Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 (SARFAESI Act) – ss.2(1)(m), 2(1)(c) – As on the date of lending by respondent No. 3-CFCFL and creation of secured debts in its favour by its borrowers, CFCFL was not a ‘financial institution’ within the meaning of s.2(1)(m), SARFAESI Act – The notification by the Central Government declaring it to be so u/s.2(1)(m)(iv) was issued subsequently – However, appellant-KMBL, a banking company, that qualified as a ‘bank’ u/s.2(1)(c), SARFAESI Act, took over those loan accounts from CFCFL long before it was notified as a ‘financial institution’ u/s.2(1)(m)(iv) thereof and initiated measures under the SARFAESI Act for recovery of loan/debt – DRT declared that the appellant had no right to invoke the provisions of the SARFAESI Act, being the assignee of CFCFL whose debt was not covered thereby – Appeal dismissed by Appellate Tribunal – Orders affirmed by High Court – Challenge to – Whether a loan/debt secured by a mortgage in favour of a NBFC which was not, at that point of time, a ‘financial institution’ u/s.2(1)(m), SARFAESI Act, would get converted into a ‘secured debt’ thereunder if the said loan/debt is acquired by a ‘bank’ u/s.2(1)(c) thereof and whether the said bank could, thereupon, initiate measures under the SARFAESI Act for recovery of that loan/debt: Held: Once a claim is ‘live and owing’ as on the date of coming into force of the SARFAESI Act, the provisions thereof would be available, as and when it becomes applicable to the institution holding that loan account – By the same logic, when the institution is one to which the SARFAESI Act is already applicable, acquisition of a non-performing secured loan account by such institution from an entity, that does not come within the ambit of the SARFAESI Act, would immediately clothe the said loan account with the attributes of a ‘secured debt’ covered by the provisions of the SARFAESI Act – In essence, it makes no difference as to whether it is the loan/debt along with the institution that comes within the ambit of the SARFAESI Act, or it is the loan/debt alone which comes within the ambit thereof, by virtue of it being taken over by a ‘bank’ to which the SARFAESI Act is already applicable – In both cases, the provisions of the SARFAESI Act would be available for effecting recovery of the loan/debt – It is not open to the borrowers to dissect and nit-pick the definitions in s.2(1) of the SARFAESI Act to claim that their loans/debts cannot be subjected to recovery measures thereunder – The purposive interpretation of such definitions by this Court in the earlier judgments forecloses any such argument being advanced once again – The argument of the borrowers, if accepted, would mean that those who avail financial assistance from NBFCs not covered by s.2(1)(m) of the SARFAESI Act enjoy greater freedom to commit default in repayment of such loans, as recovery could only be through ordinary, time-consuming civil processes, when compared with those who avail financial assistance from NBFCs covered by s.2(1)(m) of the SARFAESI Act, entailing quicker and easier recovery thereunder – Irrespective of whether a financial institution comes under the SARFAESI Act or not, the failure on the part of borrowers to repay their loans to such institution invariably sets off a chain reaction resulting in an adverse impact on the whole economy – Judgment of the High Court along with the underlying judgments set aside. [Paras 21, 32, 37, 38] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 – Scheme and structure, discussed. [Paras 9-15]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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