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Section 4: Cancellation of certificate of registration

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

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Act 2002
Section 3 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 5

Legal Commentary & Landmark Judgments: Section 4

Section 4 of the SARFAESI Act, 2002 delineates the statutory grounds, procedural safeguards, and appellate mechanisms governing the cancellation of an Asset Reconstruction Company's certificate of registration by the Reserve Bank of India.

  • Statutory Grounds of Cancellation: Ceasing to carry on business of securitisation or asset reconstruction, failing to maintain minimum Net Owned Funds, non-compliance with RBI prudential directions, or failure to submit accounts for inspection.
  • Mandatory Audi Alteram Partem Safeguard: Proviso to Section 4(1) imposes a mandatory requirement of granting the ARC a reasonable opportunity of showing cause prior to passing any order of cancellation.
  • Statutory Right of Appeal: Grants an aggrieved ARC a statutory right of appeal to the Central Government within thirty days of the communication of the cancellation order under Section 4(2).
Key Landmark Precedents:
  • Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. (1987) 1 SCC 424: The Supreme Court recognized the plenary regulatory supervision exercised by the Reserve Bank of India over non-banking financial entities, holding that regulatory cancellation powers must be exercised in furtherance of public interest and financial stability.
  • Raymon Patel v. Reserve Bank of India (2006) 133 Comp Cas 750 (Bom): The Bombay High Court held that statutory cancellation of registration requires strict compliance with natural justice under Section 4(1) proviso, though courts maintain strong deference to the RBI's specialized economic assessment.
Courtroom Practice & Strategic Litigation Guidance:

In DRT litigation, ascertain whether regulatory proceedings or show-cause notices under Section 4 are pending against the ARC. Upon cancellation of registration by the RBI, immediately plead the total extinguishment of the ARC's enforcement locus under Section 13(4).

Section 3 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 5