Section 10 of SARFAESI Act, 2002 - Other Functions of Asset Reconstruction Companies
Section 10 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) specifies the additional functions an asset reconstruction company (ARC) registered under Section 3 may perform. It also restricts an ARC from conducting other businesses without the prior approval of the Reserve Bank of India (RBI).
Meaning and scope of Section 10
An asset reconstruction company is a company registered with the RBI under Section 3 for the purposes of securitisation or asset reconstruction. Section 2 contains the relevant statutory definitions. Section 10 permits specified supporting activities, but these do not create an unrestricted licence to undertake unrelated business.
Section 10(1): Three permitted functions
Section 10(1)(a): Acting as a recovery agent
An ARC registered under Section 3 may act as an agent for a bank or financial institution to recover dues from borrowers. The fees or charges for this service are determined by mutual agreement between the parties. This provision concerns recovery services performed on behalf of a lender and is distinct from an ARC recovering assets it has acquired in its own right under Section 5.
Section 10(1)(b): Acting as a manager
An ARC may act as a manager referred to in Section 13(4)(c), for a mutually agreed fee. Section 13(4)(c) concerns the appointment of a manager to manage secured assets whose possession has been taken over by the secured creditor. The proviso to Section 10(1) expressly restricts this function: an ARC must not act as a manager if doing so gives rise to any pecuniary liability.
Section 10(1)(c): Acting as a receiver
An ARC may act as a receiver if appointed by a court or tribunal. A receiver is a person appointed by a competent adjudicatory authority to take custody of, preserve, manage or otherwise deal with property according to the terms of the appointment. The ARC's authority in this role depends on the relevant court or tribunal order.
Section 10(2): RBI approval for other businesses
Except for the functions permitted by Section 10(1), an ARC holding a certificate of registration under Section 3(4) cannot commence or carry on any business other than securitisation or asset reconstruction without the RBI's prior approval. An ARC considering an additional line of business must therefore assess whether it falls within the statutory exceptions and applicable RBI directions.
The proviso to Section 10(2) contained a transitional requirement: a company already carrying on another business at the commencement of the Act was required to discontinue that business within one year of commencement. This was a historical transition provision, not a fresh one-year grace period for newly registered ARCs.
Explanation: Subsidiaries are distinct
The Explanation to Section 10 states that, for the purposes of this section, the expressions referring to an asset reconstruction company do not include its subsidiary. This distinction should be read in conjunction with other applicable company law and RBI regulatory requirements; it is not a general exemption from those requirements for subsidiaries.
Relationship with other SARFAESI provisions
Section 9 deals with measures for asset reconstruction, including restructuring debts, enforcement of security interest and settlement of dues. Section 13 governs enforcement of security interests, including the manager referenced in Section 10(1)(b). Section 12 provides for RBI policy and directions applicable to ARCs.
2016 amendment
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (Act 44 of 2016) substituted the terminology "asset reconstruction company" for the earlier references to securitisation or reconstruction companies, effective 1 September 2016. The substance of the permitted activities and RBI-approval restriction described above remains central to Section 10.
Official legal resources
- India Code - Central Acts and amendments (search for the SARFAESI Act, 2002 and Section 10).
- Reserve Bank of India - notifications and directions (refer to the applicable directions for asset reconstruction companies).
- e-Gazette of India - statutory amendments and commencement notifications.
Legal note: The exact scope of any permitted activity is subject to the Act, RBI directions, the terms of registration and relevant judicial orders. Refer to the official consolidated Act and current RBI instructions for a specific transaction.