SARFAESI Act, 2002
SARFAESI Definitions: Quick Revision with Clauses
Section 2(1) of SARFAESI runs from clause (a) to clause (zj), and objective papers often ask for a clause letter or a one-line meaning. This note compresses the key definitions into two charts, one for enforcement and one for securitisation and reconstruction, then separates the pairs most often confused and records what the 2016 amendment changed. Topic 8 and Topics 9 to 14 treat each definition in full.
1. Enforcement Definitions
Figure 1: Section 2(1): the enforcement side
2. Reconstruction Definitions
Figure 2: Section 2(1): the reconstruction side
3. Pairs Often Confused
- Financial asset v secured asset. The financial asset, (l), is the debt with its security, the thing an ARC buys; the secured asset, (zc), is the property charged (Topic 12)
- Obligor v originator. The originator, (r), owns the asset the ARC acquires; the obligor, (q), owes it, and includes the borrower (Topic 12)
- Default v NPA. Default, (j), is non-payment on which the account becomes an NPA, (o): one missed instalment is not enough (Topic 13)
- Securitisation v asset reconstruction. Securitisation, (z), funds an acquisition by issuing security receipts; asset reconstruction, (b), acquires a loan to realise it (Topic 14)
- The 2016 changes. (ba) asset reconstruction company replaced the omitted securitisation company and reconstruction company; debt (ha) and security interest (zf) were substituted to reach leases, conditional sales and intangibles (Topics 11, 71)
⚠ Exam trap Watch the letters that look alike: obligor is (q) and property is (t); secured asset is (zc), secured creditor (zd), secured debt (ze), security interest (zf) and security receipt (zg). Since 2016 the Act speaks only of an asset reconstruction company, (ba); an answer that refers to a securitisation company or reconstruction company as current law is out of date. |
4. Frequently Asked Questions
Who is a borrower under Section 2(1)(f) of SARFAESI?
A borrower is any person who has been granted financial assistance by a bank or financial institution, and the definition expressly includes a person who has given a guarantee or created a mortgage or pledge as security for that assistance, and a person who becomes liable as borrower on an assignment or transfer of the debt. A guarantor's secured property can therefore be enforced against directly.
What did the 2016 amendment change in the SARFAESI definitions?
With effect from 1 September 2016, the amendment inserted clause (ba) defining an asset reconstruction company and omitted the separate definitions of securitisation company and reconstruction company. It substituted the definitions of debt and security interest so that they extend to ownership retained under hire purchase, financial leases and conditional sales, and to intangible assets such as patents, copyrights and licences, and it inserted new definitions including financial lease and negotiable document.
5. Related Topics
- Topic 8: Section 2 Definitions. The definitions treated in full.
- Topic 86: Key Figures and Percentages. The companion numbers chart.