RBI Guidelines to SCs/RCs for change in take over of the Management of the Borrower’s under the SARFAESI Act, 2002

By RBI
Thursday, April 22, 2010

The Reserve Bank of India has today released the final guidelines (../scripts/NotificationUser.aspx?Id=5616&Mode=0) to enable securitisation companies (SCs) and reconstruction companies (RCs) to change or takeover the management of the business of the borrower in order to realise their dues.

The guidelines have been framed under Section 9 (a) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) Act.

The objective of these guidelines is to ensure fairness, transparency, non-discrimination and non-arbitrariness in the action of securitisation companies/ reconstruction companies and to build in a system of checks and balances while effecting change in or take over of the management of the business of the borrower by SCs/RCs.

The guidelines lay down the eligibility conditions and grounds based on which SCs/RCs may exercise powers to effect change in or take over the management of the business of the borrower for realising their dues. SCs/RCs should frame policy guidelines in this matter with the approval of their Board of Directors.

The guidelines also provide for setting up of an Independent Advisory Committee (IAC) to evaluate the proposals of the SCs/RCs, giving compulsory notice of 60 days to the borrower indicating the intention of the SC/RC of effecting change in or taking over the management of his business, giving opportunity to the borrowers to file objections, if any, examining borrowers’ objections by IAC/Board of the SC/RC before a reasoned order is passed by the SC/RC.

It may be recalled that the draft guidelines were placed on the RBI’s website on December 5, 2009. The guidelines have been finalised after taking into account the comments received from various stakeholders including banks, financial institutions, non-banking finance companies, securitisation companies/reconstruction companies, chambers of commerce and members of the public.

Alpana Killawala
Chief General Manager

Press Release : 2009-2010/1432

Filed under: Finance

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