Section 5A SARFAESI Act: Transfer of Pending Applications to One Debts Recovery Tribunal
Section 5A of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides a procedure for consolidating certain recovery applications pending before different Debts Recovery Tribunals (DRTs) after an asset reconstruction company acquires the relevant financial asset. It authorises the appropriate Debts Recovery Appellate Tribunal (DRAT) to order a transfer after hearing the parties.
Meaning and purpose of Section 5A
Where the financial asset of a borrower acquired by an asset reconstruction company (ARC) includes secured debts owed to more than one bank or financial institution, separate recovery proceedings may already be pending before two or more DRTs. Section 5A allows the ARC to seek transfer of those pending applications to a single DRT, reducing duplication and enabling coordinated adjudication and recovery.
Section 5A(1): Who may seek transfer?
An ARC may apply to the Appellate Tribunal having jurisdiction over any one of the DRTs where the recovery applications are pending. The statutory conditions are that the ARC has acquired a financial asset of a borrower comprising secured debts of more than one bank or financial institution and that recovery applications relating to those debts have been filed before at least two DRTs. The application seeks transfer of all such pending applications to any one DRT.
Section 5A(2): Hearing and transfer order
On receiving the application, the Appellate Tribunal may direct transfer of the pending applications to one DRT. Before passing the order, it must give the parties to the application an opportunity of being heard. The power is discretionary; transfer does not occur automatically merely because an ARC has acquired the debts.
Section 5A(3): Binding effect on other Tribunals
Notwithstanding the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (now titled the Recovery of Debts and Bankruptcy Act, 1993), a transfer order made under Section 5A(2) binds every DRT covered by the application. It operates as if the order were made by the Appellate Tribunal having jurisdiction over each of those DRTs.
Section 5A(4): Execution of recovery certificates
Any recovery certificate issued by the DRT receiving the transferred applications is to be executed in accordance with Section 19(23) and the other applicable provisions of the 1993 recovery legislation. Thus, Section 5A centralises pending adjudication without creating an independent or separate execution mechanism.
Important legal expressions
Asset reconstruction company
An ARC is a company registered under Section 3 of the SARFAESI Act to carry on asset reconstruction or securitisation business, as defined in Section 2. Section 5 concerns acquisition of financial assets by such companies.
Financial asset and secured debt
Section 2 defines a financial asset broadly to include debts, receivables and specified rights or interests in financial assistance. A secured debt is a debt secured by a security interest. Whether a particular transaction qualifies must be determined under the statutory definitions and relevant documents.
DRT and DRAT
A Debts Recovery Tribunal adjudicates qualifying debt recovery applications under the 1993 Act. The Debts Recovery Appellate Tribunal is the appellate forum under that legislation and exercises the special transfer power conferred by Section 5A of the SARFAESI Act.
Practical application
For example, if recovery applications involving the same borrower's acquired secured debts are pending before DRTs in different jurisdictions, the ARC may apply under Section 5A to the DRAT having jurisdiction over any of those DRTs. After hearing the parties, that DRAT may order the applications transferred to one DRT. The transfer order binds the affected DRTs, while execution of a resulting recovery certificate follows the applicable provisions of the 1993 Act.
Legislative history
Section 5A was inserted by Section 5 of Act 30 of 2004, with effect from 11 November 2004. Act 44 of 2016, Section 3, substituted the expression "asset reconstruction company" for the earlier expression "securitisation company or reconstruction company", with effect from 1 September 2016.
Related provisions and official resources
Read Section 5 (acquisition of financial assets), Section 2 (definitions) and the SARFAESI Act overview. For statutory text, amendments and related legislation, consult the official India Code, the Gazette of India and the Reserve Bank of India.
This article explains the statutory provisions for general reference. The text of the Act, applicable amendments and judicial decisions govern individual cases.