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SARFAESI Act, 2002 | Section 9

Section 9 SARFAESI Act - Measures for Asset Reconstruction

Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) specifies the measures that an asset reconstruction company (ARC) may adopt to reconstruct financial assets. These measures are subject to the policies and directions issued by the Reserve Bank of India (RBI).

Meaning and scope of asset reconstruction

Under Section 2, asset reconstruction broadly refers to the acquisition by an ARC of rights or interests of a bank or financial institution in financial assets for realisation of such assets. Section 5 governs acquisition of those financial assets. Section 9 sets out the methods available to an ARC after acquisition.

Section 9(1): Measures available to an asset reconstruction company

Without prejudice to provisions of any other law in force, an ARC may adopt one or more of the following measures for asset reconstruction:

  1. Section 9(1)(a) - Change or takeover of management: Proper management of the borrower's business through a change in, or takeover of, its management, subject to the applicable statutory framework and RBI directions.
  2. Section 9(1)(b) - Sale or lease: Sale or lease of the whole or part of the borrower's business as an asset reconstruction measure.
  3. Section 9(1)(c) - Debt rescheduling: Rescheduling payments of debts payable by the borrower, including revised repayment arrangements.
  4. Section 9(1)(d) - Enforcement of security interest: Enforcement of security interests in accordance with the Act, including relevant procedures under Section 13.
  5. Section 9(1)(e) - Settlement of dues: Negotiated settlement of amounts payable by the borrower.
  6. Section 9(1)(f) - Taking possession: Taking possession of secured assets in accordance with the provisions of the SARFAESI Act.
  7. Section 9(1)(g) - Conversion of debt into equity: Conversion of any portion of debt into shares of a borrower company, subject to applicable law and RBI directions.

Proviso to clause (g): Conversion of any part of debt into shares of a borrower company is deemed always to have been valid as though clause (g) had been in force at all material times. This statutory validation does not dispense with otherwise applicable legal requirements.

Section 9(2): RBI policy and directions

The Reserve Bank of India is empowered to determine policy and issue necessary directions for the purposes of Section 9(1). This includes directions governing management of the borrower's business and fees to be charged. ARCs must also consider applicable RBI regulatory directions when implementing reconstruction measures.

Section 9(3): Compliance with RBI directions

An ARC must undertake the measures under Section 9(1) in accordance with the policies and directions determined by the RBI under Section 9(2). Section 9 is therefore not an unrestricted power to take over management, sell assets or convert debt into equity.

Practical effect of Section 9

Depending on the nature of the acquired financial asset, an ARC may seek recovery through a negotiated settlement, restructuring or rescheduling, sale or lease of the borrower's business, enforcement of collateral, or conversion of eligible debt into equity. The appropriate procedure depends on the measure selected, the rights acquired, the terms of the underlying instruments, and the Act and RBI directions.

In particular, asset reconstruction under Section 9 should be distinguished from the detailed procedure for enforcement of security interest under Section 13. Taking possession of secured assets and related enforcement steps must comply with the procedural safeguards and requirements prescribed by law.

Legislative amendment

Section 9 was substituted by Section 8 of Act 44 of 2016, effective from 1 September 2016. The substituted provision expressly lists the measures in clauses (a) to (g) and recognises RBI oversight under subsections (2) and (3).

Official statutory and regulatory resources

This article explains Section 9 and does not replace the current statutory text, applicable RBI directions or case-specific legal advice.