On 25 August 2016, the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act 2016 (‘the 2016 Act’) received the assent of the Indian President, after having been enacted by Parliament.

The 2016 Act extensively amends a number of pieces of Indian Legislation, namely:

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI)
• Recovery of Debts due to Banks and Financial Institutions Act 1993 (RDBFI)
• Indian Stamp Act 1899, and
• Depositories Act 1996

It remains unclear when the 2016 Act will come into effect.

Some of the changes introduced by the 2016 Act include:

• Perhaps most significantly, the 2016 Act substantially modifies the registration regime for security interests. Secured creditors will not be able to make use of the SARFAESI enforcement regime unless their interests are registered. Registered security interests will grant their holders’ claims priority over subsequent security interests, subject to an exception for dispositions in the ordinary course of business. Registration can also now be carried out in electronic form.
• The 2016 Act also reserves a power to the Central Government to extend the provisions on registration to ‘all creditors other than secured creditors’.
• SARFAESI, s2 has been amended to allow holders of debt securities to make use of the remedies contained therein.
• The definition of financial assets under SARFAESI and RDBFI has been extended to include finance leases, conditional sales, and hire purchase.
• The 2016 Act provides for borrowers who raised funds using debt securities to make use of the SARFAESI enforcement methods (e.g. taking possession, appointing a ‘manager’, etc), without classifying the debt as a ‘non-performing asset’, as required by the SARFAESI for other forms of instruments.
• The 2016 Act provides for the regulation of Asset Reconstruction Companies

To view a copy of the 2016 Act, click here.

To view a copy of the SARFAESI, click here.

To view the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) click here

For an overview of the reforms, click here.

Last Checked August 2020

If you have any questions or would like to suggest an update please email magda.raczynska@ucl.ac.uk