The 2013 Amendment to SARFAESI: Key Changes

SARFAESI has been amended several times, and two amendments matter most for exams: 2013 and 2016. The first, made by the 2012 Amendment Act and in force from January 2013, widened who could use the Act, gave lenders new ways to realise security, and tightened some of the creditor's own obligations. This note sets out the frame of the amendment, its key changes provision by provision, and its significance as a bridge to the 2016 reforms.

1. The Amending Act

Figure 1: The 2012 Act, in force in 2013

• The statute. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 amended SARFAESI and the Recovery of Debts Act together.
• In force January 2013. It was brought into force on 15 January 2013, which is why it is usually called the 2013 amendment.

2. The Key Changes

Figure 2: Provision by provision

• Multi-state co-operative banks, s.2(1)(c). Multi-state co-operative banks were brought expressly within the definition of bank, a step later confirmed for co-operative banks generally in Pandurang (Topic 58)
• Creditor may bid, s.13(5A) to (5C). The secured creditor may bid for immovable property at a subsequent sale after a failed auction, adjusting the price against its dues (Topic 64)
• Debt into equity, s.9(1)(g). An ARC may convert a portion of the debt into shares of a borrower company, with conversions validated retrospectively (Topic 18)
• 15 days to reply, s.13(3A). The period to communicate reasons for rejecting a borrower's representation rose from one week to fifteen days (Topic 27)
• 60% consortium consent, s.13(9). Enforcement in joint financing now needs creditors holding 60% in value, down from 75% (Topic 24)
• Section 14 affidavit and caveat. A s.14 application must be supported by an affidavit on the dues, default and notices, and a caveat may be lodged under s.18C (Topic 29)

3. The Significance

• Stronger lenders. The amendment widened who could use the Act and gave creditors new ways to realise security when ordinary sales stalled.
• Discipline on the creditor too. The longer reply period and the s.14 affidavit added discipline to the creditor's own conduct, keeping the process fair.
• A bridge to 2016. The 2016 amendment then went much further, with priority under s.26E, CERSAI registration as a precondition, and time limits (Topic 71)

4. Frequently Asked Questions

What were the main changes made to SARFAESI by the 2013 amendment?

The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012, in force from 15 January 2013, made several key changes to SARFAESI. It brought multi-state co-operative banks expressly within the definition of bank; allowed a secured creditor to bid for immovable property at a subsequent sale after a failed auction under Sections 13(5A) to 13(5C); empowered asset reconstruction companies to convert a portion of debt into shares under Section 9(1)(g), with retrospective validation; extended the time to reply to a borrower's representation under Section 13(3A) from one week to fifteen days; lowered the consortium consent threshold under Section 13(9) from 75% to 60%; required an affidavit with a Section 14 application; and introduced a caveat under Section 18C.

How does the 2013 amendment differ from the 2016 amendment?

The 2013 amendment mainly widened access and gave lenders more ways to realise security, with a few procedural safeguards such as the fifteen-day reply and the Section 14 affidavit. The 2016 amendment went further: priority for registered secured creditors under Section 26E, registration as a precondition to enforcement under Section 26D, time limits for the Magistrate under Section 14, and the tenancy power in Section 17(4A).

5. Related Topics

• Topic 64: The Secured Creditor as Bidder. The s.13(5A) to (5C) power in detail.
• Topic 71: The 2016 Amendment. The later, larger set of reforms.