AAP Tax Law - Indian laws and legal resources

SARFAESI Act, 2002 | Chapter II | Section 8

Section 8 of SARFAESI Act: Exemption from Registration of Security Receipts

Section 8 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides a limited exemption from compulsory registration for specified security receipts issued by an asset reconstruction company and for transfers of security receipts. The exemption is subject to the precise statutory conditions and does not generally exempt instruments transferring ownership or interests in immovable property.

Meaning and purpose of Section 8

Under the SARFAESI Act, 2002, an asset reconstruction company (ARC) may acquire financial assets and issue security receipts to eligible investors under Section 7(1). A security receipt is an instrument evidencing the holder's acquisition of an undivided right, title or interest in a financial asset involved in securitisation, as defined in Section 2 of the Act. Section 8 addresses whether such receipts and their transfers must be registered under the Registration Act, 1908.

Section 8: Statutory provision

Notwithstanding anything contained in sub-section (1) of Section 17 of the Registration Act, 1908 (16 of 1908), the following do not require compulsory registration:

  1. Clause (a): A security receipt issued by an asset reconstruction company under Section 7(1), which does not create, declare, assign, limit or extinguish any right, title or interest in immovable property, except insofar as it entitles the holder to an undivided interest afforded by a registered instrument.
  2. Clause (b): Any transfer of security receipts.

These clauses operate as an exception to the compulsory registration requirement of Section 17(1) of the Registration Act, 1908, within the limits specified by Section 8.

Explanation of the legal requirements

1. Security receipts issued under Section 7

The exemption concerns receipts issued by an ARC under Section 7(1). It is not a blanket exemption for every agreement, assignment deed, mortgage or instrument executed in an asset reconstruction transaction. The statutory qualification concerning rights in immovable property is essential: where an instrument independently creates or transfers an interest in immovable property beyond the specified exception, its registration requirements must be examined separately.

2. Undivided interest under a registered instrument

Section 8 expressly accommodates a security receipt entitling its holder to an undivided interest afforded by a registered instrument. This recognizes the distinction between an investor's beneficial interest evidenced by the receipt and an instrument directly creating or altering proprietary rights in immovable property.

3. Transfer of security receipts

Clause (b) exempts the transfer of security receipts from compulsory registration under Section 17(1). The exemption does not dispense with other applicable requirements concerning eligibility of investors, RBI or SEBI directions, contractual restrictions, stamp duty where applicable, or the validity of the underlying transaction.

Related statutory provisions

  • Section 2: Definitions, including asset reconstruction company, financial asset and security receipt.
  • Section 5: Acquisition of rights or interest in financial assets by an ARC.
  • Section 7: Issue of security receipts and raising funds by an ARC.
  • Section 17(1), Registration Act, 1908: Instruments generally subject to compulsory registration.

Practical significance

Section 8 facilitates securitisation and trading of security receipts without requiring each qualifying receipt or transfer to be compulsorily registered as an immovable-property instrument. However, the legal character and effect of the underlying documents remain important. Parties should separately check applicable registration, stamping and regulatory requirements for asset acquisition documents and security interests.

Official legal resources

For the authoritative legislation and amendments, consult the India Code portal (Ministry of Law and Justice), the Reserve Bank of India for ARC directions, and the Securities and Exchange Board of India for relevant securities regulation. The statutory text and applicable notifications prevail in case of any discrepancy.

This article explains the general legal position and does not replace review of the applicable Act, rules, notifications and transaction documents.