Synopsis of Banking Project

A PROJECT REPORT ON: SARFAESI ACT, 2002: AN IMPORTANT STEP TOWARDS BANKING REFORMS

SUBMITTED TO: (Mrs. Padma Aparajita Parija) (Assistant Lecturer) (FACULTY OF BANKING LAW AND INSURANCE)

SUBMITTED BY:

JOY SARKER ROLL NO.-17 PG082014167

LL.M- I TRIMESTER (2014-15)

DATE OF SUBMISSION: 16.01 .2015

HIDAYATULLAH NATIONAL LAW UNIVERSITY RAIPUR, CHHATTISGARH

INTRODUCTION At the advent of human civilization we the humans started dealing with each other for food and clothes with the help of barter system even exchanging precious stones for satisfying basic needs. Banking is as old as the civilization itself. As early as 2000 B.C. the Babylonians had developed a system of banks. They used temples for lending at higher rates of interest against gold and silver which had been left with them for safe custody. Greeks also built the same, which showed traces of banking for first time. The word ‘bank’ has been derived form the Greek word ‘Banque’ which means bench because earlier Jews dealt into money transactions sitting on benches in a market place. Banking was in existence in India during Vedic times. The establishment of Reserve bank of India in the year 1935 marked the beginning of a new era in the history of Indian banking. Soon in the year 1955, Imperial bank of India was nationalised and State bank of India came into picture. Later in 1969, another 14 banks got nationalised and subsequently 6 more banks got nationalised in the year 1980. Under the guidelines of Central and State government, Banks and financial institutions granted loans to the small and large industries, companies etc. As a consequence it resulted in increasing amount of loan dues and banks and financial institutions faced difficulty in recovery of loans. Public money got stuck and resulted in increasing no of NPA’s (NonPerforming Assets). With advent of the Recovery of Debts Due To Banks and Financial Institutions Act, 1993 by the virtue of Narsimham Committee, there was a great hope within the banking circle that most of the Non Performing Assets (NPA) shall be easy to recover. The Financial Institutions and banks, under the conventional system of recovery of loans, had a considerable amount of money blocked in form of unproductive assets. This act intended to provide for expeditious adjudication and recovery of debts due to banks and financial institutions. But this effort of the government was not enough. To fight the menace of the NPAs the Indian banks required more teeth. With an object to give the banks and FI’s more powers and skill the government decided to bring in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The main principal advantage of these legislation is to recover loans without the intervention of the courts. Basically the act does three functions i.e. securitisation, asset- reconstruction and enforcement of security interest.

SCOPE OF WORK: The project work conducted by the researcher mainly focuses on the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the work specifically shows how this particular piece of legislation helps in banking sector in recovery dues and solving the problem of NPA’s.

OBJECTIVES:     

To know the history behind the enactment of SARFAESI Act, 2002.\ To know what is the object and scope of the Act. To understand the mechanism how the act operates and helps in reducing NPA’s. To identify loopholes present in the act. To provide possible solutions to the loopholes of the act in order to ensure proper implementation of the Act.

RESEARCH PROBLEM: Banks accepts deposits from us and lends money to us in form of loans and advances. Under the guidelines of the Central as well as the State Government Banks and Financial Institutions granted loans to people on easy term. Later it was found that loans became due, and banks and FI’s faced the difficulty to recover them. As a result of which it lead to rise of NonPerforming Assets, and public money got stuck. Here lies the main problem, as a result a committee was formed by the central government which suggested the enactment of The Recovery Of Debts Due To Banks And Financial Institutions Act, 1993, but it was found that the banks need much more powerful legislation in order to bring down the rising no. of NPA’s hence in the year 2002 SARFAESI Act, came up.

RESEARCH QUESTIONS: The researcher poses the following questions in relation to the project topic in hand and also intends to find possible solutions for the same.  How far the problem of NPA’s is solved?  Whether SARFAESI Act, 2002 is implemented properly?  What is the mechanism lying behind the securitisation and reconstruction of financial assets and enforcement of security interest?

 Are there any loop-holes present in the said act? If yes, what is the possible solutions or suggestions to such problem?

RESEARCH METHODOLOGY: The research methodology adopted by the researcher is a doctrinal research. However the researcher with a view to compliment and substantiate his research paper corroborated his study with other forms of legal research such as case studies. The researcher went to the library and gone through various texts and commentaries written by eminent jurists and authors. The work also throws light on the list of study materials and data and their sources, procured by the researcher as the instrument to conduct the research.

REVIEW OF LITERATURE: The literature reviewed by the researcher for the project are as follows :1. P.K.Mallick, Securitisation of financial assets, Status, problems and prospects, Published by Regal Publications, New Delhi. Edition 2008. The above-stated book helped the researcher in understanding the basic terms and mechanism of Sarfaesi Act, 2002. 2. Vinod Kothari, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Published by Wadhwa, Nagpur. Edition 2nd (2007). The above-stated book helped the researcher in understanding and clearing concepts of Securitisation. 3. Anand Chakravarthi(ed.),Securitisation

Concepts

and

Country

Experiences,

Published by ICFAI University Press, Edition 1st (2005). The above-stated book helped the researcher in understanding the various country wise securitisation mechanisms and specifically in Indian perspective. 4. Justice B.P. Banerjee, Guide to Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Published by Wadhwa & Co. Nagpur, Edition 2003. The above-stated book helped the researcher in knowing various case laws related to SARFAESI Act, 2002. 5. K. Panduranga Rao, Law Relating to SARFAESI ACT, Published by Asia Law House, Hyderabad, Edition 3rd (2007). The above-stated book helped the researcher in knowing various case laws related to SARFAESI Act, 2002.

HYPOTHESIS: The researcher is of the opinion that public money which are lent out by the Banks and Financial Institutions eventually were not recovered successfully as a result of which not only public but economic structure as a whole suffered a lot. NPA’s increased day by day, and the researcher finds that the SARFAESI ACT, 2002 did bring some power in the hands of the Banks and Financial institutions in relation to

recovery of dues but proper and strict

implementation of the act is necessary and some judicial activism should play a pivotal role in solving the problem of NPA’s.

CHAPTERISATION: Chapter I: INTRODUCTION. Chapter –II: HISTORY BEHIND THE ENACTMENT OF THE ACT. Chapter- III: SCOPE OF THE ACT AND ITS LOOPHOLES. Chapter-IV: MECHANISM BEHIND THE OPERATION OF THE ACT. Chapter- V: IMPORTANT CASE LAWS.

SUGGESTIONS CONCLUSION