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CS Professional · Insolvency and Bankruptcy - Law and Practice · Debt Recovery and Securitization

Suraksha Reconstruction Pvt Ltd, a company holding a certificate of registration as a securitisation or reconstruction company under the SARFAESI Act, 2002, has bought a defaulted loan from a bank and files an application to recover it. Its borrower, Meera Textiles, objects that Suraksha is not a 'bank' and therefore cannot sue before the Debts Recovery Tribunal. Under the Recovery of Debts and Bankruptcy Act, 1993, how is Suraksha classified?

A registered securitisation or reconstruction company is a financial institution under the Recovery of Debts and Bankruptcy Act, 1993. It is not a bank, since the bank definition lists only specified banking entities. So Suraksha can claim its debt before the Debts Recovery Tribunal.

  1. AAs a financial institution, because the Act includes a registered securitisation or reconstruction company in that termCorrect
  2. BAs a bank, because it holds the assigned loan of a banking company
  3. CAs neither, so it must approach a civil court
  4. DAs a banking company, because it has a certificate of registration under the SARFAESI Act

Explanation

The Act's definition of 'financial institution' expressly covers a securitisation company or reconstruction company that has obtained a certificate of registration under section 3(4) of the SARFAESI Act, 2002. The definition of 'bank' lists only banking companies, corresponding new banks, SBI, subsidiary banks, Regional Rural Banks and multi-State co-operative banks, so Suraksha is not a bank. It can still sue as a financial institution.

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