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Sec 7, SARFAESI Act 2002: Issue Of Security By Raising Receipts/Funds By ARC

Section 7 (Issue of security by raising of receipts or funds by asset reconstruction company) under Chapter II (Regulation of securitisation and reconstruction of financial assets of banks and financial institutions) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 —

(1) Without prejudice to the provisions contained in the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992), any asset reconstruction company, may, after acquisition of any financial asset under sub-section (1) of section 5, offer security receipts to qualified institute buyers or such other category of investors including non-institutional investors as may be specified by the Reserve Bank in consultation with the Board, from time to time, for subscription in accordance with the provisions of those Acts.

(2) A asset reconstruction company may raise funds from the qualified buyers by formulating schemes for acquiring financial assets and shall keep and maintain separate and distinct accounts in respect of each such scheme for every financial asset acquired out of investments made by a qualified buyer and ensure that realisations of such financial asset is held and applied towards redemption of investments and payment of returns assured on such investments under the relevant scheme.

(2A) (a) The scheme for the purpose of offering security receipts under sub-section (1) or raising funds under sub-section (2), may be in the nature of a trust to be managed by the asset reconstruction company, and the asset reconstruction company shall hold the assets so acquired or the funds so raised for acquiring the assets, in trust for the benefit of the qualified buyers holding the security receipts or from whom the funds are raised.
 (b) The provisions of the Indian Trusts Act, 1882 (2 of 1882) shall,except in so far as they are inconsistent with the provisions of this Act, apply with respect to the trust referred to in clause (a) above.

(3) In the event of non-realisation under sub-section (2) of financial assets, the qualified buyers of a asset reconstruction company, holding security receipts of not less than seventy-five per cent. of the total value of the security receipts issued under a scheme by such company, shall be entitled to call a meeting of all the qualified buyers and every resolution passed in such meeting shall be binding on the company.

(4) The qualified buyers shall, at a meeting called under sub-section (3), follow the same procedure, as nearly as possible as is followed at meetings of the board of directors of the asset reconstruction company, as the case may be.





Extra Notes for Readers

(1) Section 7 of SARFAESI Act, 2002 was modified by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004 (Act 30 of 2004), sec. 6, (w.e.f. 11-Nov-2004).

(2) Section 7 of SARFAESI Act, 2002 was modified by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (Act 44 of 2016), sec. 3 & 7, (w.e.f. 1-Sep-2016).

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