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Types of Charges
i. Fixed Charge – is also called Specific Charge. It extends over a specific property.
ii. Floating Charge – means a charge
- that floats over the present and future property of the company
- that does not restrict the company from assigning the property subject to third persons, whether by way of sale or security.
- that on happening of an event or contingency crystallises as a fixed charge.
SARFAESI Act, 2002
The Act is a major step in financial sector reforms. It has brought a legal framework for the
following important activities in the credit market:
(a) Securitisation of financial assets.
(b) Reconstruction of financial assets.
(c) Recognition of any 'interest' created in the security for due repayment of a loan as a 'security interest', irrespective of its form and nature but when it is not in the possession of the creditor.
Financial Asset - a claim to any debt or receivables and includes :
- A claim to any debt or receivables or part thereof whether secured or unsecured, or
- Any debt or receivable secured by mortgage of or charge on immovable property or
- A mortgage, charge, hypothecation or pledge of moveable property, or
- Any right of interest in the security, whether full or part, securing debt, or
Securitisation Company : The minimum capital requirement is Rs.200 Crore at the time of registration, and these companies are required to maintain minimum capital adequacy ratio of 15% of total asset acquired or Rs.100 crore whichever is less. It is company registered under companies act 1956 for the purpose of securitisation. The company also needs registration with
RBI.
Acquisition of financial asset from the originator is the main function of securitisation company.
If the borrower does not pay within 60 days after notice by the secured creditor the creditor can take possession of the security.
Enforcement of SARFAESI Act only if security is not in possession of the bank and financial institution.
Registration of Securitisation Company Or Reconstruction Company
- can commence or carry business if
1. Obtain certification of registration from RBI
2. It has the owned funds not less than 2 Crores
Asset Reconstruction means acquisition of any right or interest of any bank of financial institution in any financial asset for the purpose of realisation.
Securitisation Company needs registration from RBI for commencement of business.
The four documents involved in the Securitisation Transaction
Offer Document
Debenture
Agreement
Security Receipt
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