The Ministry of Law and Justice published the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 on August 12, 2016, ("2016 Act") inter alia proposing amendments to certain sections of the Securitisation and Reconstruction of Financial to Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"). Section 17 to Section 19 of the 2016 Act have been notified on December 26, 2019 by the Ministry of Finance in the official gazette ("SARFAESI Amendments") and come into effect from January 24, 2020.
In accordance with Sections 17 to Section 19 of the 2016, inter alia Section 23 has been amended as follows:
Section 23 of the SARFAESI Act has been amended to include:
- removal of the timeline of 30 days, within which a secured creditor is required to file certain types of security interest in its favour with the Central Registry of Securitisation Asset Reconstruction and Security Interest ("CERSAI"); and
- to provide a right to the Central Government to notify types of transactions (pertaining to creation of security interest over property) which require registration with the CERSAI.
A separate chapter, Chapter IVA has been introduced after existing Section 26A of the SARFAESI Act which provides inter alia as follows:
- permission to creditors (other than secured creditors) to file the details of creation, modification or satisfaction of any security interest in their favour over any property, with the CERSAI; It may be noted however that such creditors continue to be disentitled to exercise any right of enforcement of securities under the SARFAESI Act.
- permission to person or creditor who has obtained an attachment order for attachment of property in respect of any claims against another person, to file such attachment orders with the CERSAI and gives priority to the claims of such person or creditor;
- disallows any secured creditor from exercising the right of enforcement if the same has not been duly registered with the CERSAI;
- gives priority to the dues of secured creditors over all other dues including statutory dues and taxes, after registration with the CERSAI; It may be noted that priority to the secured creditors shall be subject to the provisions of the Insolvency and Bankruptcy Code, 2016.
For more details on the said amendments kindly refer to Chapter II of the Amendment Act.
DSK Legal's Observations: The SARFAESI Amendments have expanded the scope of a creditor to cover creditors other than secured creditors. Aimed at giving more teeth to creditors and improving recovery under the SARFAESI Act, the debt owed to a secured creditor will now get priority over all other claims including statutory claims, subject to the provisions of the Insolvency and Bankruptcy Code, 2016. However, such priority will be subject to the creditors making the relevant filings with the CERSAI in accordance with the SARFAESI Amendments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.