Under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, a breach of loan agreement occurs when a borrower fails to comply with the terms of the loan agreement. This may include failure to make timely payments, default on interest or principal, or breach of any other covenants in the loan agreement. A breach of loan agreement can lead to a default on the loan and trigger the enforcement of the security interest by the lender (bank or financial institution).

The SARFAESI Act provides the legal framework for the enforcement of security interests by banks and financial institutions in cases of default or breach of loan agreement by borrowers. In the event of a breach of loan agreement, the bank or financial institution may take steps to recover the debt, including the issuance of a notice of default, the appointment of a receiver, and the sale of the security interest.

It is important to note that the enforcement of security interests under the SARFAESI Act is subject to certain conditions and limitations. For example, the enforcement of security interests may not be used to recover debt owed by certain classes of borrowers, such as small-scale industries, farmers, and certain micro and small enterprises. Additionally, the enforcement of security interests may not be used to recover debt incurred as a result of illegal activities. Civil suit under Section 151 cpc is barred.

Legal validity of the loan agreement

The legal validity of a loan agreement under the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act is determined by the provisions of the Indian Contract Act, 1872 and the Indian Stamp Act, 1899. These laws govern the formation, execution, and enforceability of contracts in India.

According to the Indian Contract Act, a loan agreement must meet the following conditions to be considered legally valid:

1. Offer and acceptance: There must be a clear offer made by the lender (bank or financial institution) and acceptance by the borrower.
2. Consideration: There must be consideration or something of value exchanged between the parties. In a loan agreement, the consideration is typically the loan amount.
3. Capacity to contract: Both the lender and borrower must have the capacity to enter into the loan agreement. This means they must be of the age of majority, of sound mind, and not under any legal disability.
4. Free consent: Both parties must give their free consent to the terms of the loan agreement. This means they must not have been influenced by coercion, undue influence, fraud, or misrepresentation.

The Indian Stamp Act requires that loan agreements must be stamped in accordance with the applicable stamp duty laws. A loan agreement that is not stamped in accordance with the Indian Stamp Act is considered inadmissible as evidence in a court of law.

In conclusion, the legal validity of a loan agreement under the SARFAESI Act is determined by the provisions of the Indian Contract Act, 1872 and the Indian Stamp Act, 1899. A loan agreement must meet certain conditions to be considered legally valid and enforceable, including offer and acceptance, consideration, capacity to contract, and free consent.