CERSAI and its importance

Advocate S Selvakumar | Advocate at Koramangala | Advocate at HSR

 The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is set up under section 20 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). At the request of the Department of Financial Services, Ministry of Finance, the Indian Banks' Association has taken steps to obtain incorporation of the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) licensed under section 25 of the Companies Act, 1956. The said Company shall be maintaining and operating the Central Registry for and on behalf of the Central Government.

The Central Government has issued the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 and prescribed the Forms to be used for the purpose of filing information for registration in respect of transactions of securitization, asset reconstruction of financial assets and security interest over property. The Forms prescribed by the Central Government for registration are as under:

FORM I - For Creation and modification of Charge.

FORM II - For particulars of Satisfaction of Charge.

FORM III - For Securitisation or Reconstruction of Financial Assets.

FORM IV - For Satisfaction of Securitisation or Reconstruction of Financial Assets.

It may be observed from Form I relating to creation and modification of charge that it is restricted to charge on immovable property by way of mortgage by deposit of title deeds. At present, the Government has not prescribed any forms for other categories of charges on immovable properties and movable properties. The Registration System will therefore initially operate for registration of mortgage by deposit of title deeds as also for transactions of securitisation and asset reconstruction under the provisions of the SARFAESI Act.

Attention of the banks and financial institutions as well as the borrowers of the banks is invited to sub-section (4) of section 20 of the SARFAESI Act which reads as under:

The provisions of this Act pertaining to the Central Registry shall be in addition to and not in derogation of any of the provisions contained in the Registration Act, 1908 (16of 1908), the Companies Act, 1956 (1 of 1956), the Merchant Shipping Act, 1958 (44 of 1958), the Patents Act, 1970 (39 of 1970), the Motor Vehicles Act, 1988 (59 of 1988) and the Designs Act, 2000 (16 of 2000) or any other law requiring registration of charges and shall not affect the priority of charges or validity thereof under those Acts or laws."

In view of this provision contained in sub-section (4) of section 20 of the SARFAESI Act, the validity of the charges created or the priority of various claimants in respect of the property mortgaged or charged shall not be determined by the provisions of the SARFAESI Act. It may also be noted that Registration of security interest is not a condition precedent for the purpose of exercise of rights of enforcement of securities conferred on the banks and financial institutions under section 13 of the SARFAESI Act.

The object of setting up the Registration System under Chapter IV of the SARFAESI Act is to create a public data base about encumbrances created on properties to secure loans and advances given by the banks and financial institutions, as also transactions of securitisation or asset reconstruction undertaken pursuant to the provisions of the SARFAESI Act. As the provisions of SARFAESI Act now stand following transactions are not covered by the Central Registry system.

• Securitisation or asset reconstruction done outside the provisions of the SARFAESI Act ; or

• Security interest created in favour of any lender not included in the definition of "bank" (section 2(1) (c) or financial institution (section 2(1)(m)) of the SARFAESI Act.

It may also be noted that the Rules notified by the Government in the Official Gazette shall be effective from the date of publication of the Rules in the Gazette. The requirement of registration under section 20 of the SARFAESI Act is therefore applicable to all mortgages of property by deposit of title deeds created on and after the date of publication of the Rules in the Official Gazette.

Pending amendments to the SARFAESI Act, extending the Registration System to existing mortgages to secure the loans mortgaged prior to the date of notification, the Registration System will cover only mortgages by deposit of title deeds created on or after the publication of notification.

The records of the Central Registry shall be maintained in computer compact disks (CDs) or any other forms as provided under the provisions of the SARFAESI Act.

Any person interested in search of the records of the Registry shall be entitled to do so by payment of fees prescribed by the Rules through any bank or financial institution or any other intermediaries authorized by the Central Registry.