IBC And Sarfaesi Once Again In Conflict

The conflict between the Insolvency and Bankruptcy Code (IBC) and the Sarfaesi Act has once again come to the fore as the RBI rejected a resolution plan submitted by UV Asset Reconstruction (UVARCL) to acquire Aircel's assets. The plan proposed by the Asset Reconstruction Company (ARC), although approved by the NCLT, was rejected by the RBI because it "did not conform to the guidelines under the Sarfaesi Act", hence contributing to the ambiguity surrounding the application of the two legislations.

The Sarfaesi Act was enacted in 2002 to regulate the securitization and reconstruction of financial assets, as well as the enforcement of security interest, without court intervention. It provides a framework within which financial institutions can recover bad loans and it is regulated by the Ministry of Finance and the RBI. Under the Act, secured creditors can take possession over the collateral against which loan was provided, if there is a default in payment. Accordingly,