All NotesCorporate LawSARFAESI Act, 2002

SARFAESI Act, 2002

The 2016 Amendment to SARFAESI: Key Changes

The 2016 amendment is the largest overhaul SARFAESI has received. It widened what counts as a security interest and who counts as a secured creditor, put the Magistrate on a deadline, narrowed the borrower's redemption window, protected genuine tenants, and created the registration-and-priority scheme of Chapter IVA. Not everything took effect at once: Chapter IVA came into force only in January 2020. This note sets out the amending Act, its key changes, and the timing that examiners test.

1. The Amending Act and Its Timing

Assent in 2016, Chapter IVA in 2020

Figure 1: Assent in 2016, Chapter IVA in 2020

  • The statute. The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 amended SARFAESI, the RDB Act and related laws.
  • In force 1 September 2016. It received assent on 12 August 2016, and most provisions were brought into force on 1 September 2016.
  • Chapter IVA from 24 January 2020. The registration and priority provisions, ss.26B to 26E, were brought into force only on 24 January 2020 (Topics 43, 44, 49)

2. The Key Changes

Provision by provision

Figure 2: Provision by provision

  • Wider security interest, s.2(1)(zf). Hire purchase, financial lease, conditional sale and intangible assets were brought within security interest (Topic 11)
  • Debenture trustees, s.2(1)(zd). SEBI-registered debenture trustees became secured creditors able to enforce (Topic 10)
  • Deadline for the Magistrate, s.14. The CMM or DM must pass orders within 30 days, extendable to 60 in all, though the limit has been held directory (Topic 29)
  • Redemption narrowed, s.13(8). The borrower may redeem only until publication of the sale notice, as Celir confirmed (Topic 30)
  • Tenancy before the DRT, s.17(4A). The DRT decides a tenant's or lessee's claim to the secured asset (Topic 36)
  • ARCs, Chapter IVA and the RDB Act. Stamp duty relief on assignment to ARCs, RBI audit and inspection (s.12B), registration as a precondition (s.26D) and priority (s.26E), with a parallel s.31B in the RDB Act (Topics 21, 44, 49)

⚠ Exam trap

Keep the dates and the two amendments apart. The 2016 Act received assent on 12 August 2016 and mostly came into force on 1 September 2016, but Chapter IVA, including s.26D (enforce only if registered) and s.26E (priority), came into force only on 24 January 2020. The 2016 changes include the wider security interest, debenture trustees, the s.14 thirty-to-sixty-day deadline, redemption until the sale notice under s.13(8), and s.17(4A). Multi-state co-operative banks, creditor bids under s.13(5A), debt-to-equity under s.9(1)(g), the fifteen-day reply and the 60% consortium rule belong to 2013.

3. Frequently Asked Questions

What were the main changes made to SARFAESI by the 2016 amendment?

The 2016 amendment widened the definition of security interest to include hire purchase, financial lease, conditional sale and intangible assets, and made SEBI-registered debenture trustees secured creditors. It required the Chief Metropolitan Magistrate or District Magistrate to act on a Section 14 application within thirty days, extendable to sixty, narrowed the borrower's right of redemption under Section 13(8) to the date of publication of the sale notice, and empowered the DRT under Section 17(4A) to decide tenancy claims. It also gave ARCs stamp duty relief on assignments, empowered the RBI to audit and inspect ARCs, and created Chapter IVA, under which enforcement requires registration (Section 26D) and registered secured creditors enjoy priority (Section 26E).

When did the priority and registration provisions of the 2016 amendment come into force?

Although inserted by the 2016 amendment, Chapter IVA, comprising Sections 26B to 26E, was brought into force only on 24 January 2020. From that date, Section 26D bars a secured creditor from enforcing a security interest that is not registered with the Central Registry, and Section 26E gives registered secured creditors priority over all other debts and government dues. Most of the other changes made by the 2016 amendment, including the Section 14 deadline, the narrowed redemption right and the Section 17(4A) tenancy power, took effect from 1 September 2016.

4. Related Topics

  • Topic 65: The 2013 Amendment. The earlier set of changes.
  • Topic 49: Section 26E Priority of Secured Creditors. The priority provision in force from 2020.