7 Important Legal Provisions with Subsequent Amendments given in the Securitization Act 2002

Banks can exercise the option of securitizing their loan assets. They can sell the loan assets at an agreed rate to the Asset Reconstruction Company and clean up its own books from the doubtful/bad asset portfolio in the SME sector.

Some of the important legal provisions in the Securitization Act, 2002 with subsequent amendments are given below:

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(1) The Central Government may, by notification, appoint a person for the purpose of registration of transactions relating to securitisation, reconstruction of financial assets and security interest created over properties, to be known as the Central Registrar.

(2) The Central Government may appoint such other officers with such designations as it thinks fit for the purpose of discharging under the superintendence and direction of the Central Registrar, such functions of the Central Registrar under this Act as he may, from time to time, authorize them to discharge.

(3) Register of securitisation, reconstruction and security interest transactions. For the purposes of this Act, a record called the Central Register shall be kept at the head office of the Central Registry for entering the particulars of the transactions relating to-

(a) Securitisation of financial assets;

(b) Reconstruction of financial assets; and

(c) Creation of security interest.

Notwithstanding anything contained in sub-section (1), it shall be lawful for the Central Registrar to keep the records wholly or partly in computer, floppies, and diskettes or in any other electronic form subject to such safeguards as may be prescribed.

Where such register is maintained wholly or partly in computer, floppies, diskettes or in any other electronic form, under sub-section (2), any reference in this Act to entry in the Central Register shall be construed as a reference to any entry as maintained in computer or in any other electronic form.

The register shall be kept under the control and management of the Central Registrar.

(4) Failing of transactions of securitization, reconstruction and creation of security interest. The particulars of every transaction of securitization, asset reconstruction or creation of security interest shall be filed, with the Central Registrar in the manner and on payment of such fee as may be prescribed, within thirty days after the date of such transaction or creation of security, by the securitization company or reconstruction company or the secured creditor, as the case may be:

Provided that the Central Registrar may allow the filing of the particulars of such transaction or creation of security interest within thirty days next following the expiry of the staid period of thirty days on payment of such additional fee not exceeding ten times the amount of such fee.

5. Modification of security interest registered under this Act. Whenever the terms or conditions, or the extent or operation, of any security interest registered under this Chapter, are, or is, modified, it shall be the duty of the securitization company or the reconstruction company or the secured creditor, as the case may be, to send to the Central Registrar, the particulars of such modification, and the provisions of this Chapter as to registration of a security interest shall apply to such modification of such security interest.

6. Securitization company or Reconstruction Company or secured creditors to report satisfaction of security interest.

The securitization company or reconstruction company or the secured creditor as the case may be, shall give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest relating to the securitisation company or the reconstruction company or the secured creditor and requiring registration under this Chapter, within thirty days from the date of such payment or satisfaction.

The Central Registrar shall, on receipt of such intimation, cause a notice to be sent to the securitization company or reconstruction company or the secured creditor calling upon it to show cause within a time not exceeding fourteen days specified in such notice, as to why payment or satisfaction should not be recorded as intimated to the Central Registrar.

If no cause is shown, the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register.

If cause is shown, the Central Registrar shall record a note to that effect in the Central Register, and shall inform the borrower that it has done so.

7. Right to inspect particulars of securitization, reconstruction and security interest transactions.

The particulars of securitization or reconstruction or security interest en­tered in the Central Register of such transactions kept under section 22 shall be open during the business hours for inspection by any person on payment of such fee as may be prescribed.

The Central Register referred to in sub-section (1) maintained in electronic form, shall also be open during the business hours for the inspection by any person through electronic media on payment of such fee as may be prescribed.