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SARFAESI ACT SHORT NOTES | REGISTRATION | CANCELLATION & ACQUISITION | LRAB LATEST STUDY MATERIAL 2022

FREE SHORT NOTES ON SARFAESI | REGISTRATION | CANCELLATION & ACQUISITION | LRAB LATEST STUDY MATERIAL 2022

Sarfaesi Act Short notes: Registration & cancellation of incorporation certificate & acquisition of right of interest in Securitisation Co.

In this article, we will read about what is the minimum requirement for a company to get itself registered as a securitisation company or a reconstruction company, what could lead to cancellation of certificate of its Incorporation and how the right of interest in financial assets is acquired from the given or prescribed syllabus of LRAB paper of JAIIB Syllabus 2022. This is basically an extension of the free notes of SARFAESI Act for JAIIB Exams 2022.

Unit – Regulation of Securitisation and Reconstruction of Financial Assets of Banks and Financial Institutions from Module C of JAIIB LRAB Syllabus 2022.

REGISTRATION OF SECURITISATION COMPANY OR RECONSTRUCTION COMPANY: 

If a company wants to get itself registered as a securitisation company or a reconstruction company then it has to fulfill the following Minimum requirements:

  1. A company can commence or carry on the business of reconstruction or securitization after getting us certification of registration form of Bank of India;
  2. And it has a minimum of owned funds of not less than 2 crores.

CANCELLATION OF CERTIFICATE OF INCORPORATION

In the following cases, a certificate of registration or incorporation that has been granted to the company will get cancelled: 

  • The company does not carry the business of reconstruction or securitisation anymore.
  • The company is not receiving or holding any investment from a qualified institutional buyer.
  • The company has failed to comply with the conditions on which the certification of registration was wanted.
  • The company has failed to comply with the directions of RBI
  • The company has failed to maintain the accounts as per the directions issued by Reserve Bank of India
  • The company has failed to provide or give accounts and documents to the Reserve Bank of India for inspection purposes.
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ACQUISITION OF RIGHT OF INTEREST IN FINANCIAL ASSETS

As per Section – 5 of the SARFAESI (Securitisation and Reconstruction of Financial Assets & Enforcement Of Security Interest) Act 2002, which talks about declaration of rights or interest in the financial assets,

It has been stated that any securitisation company or reconstruction company can acquire financial assets of any Bank or a financial institution (notwithstanding anything contained in any agreement or law in force) by the following ways: 

  1. Issue of debenture or bond or any other security: A securitization company or reconstruction company can issue debentures, bonds or other securities which are in the nature of debenture – as a consideration which has been agreed by such company with the bank or financial institution upon such terms and conditions as agreed between them; or
  2. Agreement: A securitization company or reconstruction company can also enter into an agreement with the bank or financial institution the transfer of such financial asset to the company on such terms and conditions as agreed upon.https://youtu.be/VejvYarz2dg

     

DEEMED LENDER:

In case financial institution or the bank is the lender of financial asset which has been acquired under subsection 1 by the reconstruction of securitisation company, then such reconstruction or securitization company will be Deemed to be the lender after such acquisition & will have all the rights of Bank or financial institution in relation to search financial asset.

Unless it has been expressly been provided by the SARFAESI Act, all the contracts, bonds, deeds, agreements, POAs, permissions, approvals, consents or no objection under any law (NOC) and other instruments, which relates to the financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) & to which the concerned financial institution or Bank is a party, or which are in favour of such banking Institution or financial institution shall be fully enforceable and effect against or in favour of securitization or reconstruction company after the acquisition. This enforcement or action will be as if securitization company or reconstruction company had been a party to such contracts, bonds, deeds, agreements, POAs, permissions, approvals, consents or no objection under any law (NOC) and other instruments or as if these had been issued in favour of such securitisation company or reconstruction company whatever the case may be.

 

If acquisition date on which date financial asset under subsection 1 has been acquired, any suit, appeal or other proceeding relating to the said financial asset is pending by or against the financial institution or bank (except in the case as it has been provided in the third proviso to subsection 1 of Section 15 of Sick Industrial Companies (Special Provisions) Act, 1985), the seam was not be discontinued in anyway which is prejudicially affected by the reason of the accusation of financial asset. In this way, the suit, appeal or other proceeding may be continued ad and caused by or against the acquiring company i.e securitisation or reconstruction company.

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IMPORTANT POINTS

  • Reconstruction of an asset means the acquisition of any right or interest in any financial asset of any bank or financial institution for the purpose of its realization. 
  • Securitization company is required to get registered with the Reserve Bank of India so that it can commence its business of securitization or reconstruction.
  • The rights related to the financial Asset acquired by the securitisation company or reconstruction company are subject to prior requirements or contracts. 

What are the documents which are involved in the securitisation transaction?

The documents which are involved in the securitization or reconstruction transaction of an asset are listed below:

  • Offer Document – It contains full details of financial assets, bank loan details etc.
  • Agreement –with originator to continue to service the assets.
  • Security Receipt – It is issued in favour of investors.
  • Debenture – A debenture is a payment of consideration which is to be paid to the bank or financial institution for acquiring the financial asset from it/them.

Note: 

  • Any instruction or direction which has been issued by the Reserve Bank of India under SARFAESI Act will have a statutory effect and will be binding on the concerned parties.
  • When the SARFAESI Act comes into effect, the existing companies will have to get themselves registered within 6 months from the commencement of the act.

So, this was all about your registration, revocation & some other important provisions relating to the acquisition of financial assets as for the prescribed syllabus of JAIIB LRAB 2022 Exams.

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