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      Question

      Section 10(1) of the SARFAESI Act permits an ARC to act

      as a manager under Section 13(4)(c). However, a specific prohibition is imposed on this function by a proviso. What does the proviso to Section 10(1) prohibit?
      A An ARC cannot act as a manager for a borrower company that is undergoing insolvency proceedings Correct Answer Incorrect Answer
      B An ARC cannot act as both an agent and a manager simultaneously Correct Answer Incorrect Answer
      C An ARC cannot act as a manager unless appointed by the High Court Correct Answer Incorrect Answer
      D An ARC cannot act as a manager without RBI's prior written approval Correct Answer Incorrect Answer
      E An ARC shall not act as a manager if acting as such gives rise to any pecuniary liability Correct Answer Incorrect Answer

      Solution

      Section 10(1) permits an ARC registered under Section 3 to: (a) act as an agent for any bank or FI for recovering dues from borrowers; (b) act as a manager under Section 13(4)(c) on mutually agreed fees; and (c) act as receiver if appointed by any court or tribunal. The proviso to Section 10(1) specifically prohibits an ARC from acting as a manager under clause (b) if 'acting as such gives rise to any pecuniary liability.' This restriction protects the ARC from incurring financial obligations in excess of what it can bear while managing a distressed borrower's assets, particularly since an ARC is itself a financial intermediary with limited capital base and regulatory obligations.

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