Section 6 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- (1)The bank or financial institution may, if it considers appropriate, give a notice of acquisition of financial assets by any 1[asset reconstruction company], to the concerned obligor and any other concerned person and to the concerned registering authority (including Registrar of Companies) in whose jurisdiction the mortgage, charge, hypothecation, assignment or other interest created on the financial assets had been registered.
- (2)Where a notice of acquisition of financial asset under sub-section (1) is given by a bank or financial institution, the obligor, on receipt of such notice, shall make payment to the concerned 1[asset reconstruction company], as the case may be, and payment made to such company in discharge of any of the obligations in relation to the financial asset specified in the notice shall be a full discharge to the obligor making the payment from all liability in respect of such payment.
- (3)Where no notice of acquisition of financial asset under sub-section (1) is given by any bank or financial institution, any money or other properties subsequently received by the bank or financial institution, shall constitute monies or properties held in trust for the benefit of and on behalf of the 1[asset reconstruction company], as the case may be, and such bank or financial institution shall hold such payment or property which shall forthwith be made over or delivered to 1[asset reconstruction company], as the case may be, or its agent duly authorised in this behalf.
Summary
- Banks or financial institutions can choose to notify a borrower when their debt has been sold to an asset reconstruction company.
- Once a borrower receives this notice, they must pay the asset reconstruction company instead of the original bank.
- Paying the new company as directed in the notice completely clears the borrower of that specific debt obligation.
- If no notice is given, the original bank must hold any money it receives from the borrower in trust for the new company.
- Any money or property held in trust by the bank must be promptly handed over to the asset reconstruction company.
Practical examples
FAQ
1. Who sends the notice of debt transfer to the borrower under Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
The original bank or financial institution may give the notice of acquisition to the borrower and other concerned persons as per Section 6 of the Act.
2. Does a borrower have to pay the new company if they haven't received a notice under Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
If no notice is received, the borrower might continue paying the bank. Section 6 specifies that if no notice is given, the bank holds such money in trust for the new company.
3. What is the effect of paying the asset reconstruction company after receiving a notice under Section 6 of this finance law?
Payment made to the company following the notice provides a full discharge to the borrower from all liability regarding that payment under Section 6 of the Act.
Test yourself
Q1.Under Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what happens if a bank receives money from a borrower after selling the debt but without giving notice?
Q2.According to Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, to whom should the borrower make payments after receiving a notice of acquisition?
Q3.Which authority, besides the borrower, might be notified of the debt transfer under Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
Q4.Under Section 6 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what is required for a borrower to get a "full discharge" from their liability?