Section 9 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
1[9. Measures for assets reconstruction.-- (1)Without prejudice to the provisions contained in any other law for the time being in force, an asset reconstruction company may, for the purposes of asset reconstruction, provide for any one or more of the following measures, namely:--
- (a)the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower;
- (b)the sale or lease of a part or whole of the business of the borrower;
- (c)rescheduling of payment of debts payable by the borrower;
- (d)enforcement of security interest in accordance with the provisions of this Act;
- (e)settlement of dues payable by the borrower;
- (f)taking possession of secured assets in accordance with the provisions of this Act;
- (g)conversion of any portion of debt into shares of a borrower company: Provided that conversion of any part of debt into shares of a borrower company shall be deemed always to have been valid, as if the provisions of this clause were in force at all material times.
- (2)The Reserve Bank shall, for the purposes of sub-section (1), determine the policy and issue necessary directions including the direction for regulation of management of the business of the borrower and fees to be charged.
- (3)The asset reconstruction company shall take measures under sub-section (1) in accordance with policies and directions of the Reserve Bank determined under sub-section (2).]
Summary
- Asset reconstruction companies have several powerful tools to help recover money from failing businesses.
- They can take over the management of a borrower's business or change who is running it.
- They have the power to sell or lease out parts of the business or the whole business.
- They can reschedule when the borrower has to pay back their debts to make it more manageable.
- The company can also convert the debt owed into shares of the borrower's company.
- All these actions must follow the policies and directions set by the Reserve Bank.
Practical examples
FAQ
1. Can an asset reconstruction company sell a borrower's business under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
Yes, Section 9(1)(b) of the Act specifically allows the company to provide for the sale or lease of a part or whole of the business of the borrower.
2. What can an asset reconstruction company do with management under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
Under Section 9(1)(a) of the Act, they can change or take over the management of the business of the borrower for the purpose of asset reconstruction.
3. Who decides the rules for these reconstruction measures under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
The Reserve Bank determines the policy and issues necessary directions for these measures as per Section 9(2) of the Act.
Test yourself
Q1.Under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which of these is a valid measure for asset reconstruction?
Q2.According to Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, whose directions must an asset reconstruction company follow when taking these measures?
Q3.Under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what can an asset reconstruction company do regarding a borrower's debt and company ownership?
Q4.Under Section 9 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if an asset reconstruction company wants to deal with the business's assets, what are their options?