SARFAESI Act 2002: Security Agreement

A security agreement is a contract between a borrower and a lender that creates a security interest in the borrower’s assets. This means that the lender has the right to take possession of the assets if the borrower defaults on the loan.

What are the requirements for a valid security agreement under the SARFAESI Act?

The SARFAESI Act specifies the following requirements for a valid security agreement:

  • The agreement must be in writing.
  • It must be signed by the borrower.
  • It must describe the secured assets in sufficient detail.
  • It must state the amount of the secured debt.
  • It must provide for the secured creditor’s rights in the event of default.

What are the rights of a secured creditor under the SARFAESI Act?

If the borrower defaults on the loan, the secured creditor has the right to take possession of the secured assets. The secured creditor can do this without the need for a court order.

The secured creditor can also sell the secured assets to recover the amount of the secured debt. The proceeds of the sale will be used to pay off the debt, and any remaining amount will be returned to the borrower.

What are the responsibilities of a borrower under the SARFAESI Act?

The borrower has the following responsibilities under the SARFAESI Act:

  • To repay the loan in full and on time.
  • To keep the secured assets in good condition.
  • To not transfer the secured assets without the secured creditor’s consent.
  • To provide the secured creditor with access to the secured assets.

MCQs on SARFAESI Act 2002: Security Agreement

  1. Which of the following is not a requirement for a valid security agreement under the SARFAESI Act?
    • The agreement must be in writing.
    • It must be signed by the borrower.
    • It must describe the secured assets in sufficient detail.
    • It must state the amount of the secured debt.
    • It must be registered with the Registrar of Companies.
    • The correct answer is (e). The security agreement does not need to be registered with the Registrar of Companies.
  2. If the borrower defaults on the loan, the secured creditor can:
    • Take possession of the secured assets without the need for a court order.
    • Sell the secured assets to recover the amount of the secured debt.
    • Apply the proceeds of the sale to pay off the debt.
    • Return any remaining amount to the borrower.
    • All of the above.
    • The correct answer is (d). All of the above are correct.
  3. The borrower has the following responsibilities under the SARFAESI Act:
    • To repay the loan in full and on time.
    • To keep the secured assets in good condition.
    • To not transfer the secured assets without the secured creditor’s consent.
    • To provide the secured creditor with access to the secured assets.
    • All of the above.
    • The correct answer is (d). All of the above are correct.