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CS Professional · Banking and Insurance - Laws and Practice · Advances, Securities and Documentation

Sunrise Textiles Ltd borrowed from a bank against a mortgage of its factory land in Coimbatore. The bank wishes to start enforcement of its security under Chapter III of the SARFAESI Act, 2002, but it never registered the security interest created in its favour with the Central Registry. What is the position under the Act?

The bank cannot enforce its security under Chapter III of the SARFAESI Act until the security interest created in its favour is registered with the Central Registry. Section 26D makes registration a precondition, notwithstanding any other law, so the Act's nationwide extent does not help.

  1. AThe bank can enforce, because the Act applies to the whole of India from 21 June 2002
  2. BThe bank cannot exercise enforcement rights under Chapter III unless the security interest has been registered with the Central RegistryCorrect
  3. CThe bank can enforce, but only after paying a penalty to the Central Registry
  4. DThe bank can enforce if the borrower consents in writing, even without registration

Explanation

Section 26D says no secured creditor is entitled to exercise enforcement rights under Chapter III unless the security interest created in its favour by the borrower has been registered with the Central Registry. Extent of the Act (whole of India) does not remove this condition, so the first option is wrong. The Act provides no penalty route or borrower-consent substitute.

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