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Section 5: Acquisition of rights or interest in financial assets

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 4 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 6

Legal Commentary & Landmark Judgments: Section 5

Section 5 empowers Asset Reconstruction Companies (ARCs) to acquire financial assets of banks and financial institutions, conferring full legal assignment rights.

  • Core Legal Standard: Section 5 enables registered Asset Reconstruction Companies to acquire financial assets of any bank or financial institution through agreement or debenture issuance.
  • Statutory Rights & Obligations: Upon acquisition, all rights, titles, interests, security interests, and recovery remedies vested in the selling bank automatically transfer to and vest in the ARC.

The ARC is deemed the secured creditor for all statutory purposes under SARFAESI.

Key Landmark Precedents:
  • Transcore v. Union of India (2008) 1 SCC 125: The Supreme Court held that the acquisition and assignment of financial assets under Section 5 transfers all statutory enforcement powers under Section 13 to the ARC without requiring fresh documentation or borrower consent.
Legal Commentary:

Section 5 established India's bad-debt secondary market. By allowing stressed loan portfolios to be seamlessly transferred to specialized asset reconstruction entities, it cleans bank balance sheets and consolidates recovery efforts.

Section 4 All 42 Sections of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 Section 6