SARFAESI Act 2002: Security Receipt, Sponsor

A security receipt is a financial instrument that represents a beneficial interest in the underlying financial asset. In the context of the SARFAESI Act, a security receipt is issued by a securitisation company or reconstruction company to investors who have purchased securities backed by secured assets.

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

The SARFAESI Act does not specify any specific requirements for a valid security receipt. However, the security receipt must be:

  • Issued by a securitisation company or reconstruction company that is registered with the Reserve Bank of India.
  • Backed by secured assets.
  • Inscribed in the name of the investor.
  • Transferable in accordance with the terms of the security receipt.

What are the rights of a holder of a security receipt?

The holder of a security receipt has the following rights:

  • To receive payments from the securitisation company or reconstruction company in accordance with the terms of the security receipt.
  • To participate in the management of the securitisation company or reconstruction company.
  • To vote on matters affecting the securitisation company or reconstruction company.

What are the responsibilities of a sponsor?

A sponsor is a person or entity that promotes and organizes the securitisation of financial assets. The sponsor is responsible for:

  • Identifying and selecting the financial assets to be securitized.
  • Structuring the securitisation transaction.
  • Marketing the securities to investors.
  • Providing ongoing support to the securitisation company or reconstruction company.

MCQs on SARFAESI Act 2002: Security Receipt, Sponsor

  1. Which of the following is not a requirement for a valid security receipt under the SARFAESI Act?
    • The security receipt must be issued by a securitisation company or reconstruction company that is registered with the Reserve Bank of India.
    • The security receipt must be backed by secured assets.
    • The security receipt must be in the name of the investor.
    • The security receipt must be transferable in accordance with the terms of the security receipt.
    • The correct answer is (c). The security receipt does not need to be in the name of the investor under the SARFAESI Act.
  2. The holder of a security receipt has the right to:
    • Receive payments from the securitisation company or reconstruction company in accordance with the terms of the security receipt.
    • Participate in the management of the securitisation company or reconstruction company.
    • Vote on matters affecting the securitisation company or reconstruction company.
    • All of the above.
    • The correct answer is (d). All of the above are correct.
  3. The sponsor is responsible for:
    • Identifying and selecting the financial assets to be securitized.
    • Structuring the securitisation transaction.
    • Marketing the securities to investors.
    • Providing ongoing support to the securitisation company or reconstruction company.
    • All of the above.
    • The correct answer is (d). All of the above are correct.