From Securitization to Resolution: The Convergence of Sarfaesi, IBC and the Banking Regulation Act in Non-Performing Asset Management
Author : K Swapna Rani
Abstract :
Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI), the Insolvency and Bankruptcy Code 2016 (IBC), and the Banking Regulation Act 1949 operate in overlapping yet functionally distinct domains. This article examines the doctrinal and practical tensions arising from the concurrent application of these statutes, arguing that the absence of a hierarchical coordination mechanism generates forum-shopping opportunities, procedural inefficiencies, and substantive inequities for secured creditors and debtor-borrowers alike.
The central inquiry interrogates whether SARFAESI's security enforcement paradigm—characterised by creditor self-help measures under sections 13 and 14—has been substantively displaced by IBC's collective resolution mechanism, or whether both frameworks retain complementary validity under the Banking Regulation Act's supervisory umbrella. The Supreme Court's judgment in Transcore v Union of India (2018) 11 SCC 488, upholding SARFAESI's constitutional validity while circumscribing its procedural ambit, and the subsequent Dharani Sugars and Chemicals Ltd v Union of India (2019) 7 SCC 462, which clarified the conditions precedent for IBC initiation, provide the primary jurisprudential anchors. The article further analyses the Reserve Bank of India (RBI)'s circulars—particularly the February 2018 revised framework for resolution of stressed assets subsequently quashed in RBI v Power Sector (2019) 11 SCC 1—to demonstrate how delegated legislation attempts to harmonise these statutory instruments.
Methodologically, the study employs doctrinal legal analysis supplemented by comparative reference to the UK Financial Services and Markets Act 2000 and the US Dodd-Frank Act's resolution regimes. The comparative dimension illuminates how mature jurisdictions have institutionalised "no creditor worse off" safeguards absent from India's fragmented framework. The article contends that the Banking Regulation Act's section 35A moratorium powers, when invoked alongside SARFAESI enforcement and IBC admission, create a regulatory trilemma wherein RBI's prudential objectives may conflict with creditor rights and debtor protections.
The contribution lies in proposing a statutory coordination protocol modelled on the UK's "special resolution regime" principles, incorporating mandatory stay provisions, asset valuation standards, and cross-statutory judicial review mechanisms. The findings suggest that effective NPA resolution requires not merely procedural convergence but a fundamental reconceptualization of secured creditor priority within collective insolvency proceedings, balancing financial stability imperatives with distributive justice concerns.
Keywords :
SARFAESI Act 2002, Insolvency and Bankruptcy Code 2016, Banking Regulation Act 1949, non-performing assets, secured creditor rights, RBI circulars.
