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Section 27: Penalties for non-compliance of directions of Reserve Bank

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 26 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 28

Legal Commentary & Landmark Judgments: Section 27

Section 27 of the SARFAESI Act, 2002 establishes statutory penal sanctions and monetary penalties enforceable by the Reserve Bank of India against Asset Reconstruction Companies for non-compliance with its policy directions and prudential regulations.

  • Penal Default Scope: Default in complying with any direction issued by the RBI under Section 12 or failure to maintain required financial norms.
  • Adjudication by RBI: Penalty adjudicated by the RBI after issuing show-cause notice and providing a reasonable opportunity of being heard.
  • Substantial Monetary Fines: Penalty extending up to ₹1 crore or twice the amount involved, with recurring daily fines up to ₹1 lakh per day for continuing contraventions.
Key Landmark Precedents:
  • Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. (1987) 1 SCC 424: The Supreme Court affirmed the absolute regulatory sovereignty of the RBI to enforce compliance with financial directions through monetary penalties and administrative sanctions.
  • Standard Chartered Bank v. Dharminder Bhohi (2013) 15 SCC 341: The Supreme Court reiterated that statutory financial entities operating under special recovery enactments are bound by RBI supervisory directions, and non-compliance invites statutory penal liabilities.
Courtroom Practice & Strategic Litigation Guidance:

In challenging reckless or exploitative ARC actions before DRT, cross-check whether RBI directions on Fair Practices Code, asset valuation, or management fees were breached; such violations establish mala fides and statutory non-compliance under Section 12/27.

Section 26 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 28