What is being envisaged is an independent law, carved out from the Sarfaesi, that will cover receivables under any contract. This is expected to give a fillip to the development of the securitisation market, which otherwise is restricted to only to banks and financial institutions. Though Sarfaesi came into force almost two years ago, banks and financial institutions are undertaking securitisation transactions outside the purview of Sarfaesi by resorting to the Indian Contract Act, 1872 and the Transfer of Property Act, 1882, according to MR Umarji, chief legal adviser, IBA. Banks and FIs are skirting Sarfaesi as a Securitisation Company (special purpose vehicle) floated under Sarfaesi has to have a minimum capital base of Rs two crore. As an asset backed or mortgage backed security issued by an SPV outside the purview of Sarfaesi is not a security receipt under the Securities Contract (Regulation) Act, 1956, the SPV can resort to only long-drawn civil proceedings in case an underlying asset turns bad. A SPV under the purview of Sarfaesi, however, can resort to summary recovery procedures.
That Sarfaesi is restrictivebank and FI focussedis underscored by the fact that it defines a secured creditor as any bank or FI or any consortium or group of banks or FIs. The secured criditors also includes debenture trustees appointed by any bank or FI; or Securitisation Company (SC) or Reconstruction Company (RC), whether acting as such or managing a trust set up by such SC or RC for securitisation or reconstruction as the case may be; or any other trustee holding securities on behalf of a bank or FI, in whose favour security interest is created for due repayment by any borrower of any financial assistance.