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Section 3: Registration of asset reconstruction companies

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 2 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 4

Legal Commentary & Landmark Judgments: Section 3

Section 3 of the SARFAESI Act, 2002 prescribes the mandatory statutory conditions precedent, capital adequacy norms, and regulatory licensing requirements for the registration and operation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India.

  • Mandatory RBI Registration: An Asset Reconstruction Company must obtain a certificate of registration from the Reserve Bank of India prior to commencing or carrying on the business of securitisation or asset reconstruction.
  • Net Owned Funds Threshold: Mandates maintenance of minimum Net Owned Funds (NOF) specified by the RBI, progressively raised from ₹2 crore to ₹100 crore and subsequently to ₹300 crore to ensure systemic financial solvency.
  • Fit and Proper Governance Standards: Imposes strict statutory eligibility criteria under Section 3(3), including clean track record, professional management, non-conviction of directors, and compliance with RBI prudential norms.
Key Landmark Precedents:
  • Pegasus Assets Reconstruction P. Ltd. v. Haryana Concast Ltd. (2016) 4 SCC 47: The Supreme Court held that an Asset Reconstruction Company registered under Section 3 exercises the full statutory powers of a secured creditor under Section 13; SARFAESI is a complete code overriding the general winding-up provisions of the Companies Act, and ARCs do not require company court leave to enforce security interests.
  • Asset Reconstruction Company (India) Ltd. (ARCIL) v. Shamken Spinners Ltd. (2006) 134 Comp Cas 331 (Del): The Delhi High Court affirmed that registration under Section 3 vests the ARC with complete locus standi to step into the shoes of the assignor bank and exercise all statutory debt enforcement powers under SARFAESI.
Courtroom Practice & Strategic Litigation Guidance:

When representing an ARC in DRT proceedings, invariably produce the valid RBI Certificate of Registration under Section 3 along with the registered Assignment Deed. Conversely, for borrowers, check whether the ARC's net owned funds satisfy current RBI regulatory thresholds to challenge statutory standing.

Section 2 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 4