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  • Sudiksha Ravi

Secured Creditors and Registration of Interests: A Change in Rights

[Sudiksha is a student at West Bengal National University of Juridical Sciences, Kolkata.]

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act 2002 (SARFAESI Act) was enacted with the aim of, among others, regulating the malpractices that could accompany the creation of secured interests. To that effect, the SARFAESI Act created the Central Registry (CERSAI) to oversee these matters, and provided that the particulars of all such security transactions be filed with this body.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act 2016 (Amending Act) was then passed in order to modify the rights of a secured creditor under the SARFAESI Act, particularly in relation to the filing of security interests with the CERSAI. Sections 17, 18, and 19 of the Amending Act were made enforceable starting 24 January 2020, vide the Ministry of Finance Notification S.O.4619(E) dated 26 December 2019. This article briefly assesses the rights of secured creditors conditional to such filing - prior to, and after the amendment.

Prior to the Amendment

Section 23 of the SARFAESI Act stated that the particulars of every transaction of securitization, asset reconstruction or creation of security interest were to be filed with CERSAI within 30 days of the event. Section 27 provided a monetary penalty for any secured creditor who did not file their interests.

Non-compliance with Section 23 however, did not take away any rights of the creditor under the act. The security interest created retained its validity and the secured creditor was allowed to proceed under the SARFAESI Act for any enforcement of rights, regardless of registration with the CERSAI. Various judgements of the Debt Recovery Tribunal (DRT) have supported this inference. In Geetha Elizabeth Mathew v. Kerala State Co-operative Bank [SA Number 193 of 2013, DRT-Ernakulam], the DRT remarked that non-registration/non-filing of transactions whereby mortgages are created does not by itself render the mortgage void and unenforceable. In Sunita Traders v. Aditya Birla Housing Finance Limited, the tribunal observed that even in cases of non-filing with the CERSAI, a secured creditor could continue to enforce their security interest.

Post Amendment: New Rules, New Confusions

The amendment provisions made operational in 2020 brought some important changes to the securities framework. The time limit as per Section 23 for registering a security interest was removed, and Section 27, which was a penal provision was deemed omitted from the day of enforcement of the amendment.

Section 26-D of the newly inserted Chapter IV-A was brought in as a replacement to the now removed penalty for non-registration. It states that no secured creditor can enforce their rights under Chapter III of the SARFAESI Act unless the interest created in their favour has been registered with the CERSAI. It is evident that a higher degree of importance has been placed on the filing of security interests, the ignorance of which will disentitle the secured creditor from seeking any remedy under this act. Further, this section applies to only secured creditors and no one else. Non-registration would thus effectively put them at a position lower than any other creditors if such matter were taken to court. These add up to a penalty more severe than the previously applied monetary fine – a new form of reinforcement to ensure compliance with the filing provisions.

Despite seemingly clear phrasing, some confusions creep in with the amendment. A pertinent aspect to be examined is whether any part of this section is designed to operate in a retrospective manner – something the section does not explicitly state. First, it must be examined whether proceedings initiated prior to the amendment, on the basis of an unregistered security, would have to be dismissed. The 2021 judgement of Bank of Baroda v. Umang Gyanchandani was concerned with an appeal against an order passed prior to the amendment. The Appellate DRT did not consider the impact of Section 26-D on the case at all, stating that there is no impediment for the defendant Bank to proceed under the SARFAESI Act if the security interest has not been registered. Thus, one can conclude that Section 26-D would not vitiate proceedings that were in progress before its effective date. Though not expressly stated, this inference seems logical and fair as compared to one which would vitiate proceedings that are underway.

Second, there is a lack of clarity regarding whether only those security interests created after the enforcement of the section need to be registered to ensure a secured creditor maintains their rights. If it applies to interests made or modified before 24th January, 2020, it would become retrospective in a sense. It is submitted that the plain words of Section 26-D do not appear to concern themselves with the creation of the interest, but only the enforcement of the rights surrounding the same. It could thus be interpreted to state that from the effective date, no unregistered interest can be the basis for a secured creditor’s claim under the SARFAESI Act, regardless of when the interest came into existence. This proposition seems to find support in the case of Shanmugadurai v. Authorised Officer, ASREC. The DRT examined compliance with Section 26-D for a security interest created in 2013, and ruled that the requirements of registration were fulfilled.

Another important question becomes whether this section entitles an individual to claim that a security interest is void on account of not being registered. The case of Abdul Latheef v. Nilambur Bank was decided in 2019, prior to the amendment. The DRT disallowed Abdul Latheef from arguing that the mortgage against him was void and unenforceable on account of non-registration of the same with the CERSAI, as Section 26-D had not yet come into effect. Drawing from this, it could appear that once Section 26-D came into effect, a non-registered security could be considered void. However, there is no mention of the same in the legislation or in case laws, and thus, no certainty on this subject.


The rights of the secured creditors have been varied with the amendment, which has also been accompanied by confusions of its own. Going forward, it is essential for the DRT and for the legislators to make specifications to address such confusions. Where the secured creditor is losing their right to proceed under the SARFAESI Act upon non-registration, it is also vital for them to know if the security interest is void due to such non-registration. The filing of interests with the CERSAI, when mandatory, would ensure regular compliance, provide foresight into possible legal arguments, and help better achieve the objectives of the SARFAESI Act and the amendment.


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