Section 9 SARFAESI: Measures for Asset Reconstruction

Once an ARC has acquired a financial asset, Section 9 gives it the toolkit to realise it. The measures run from running or selling the borrower's business, through reshaping the debt, to falling back on the Act's own enforcement machinery, and the 2013 amendment added conversion of debt into equity. All of it is exercised by the ARC itself, but only in accordance with RBI policy and directions. This note sets out the measures, groups them by approach, and covers the RBI control over their use.

1. The Statutory Toolkit

Figure 1: The measures Section 9 lists

• Change or takeover of management, s.9(a). The proper management of the borrower's business by a change in, or a takeover of, the management: the strongest intervention, replacing or displacing those who ran the business.
• Sale or lease of the business, s.9(b). The sale or lease of a part or the whole of the borrower's business, realising value as a going concern rather than piecemeal.
• Rescheduling of debts, s.9(c). Rescheduling the payment of the debts payable by the borrower, giving a workable repayment path where the business can recover.
• Enforcement and possession, s.9(d) and (f). Enforcement of the security interest and taking possession of the secured assets, both in accordance with the Act's own machinery (Topic 26)
• Settlement of dues, s.9(e). Settlement of the dues payable by the borrower, a negotiated close to the claim for a reduced or restructured amount.
• Conversion of debt to equity, s.9(g). Conversion of a portion of the debt into shares of a borrower company, added by the 2013 amendment and validated retrospectively, so the ARC can take a stake in a revived company.

2. The Measures Grouped

Figure 2: Three approaches to realising value

• Run or sell the business. Change or takeover of management, and sale or lease of the business: keep the enterprise alive and realise it as a going concern, preserving value that liquidation would destroy.
• Restructure the debt. Rescheduling, settlement, and conversion of debt into equity: reshape the obligation so value can be recovered over time rather than written off.
• Enforce the security. Enforcement of the security interest and taking possession under the Act: the fallback where workout fails, using the s.13 possession and sale machinery (Topic 26)
• One asset, several tools. An ARC need not pick one: it may combine measures, for instance rescheduling while holding enforcement in reserve, choosing what best realises the asset.

3. RBI Control Over the Measures

Figure 3: Powerful tools, exercised under oversight

• RBI policy and directions, s.9(2). The RBI determines the policy and issues directions, and an ARC may take these measures only in accordance with them, so the toolkit is exercised within the regulator's rules.
• Change of management hedged. Takeover of management is the most intrusive measure and is hedged by RBI norms on when and how it may be done, not a power the ARC may use at will.
• Measures, not adjudication. Section 9 is a workout and recovery toolkit the ARC applies itself; it is not a court or tribunal process, which is why RBI oversight carries the weight of control.
• Tied to the acquired asset. The measures are available only for a financial asset the ARC has acquired under s.5, so acquisition is the precondition to using the toolkit (Topic 17)

4. Frequently Asked Questions

What measures can an ARC take for asset reconstruction under Section 9?

Under Section 9, an asset reconstruction company may take any of the following measures for asset reconstruction: the proper management of the borrower's business by a change in or takeover of the management; the sale or lease of a part or the whole of the business; rescheduling of the payment of debts; enforcement of the security interest in accordance with the Act; settlement of the dues payable by the borrower; taking possession of the secured assets under the Act; and, since the 2013 amendment, conversion of a portion of the debt into shares of a borrower company. These measures are exercised by the ARC itself, but only in accordance with the policy and directions issued by the Reserve Bank of India.

Can an ARC take over the management of a borrower's business?

Yes. Section 9(a) expressly allows an asset reconstruction company to secure the proper management of the borrower's business by a change in, or a takeover of, the management. It is the strongest of the reconstruction measures, and because it displaces those running the business it is the most tightly controlled: it may be exercised only in accordance with the Reserve Bank of India's policy and directions, which set the conditions and manner for a takeover of management. The power exists to preserve and realise the value of the business as a going concern rather than to let a defaulting management run it down.

5. Related Topics

• Topic 17: Section 5 Acquisition. The acquisition that unlocks these measures.
• Topic 26: Section 13(2) Demand Notice. The enforcement route among the measures.