SARFAESI Act 2002 | The Insolvency and Bankruptcy Code 2016 | IBC 2016 | - Exams

Hi Sunny,

Thank you for sharing the video link. The SARFAESI Act, 2002, and the Insolvency and Bankruptcy Code (IBC), 2016, are two pivotal legislations in India addressing financial distress and debt recovery. While both aim to resolve non-performing assets (NPAs), they operate differently and have distinct scopes.

🔍 Comparative Overview

Aspect	SARFAESI Act, 2002	Insolvency and Bankruptcy Code (IBC), 2016
Primary Objective	Enables banks and financial institutions to recover loans by auctioning properties.	Provides a time-bound framework for insolvency resolution and liquidation of corporate debtors.
Scope	Limited to secured creditors; focuses on asset recovery.	Encompasses all creditors (secured and unsecured); aims for resolution or liquidation of the debtor entity.
Initiation	Creditors can act independently; no court intervention required initially.	Initiated through applications to the National Company Law Tribunal (NCLT) by creditors or the debtor itself.
Resolution Process	No structured resolution process; creditors sell assets to recover dues.	Structured Corporate Insolvency Resolution Process (CIRP) with a 180-day timeline (extendable by 90 days).
Moratorium	No automatic stay on proceedings; creditors can proceed with recovery actions.	Automatic moratorium under Section 14 upon initiation of CIRP, preventing recovery actions against the debtor.
Role of Asset Reconstruction Companies (ARCs)	ARCs can acquire NPAs but cannot submit resolution plans.	ARCs can submit resolution plans under Section 29A of the IBC.
Jurisdiction	Debt Recovery Tribunals (DRTs) handle disputes.	National Company Law Tribunal (NCLT) handles corporate insolvency cases; Debt Recovery Tribunals (DRTs) handle individual insolvency cases.

⚖️ Legal Precedence: IBC Over SARFAESI

Section 238 of the IBC states:Centrik+4The Hindu Business Line+4The Law Point+4

“The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”The Hindu Business Line

This non-obstante clause ensures that the IBC prevails over any conflicting provisions in other laws, including the SARFAESI Act. The Supreme Court, in the case of Encore Asset Reconstruction Company Pvt Ltd v. Ms Charu Sandeep Desai, affirmed that the IBC supersedes the SARFAESI Act in case of any inconsistency. The Hindu Business Line+4Legal Service India+4PRATAP & COMPANY+4The Law Point+3Mondaq+3The Hindu Business Line+3

Additionally, the National Company Law Appellate Tribunal (NCLAT) in Canara Bank v. Sri Chandramoulishvar Spg. Mills (P) Ltd. held that once the CIRP is initiated under the IBC, proceedings under the SARFAESI Act cannot continue. SCC Online+2PRATAP & COMPANY+2

🧾 Practical Implications

Initiation of Proceedings: If a corporate debtor defaults, creditors can choose to initiate proceedings under the IBC by approaching the NCLT. Once initiated, the CIRP takes precedence, and actions under the SARFAESI Act are stayed.valuerworld.com
Asset Recovery: Under the SARFAESI Act, creditors can independently take possession of secured assets and sell them. However, if the IBC process is initiated, the resolution of the debtor's assets is managed collectively under the CIRP.
Role of ARCs: While ARCs can acquire NPAs under the SARFAESI Act, they are restricted from submitting resolution plans. Under the IBC, ARCs are permitted to submit resolution plans, enhancing their role in the insolvency process.Wikipedia+3Mondaq+3Legal Service India+3

📌 Conclusion

Both the SARFAESI Act and the IBC serve important functions in the financial ecosystem. The SARFAESI Act provides a mechanism for quick recovery of dues by secured creditors, while the IBC offers a comprehensive framework for the resolution or liquidation of corporate debtors. In cases where both legislations are applicable, the IBC takes precedence due to its non-obstante clause.