HFCs Can Resort To SARFAESI Provisions For Recovery Of Loans Even If Borrowings Fall Below Threshold Limit Of 20 Lacs: M.P High Court

The Madhya Pradesh High Court (Indore Bench) held that the Housing Finance Companies (HFC) can resort to the draconian powers under SARFAESI Act of taking over of physical and symbolic possession of the mortgaged property, towards recovery of their loans and borrowings, irrespective of the loan borrowings in favour of the petitioner falling below the threshold limit of twenty lacs. The Division Bench of Justice Sushrut Arvind Dharmadhikari and Justice Gajendra Singh observed that “the provisions contained under Chapter III-B of the RBI Act, specifically Section 45 (1)(f) cannot be treated to be applicable in the context of HFI's/HFC's established under Section 29A of the NHB, for the purposes of interpretation of notifications issued under 2 (1)(m)(iv) of the SARFAESI Act”. (Para 35) The HFIs/HFCs will be categorised as FI's not by virtue of their being NBFC's, but because of their falling under the phrase 'any other institution' as mentioned u/s 2(1)(m)(iv) of the SARFAESI Act, added the Bench. The Bench observed so, while referring to the principal of 'generalia specialibus non derogant', expounded in the decision of Apex Court in case of Managing Director, Chhattisgarh State Co-operative Bank Maryadit v. Zila Sahkari Kendriya Bank Maryadit & Ors [(2020) 6 SCC 411]. Facts of the case: The petitioner borrowed a secured loan of eight lacs from Respondent (SRG HFC), after mortgaging his property as a collateral in lieu of the said loan. On his default in repayment, the amount became outstanding and proceedings u/s 13 of the SARFAESI Act of 2002 were initiated. Followed by declaration of NPA and Section 13 proceedings, the CJM directed for coercive measures against the petitioner u/s 14 of the SARFAESI Act, taking over of possession of the mortgaged property. This has triggered the filing of the present petition. The core issue for resolution at the heart of this matter is whether Respondent HFC is justified in resorting to provisions of SARFAESI Act for recovery of their outstanding dues from the petitioner, when it is lower than the monetary threshold of twenty lacs, which is a bar fixed by the Ministry of Finance for Non-Banking Financing Companies (NBFC's). Observations of High Court: Referring to the decision of Apex Court in the matter of Mardia Chemicals Ltd. v. UOI (2004) 4 SCC 311 and United Bank of India v. Satyavati Tandon (2010) 8 SCC 110, the Bench emphasized that the SARFAESI Act, 2002 was brought in by the Parliament to fix the bad debts and non-performing loans, that become a burden upon the economic fabric of the society and the country both. Further, referring to Section 2 (1)(m)(iv) of the SARFAESI Act, the Bench stated that the Central Government may either through the notification specify the NBFC as FI or 'any other institution' as the FI, which is thereafter entitled to adorn the attire of a 'secured creditor' u/s 2 (z)(d) of the SARFAESI Act. The import of Section 2(z)(d)(i) defines 'secured creditor' as any bank or FI or group of banks or FI refers to FI as enumerated u/s 2(1)(m)(iv), notified by the Central Government for the said purpose, added the Bench. The Bench further found that as per the latest notification issued u/s 29A of NHB Act, any & all HFC/HFI with a minimum net worth of Rs. 100 Crores, are to be treated as FIs u/s 2(1)(m)(iv) of the SARFAESI Act. The Bench also noted that as per notification issued u/s 45(1)(f) of the RBI Act categorizing as FI for the purposes of Section 2(1)(m)(iv) of the SARFAESI Act, whereby the government fixes the minimum pecuniary threshold for invocation of SARFAESI proceedings by the NBFC, below which the concerned NBFC is not entitled to resort to the same. The Bench went on to note that amongst the large number of NBFCs mentioned in the table constituting the notification, issued from time to time, the name of Respondent HFC doesn't find mention anywhere in the notifications pertaining to NBFCs classified especially under Chapter III-B r/w Section 45(I)(f) of the RBI Act. Thus, the Bench observed that the pecuniary threshold prescribed in the notification will not apply to HFCs/ HFIs. However, to the contrary, the name of the Respondent SRG Finance finds mention in the notification pertaining to HFCs dated May 18, 2015 vide Serial No. 34, added the Bench. Most importantly, the Bench clarified that the HFIs / HFCs being a special genre of FIs / companies, created and regulated by special enactment of NHB Act, the same cannot be compartmentalised in the bogie of NBFCs, more so when NHB Act does not u/s 29-A postulate the applicability of Chapter III-B r/w Section 45(I)(f) of the RBI Act. Therefore, the Bench observed that HFIs/ HFCs like the respondent cannot impliedly be deemed to have been included under the umbrella of NBFC's, till and until such an intention is express and explicit under the NHB Act or the...

HFCs Can Resort To SARFAESI Provisions For Recovery Of Loans Even If Borrowings Fall Below Threshold Limit Of 20 Lacs: M.P High Court

Pankaj Bajpai

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