ARC (Asset Reconstruction Company)

SARFAESI Act, 2002 — Section 3

A company registered with the Reserve Bank of India under the SARFAESI Act, 2002, that acquires Non-Performing Assets from banks at a discount and attempts to recover value from them through enforcement, restructuring, or sale.

In practice, an Asset Reconstruction Company is where stressed loans go to be worked out by a specialist. Registered with the Reserve Bank of India under Section 3 of the SARFAESI Act, 2002, an ARC buys Non-Performing Assets from banks, usually at a discount, and then pursues value through enforcement, restructuring, or resale. Once the assignment is complete, the ARC steps into the lender's shoes as secured creditor and can itself issue SARFAESI notices and enforce the security interest. For banks, selling to an ARC cleans the balance sheet and transfers the recovery burden; for borrowers, it means dealing with an entity whose business model is recovery, not relationship banking. Diligence on the underlying portfolio matters, because the ARC inherits whatever documentary and limitation defects the original loan carried. The consequence of weak diligence is buying an unenforceable debt. Well-advised acquirers confirm the chain of assignment and the security position before taking over the asset.