SARFAESI Short Notes: Eight Exam-Ready Answers

Short-note questions reward precision: a clean definition, the section, one case and a line on why it matters. Below are eight SARFAESI topics most often set as short notes, each written to the length a five-mark answer needs. Use the four-part structure in the chart for any other short note.

1. The Structure

Figure 1: Four parts of a short note

2. Eight Short Notes

Security receipt

A receipt issued by an asset reconstruction company to a qualified buyer, evidencing an undivided right, title or interest in the financial assets acquired for securitisation or reconstruction, s.2(1)(zg). It may be held only by qualified buyers, s.2(1)(u), and those holding 75% of the receipts under a scheme may call a meeting and bind the ARC, s.7(3). It is how ARCs fund the purchase of bad loans from banks (Topic 20).

Authorised officer

The officer of a secured creditor, not below the rank prescribed by the Enforcement Rules, who exercises the creditor's powers under the Act: issuing the possession notice, valuing and selling the asset, and issuing the sale certificate. Because he acts for a creditor exercising a statutory power without a court, he must follow the Rules strictly, as Mathew Varghese (2014) shows (Topic 24).

Central Registry (CERSAI)

Established under s.20, CERSAI records transactions of securitisation, reconstruction and creation of security interest. Its provisions operate once it is set up, s.39, which happened in 2011. Since 24 January 2020, priority under s.26E depends on registration, and an unregistered security interest cannot be enforced under the Act, s.26D (Topics 41, 44).

Right of redemption, s.13(8)

If the borrower tenders the entire dues with costs before the date of publication of the notice for sale, the creditor may not transfer the asset and must stop further steps. The 2016 amendment moved the cut-off from the date of sale to publication of the notice, as Celir LLP v Bafna Motors (2023) confirmed. Full payment is required; a partial offer does not redeem (ITC v Blue Coast 2018) (Topic 30).

Pre-deposit for appeal, s.18

A borrower appealing to the DRAT must deposit 50% of the debt claimed or determined, whichever is less, reducible to 25% for reasons recorded. Narayan Chandra Ghosh (2011) held it mandatory and not waivable. The requirement guards against appeals filed only to delay, while the reduction power preserves access (Topic 39).

Priority of secured creditors, s.26E

In force from 24 January 2020, s.26E gives the debts of a secured creditor priority over all other debts and over revenues, taxes, cesses and rates due to the Central Government, a State Government or a local authority, once the security interest is registered. The priority is subject to the IBC, by its Explanation (Topics 49, 50).

Takeover of management

Under s.13(4)(b) a secured creditor may take over the management of the borrower's business, including the right to transfer by lease, assignment or sale, where a substantial part of the business is held as security. Section 15 governs its manner and effect, including restoration of management once dues are realised (Topic 31).

Caveat, s.18C

Inserted with effect from 15 January 2013, s.18C lets a secured creditor or any person claiming a right to appear lodge a caveat against an expected s.17 application or s.18 appeal. The forum must then notify the caveator, preventing ex parte interim orders. The caveat lapses after 90 days unless the matter is filed (Topic 93).

3. Related Topics

• Topic 87: Definitions Quick Revision. Clause letters for definitional short notes.
• Topic 98: Solved Problem Questions. The same law applied to facts.