Home  /  Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002  /  Section 12

Section 12: Power of Reserve Bank to determine policy and issue directions

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 • Official Statutory Text & Practice Guide

Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 2002
Section 11 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 13

Legal Commentary & Landmark Judgments: Section 12

Section 12 of the SARFAESI Act, 2002 vests the Reserve Bank of India with plenary statutory powers to determine policy, frame prudential norms, and issue binding regulatory directions governing Asset Reconstruction Companies and securitisation transactions.

  • Plenary Policy Determination: Empowers the RBI to determine policy in public interest and banking system safety regarding securitisation, asset reconstruction, and capital adequacy.
  • Mandatory Prudential Guidelines: Authority to issue binding directions on capital adequacy, asset classification, provisioning, income recognition, valuation standards, and deployment of funds.
  • Binding Statutory Force: Directions issued under Section 12 possess mandatory statutory force and bind every ARC, board of directors, and institutional participant.
Key Landmark Precedents:
  • Central Bank of India v. Ravindra (2002) 1 SCC 367: A Constitution Bench of the Supreme Court held that RBI directions and circulars issued in public interest possess statutory force and mandatorily bind banking and financial institutions.
  • Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 31: The Supreme Court affirmed that the RBI's plenary power under Section 12 to regulate ARCs and frame guidelines for securitisation provides vital institutional checks and balances preventing arbitrary action by financial entities.
Courtroom Practice & Strategic Litigation Guidance:

In DRT litigation, cross-examine whether the ARC complied with RBI Master Directions issued under Section 12 (e.g., Fair Practices Code, valuation standards, fee caps). Any material violation of Section 12 circulars constitutes an actionable statutory illegality vitiating recovery measures.

Section 11 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 13