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CS Professional · Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

Sunrise Textiles Ltd's term loan from a scheduled commercial bank has been classified as a non-performing asset and is secured by factory land and machinery. The bank wishes to enforce the security without approaching a court. Which statute primarily empowers the bank to do so?

The SARFAESI Act, 2002 empowers a secured creditor bank to enforce its security interest over an NPA account without going to court, by issuing a demand notice and taking possession of the secured assets, which the other listed Acts do not permit.

  1. AThe Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Correct
  2. BThe Indian Contract Act, 1872
  3. CThe Negotiable Instruments Act, 1881
  4. DThe Consumer Protection Act, 2019

Explanation

The SARFAESI Act, 2002 allows secured creditors to enforce security interest in NPA accounts without court intervention, by following the notice and possession procedure. The other Acts do not provide this self-help enforcement mechanism.

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