What are the exceptions to the SRFAESI Act where you cannot send a recall notice?

Question

Accepted Answer

Certain exceptions under the SRFAESI Act prevent sending recall notices to borrowers under specific circumstances.

1. If the borrower is a micro or small enterprise, recall notices cannot be sent without following due process.
2. If the loan is under litigation, sending a recall notice may be prohibited until the legal matter is resolved.
3. In cases where the borrower has filed for bankruptcy, recall notices cannot be issued as the matter is under the jurisdiction of the bankruptcy court.
4. If the borrower has made a valid representation against the recall notice, it must be addressed before proceeding.

Accepted Answer

Under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, 2002, there are certain exceptions where a secured creditor cannot send a recall notice before taking possession of the secured asset. These exceptions are:

1. Public Interest: If taking possession of the secured asset is in the public interest, the secured creditor can proceed without a recall notice. This may include cases where the secured asset is a public utility or poses a threat to public safety.

2. Immediate Possession: If the secured creditor believes that the borrower is likely to remove the secured asset or cause damage to it, they can take immediate possession without a recall notice. This requires obtaining prior written permission from the designated officer.

3. Notice not Possible: If it is not possible to serve a recall notice on the borrower due to their refusal to accept it or their whereabouts being unknown, the secured creditor can proceed without the notice. However, they must provide due diligence to locate the borrower and document their efforts.

4. Loan Amount Exceeds Threshold: For loans exceeding a certain threshold, as prescribed by the RBI, the secured creditor can take possession of the secured asset without a recall notice. Currently, this threshold is Rs. 20 crore.

5. Agricultural Land: For agricultural land, the secured creditor must obtain a certificate from the District Magistrate before taking possession, regardless of the loan amount. The District Magistrate can issue the certificate if they are satisfied that the borrower has defaulted on the loan and that all efforts to recover the dues have failed.

Additionally, the following situations may also exempt the secured creditor from sending a recall notice:

Death of the borrower,Insolvency of the borrower, Security interest in receivables.