Madhya Pradesh High Court: In a writ petition challenging the order passed by Chief Judicial Magistrate, Mandsaur under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), a division bench comprising of S.A. Dharmadhikari* and Gajendra Singh, JJ., held that respondent Housing Finance Company (‘respondent HFC’), being a separate financial institution under the NHB Act, is entitled under law to resort to SARFAESI Act towards recovery of their loans and borrowings, irrespective of the loan borrowings in favour of the petitioner falling below the threshold of Rs. 20 Lakhs.
Brief Facts
In the instant matter, the petitioner took a secured loan of Rs. 8,00,000 from SRG Housing Finance Limited (Respondent HFC) and mortgaged property as collateral. Upon default in repayment, the loan was classified as Non-Performing Asset (NPA) and proceedings under Section 13 of the SARFAESI Act were initiated. Subsequently, the Chief Judicial Magistrate, Mandsaur, vide order dated 04-08-2023, directed coercive measures for recovery, including taking possession of the mortgaged property, under Section 14 of the SARFAESI Act. The petitioner filed the present petition under Article 226/227 of the Constitution of India, challenging the impugned order passed by the Chief Judicial Magistrate, Mandsaur.
Moot Point
Whether the SARFAESI Act will apply to loan amounts less than 20 Lakhs, especially when the ‘Secured Creditor’ is a Housing Finance Company(‘HFC’) as defined in National Housing Bank Act, 1987 (‘NHB Act’)?
Parties’ Contentions
The petitioners contended that respondent HFC, being a Non-Banking Financing Company (‘NBFC’), cannot invoke SARFAESI for loans less than Rs. 20 Lakhs, as per the Gazette Notification dated12-02-2021. It was contended that the Housing Finance Companies (HFCs) are a subset of NBFCs, and thus, the monetary threshold for NBFCs applies to HFCs. It was contended that the RBI directions and master circulars treat HFCs within the larger framework of NBFCs, supporting the applicability of the Rs. 20 Lakhs threshold.
The respondents challenged the maintainability of the writ petition and contended that the petitioner should approach the Debt Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act instead of filing a writ petition. It was contended that the respondent HFC qualifies as a Financial Institution under SARFAESI Act and NHB Act, thus entitled to invoke SARFAESI provisions. It was contended that the NHB Act’s provisions and separate notifications for HFCs imply that the Rs. 20 Lakhs threshold for NBFCs does not apply to HFCs.
Legal Provisions
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Section 29-A of the NHB Act governs the registration and regulation of HFCs and HFIs by the National Housing Bank (NHB).
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Section 2(1)(m)(iv) of the SARFAESI Act defines the term “financial institution” to include HFCs and HFIs under specific conditions.
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Chapter III-B read with Section 45(I)(f) of the RBI Act regulates Non-Banking Financial Companies (NBFCs).
Court’s Analysis
Maintainability of Writ Petition:
The Court referred to Godrej Sara Lee Ltd. v. Excise and Taxation Officer, 2023 SCC Online SC 95 and stated that when questions of jurisdiction or pure questions of law arise, alternative remedies are not a bar. Relying on Phoenix Arc (P) Ltd. v. Vishwa Bharati Vidya Mandir, (2022) 5 SCC 345 and United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110, the Court held that issues of legal interpretation, like the jurisdiction of Respondent HFC under SARFAESI, can be addressed through a writ petition.
The Court opined that pure questions of law regarding jurisdiction and applicability of SARFAESI Act justify the writ petition, bypassing the alternative remedy of DRT. The Court held that the writ petition is maintainable as it raises substantial legal questions regarding the applicability and jurisdiction under the SARFAESI Act when the debt is below ₹20 Lakhs, despite the ordinary preference for alternative statutory remedies.
Inter-relation between — SARFAESI Act, NHB Act & RBI Act
The Court noted that the objective of SARFAESI Act is to facilitate swift recovery of NPAs, and its provisions should be interpreted broadly to fulfill this objective. The Court stated that the SARFAESI Act and NHB Act’s provisions and notifications need to be harmoniously interpreted to determine if HFCs can invoke SARFAESI for amounts below Rs. 20 Lakhs.
The Court noted that while the provisions of Chapter III-B of the RBI Act broadly cover financial institutions including those engaged in housing finance, HFIs/HFCs created under the NHB Act are regulated by a specific framework (Section 29-A of the NHB Act). These institutions must meet the criteria and registration requirements set out in the NHB Act, and their recognition as financial institutions under the SARFAESI Act depends on specific notifications issued by the Central Government. This distinction ensures that HFIs/HFCs are not subsumed under the general provisions of the RBI Act but are governed by their specialized regulatory regime.
The Court stated that while HFIs may perform similar functions to NBFCs, their regulatory framework under the NHB Act remains distinct and specialized. Thus, HFIs do not automatically fall under the general provisions of the RBI Act applicable to NBFCs. The Court concluded that the classification and regulation of HFIs must adhere to the specific provisions and requirements of the NHB Act, with the Central Government’s notification determining their applicability under the SARFAESI Act.
Separate Notifications for HFCs/HFIs and NBFCs
The Court noted that HFCs/HFIs are governed by Section 29-A of the NHB Act and are specified as Financial Institutions under SARFAESI through distinct notifications and the NBFCs are categorised as Financial Institutions through notifications under Section 45(I)(f) of the RBI Act. The Court stated that the Central Government has issued separate notifications for HFCs/HFIs and NBFCs, reflecting their distinct regulatory frameworks and therefore the minimum pecuniary threshold of 20 Lakhs which is prescribed in case of the NBFCs, shall not apply to HFIs/ HFCs.
“…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, moreso 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 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 notifications issued under it. For this reason, therefore the minimum pecuniary threshold of 20 Lakhs shall not apply to HFIs/ HFCs as contended by the petitioner as prescribed in case of the NBFCs.”
Generalia Specialibus Non Derogant — Applicability
The Court stated that in the present matter the principle of statutory interpretation, generalia specialibus non derogant, which means general provisions do not override specific ones, shall apply. The Court opined that the HFCs/HFIs, being specifically regulated under the NHB Act, cannot be generally categorised as NBFCs unless explicitly stated. The Court held that the specific provisions for HFCs/HFIs under the NHB Act and related notifications take precedence over general provisions for NBFCs under the RBI Act.
The Court stated that the notifications for NBFCs set pecuniary thresholds for invoking the SARFAESI Act, and these thresholds do not apply to HFCs/HFIs unless specifically mentioned. The Court held that the HFCs/HFIs can utilize SARFAESI without adhering to the NBFC thresholds, as their classification and regulation are under different statutory provisions.
Court’s Decision
The Court dismissed the petition and affirmed that HFCs/HFIs are regulated distinctly under the NHB Act and their classification as Financial Institutions under SARFAESI does not automatically subject them to the same pecuniary thresholds applicable to NBFCs. The Court held that —
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The writ petition is maintainable.
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Respondent HFC (SRG Finance) can use the SARFAESI Act for loan recovery, irrespective of loan amounts below Rs. 20 lakhs.
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Notifications for NBFCs are not applicable to HFCs/HFIs.
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Petition dismissed with no costs, but petitioners can seek remedies under Section 17 of the SARFAESI Act before the DRT.
[Virendra Rathore v. Tehsildar Distt. Mandsaur, 2024 SCC OnLine MP 3427, order dated 22-05-2024]
*Judgment by Justice S.A. Dharmadhikari
Advocates who appeared in this case:
Shri Kushagra Jain, Counsel for the Petitioners
Shri Rohit Saboo, Counsel for the Respondent No. 6
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