction; and to establish Securitisation and Asset Reconstruction companies.”
[1] Sharma, Bhavya, Analysing the Effectiveness of Debt Recovery Mechanisms for Banks in India: A Special Focus on the SARFAESI Act, 2002, 2 Int’l J.L. Mgmt. & Human. 1673 (2024).