SARFAESI Act: Bombay High Court Dismisses Writ, Upholds Recovery for Debts Below ₹20 Lakh

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Case Name

Bayadabai w/o Pandit Bhole & Ors. vs. Union of India & Ors.(Bombay High Court, Aurangabad Bench)

Writ Petition No. 1968 of 2025

Date: 11th February 2025

Key Takeaways

• SARFAESI Act Applicability: The court clarified that the government notifications setting a minimum debt threshold (₹50 lakh and later ₹20 lakh) for using the SARFAESI Act by non-banking financial companies (NBFCs) are prospective, not retrospective.
• Proper Remedy: The court emphasized that aggrieved borrowers should use the statutory remedy under Section 17 of the SARFAESI Act (filing a securitization application) rather than directly approaching the High Court under Article 226.
• Writ Dismissed: The writ petition was dismissed, but the petitioners were given liberty to pursue other remedies available under the law.
• No Cap Before 2020: Before the 2020 notification, there was no minimum debt cap for NBFCs to invoke the SARFAESI Act.

Issue

Was the recovery action under the SARFAESI Act by Mahindra Rural Housing Finance Limited against the petitioners (for a loan less than ₹20 lakh) valid, given the government notifications imposing a minimum debt threshold?

Facts

• Parties: The petitioners are members of the Bhole family from Latur, Maharashtra. The respondents include the Union of India, Reserve Bank of India, District Magistrate (Latur), and Mahindra Rural Housing Finance Limited.
• Loan: The petitioners took a loan from Mahindra Rural Housing Finance Limited in 2018.
• Default: They defaulted on the loan, and the lender initiated recovery proceedings under the SARFAESI Act.
• Notifications: The Ministry of Finance issued notifications in 2020 and 2021, stating that only secured debts of ₹50 lakh and above (later reduced to ₹20 lakh) could be recovered under the SARFAESI Act by NBFCs.
• Legal Action: The petitioners received a notice under Section 13(2) of the SARFAESI Act in July 2021 and an order under Section 14 in July 2024. They filed a writ petition seeking to prohibit the recovery, arguing that their debt was below the threshold.

Arguments

Petitioners

• Jurisdictional Challenge: Argued that since their liability was less than ₹20 lakh, Mahindra Rural Housing Finance Limited could not use the SARFAESI Act for recovery, based on the 2020 and 2021 notifications.
• Maintainability: Cited the Supreme Court decision in Godrej Sara Lee Ltd. Vs. Excise and Taxation Officer-cum-Assessing Authority and Others; 2023 SCC OnLine 95 to argue that a writ petition under Article 226 is maintainable to challenge the District Magistrate’s jurisdiction.

Respondents

• Prospective Application: Argued that the notifications imposing the minimum debt limit were prospective, not retrospective. Since the loan was taken in 2018 (before the notifications), the cap did not apply.
• Alternative Remedy: Pointed out that the petitioners had not availed the statutory remedy under Section 17 of the SARFAESI Act.

Key Legal Precedents

• Godrej Sara Lee Ltd. Vs. Excise and Taxation Officer-cum-Assessing Authority and Others; 2023 SCC OnLine 95: Cited by the petitioners to support the maintainability of the writ petition under Article 226.
• Section 13(2) and Section 14 of the SARFAESI Act, 2002: Relate to the process of issuing notice and taking possession of secured assets.
• Section 17 of the SARFAESI Act, 2002: Provides the remedy of filing a securitization application before the Debt Recovery Tribunal.
• Notifications:
• Notification dated 24.02.2020 (S.O. 856(E)): Imposed a ₹50 lakh minimum debt threshold for NBFCs to use the SARFAESI Act, with a clear statement that it applies prospectively (“except as respects things done or omitted to be done before such supersession”).
• Notification dated 12.02.2021: Reduced the threshold to ₹20 lakh.

Judgement

• Writ Petition Dismissed: The court dismissed the writ petition, holding that the notifications were prospective and did not apply to loans taken before their issuance. There was no minimum debt cap for NBFCs before 2020, so the recovery action was valid.
• Alternative Remedy: The court advised the petitioners to use the remedy under Section 17 of the SARFAESI Act if they wished to challenge the recovery proceedings.
• No Blanket Relief: The court refused to grant a blanket prohibition against the recovery process, noting that the petitioners had not challenged the specific steps taken under the SARFAESI Act.
• Liberty to Seek Other Remedies: The petitioners were given liberty to pursue any other legal remedies available to them, and the court’s observations would not influence future proceedings.

FAQs

Q1: Can NBFCs use the SARFAESI Act to recover loans below ₹20 lakh?

A: For loans taken before the 2020 and 2021 notifications, there was no minimum debt cap, so NBFCs could use the SARFAESI Act. The cap applies only prospectively.

Q2: What should a borrower do if they want to challenge SARFAESI proceedings?

A: The proper remedy is to file a securitization application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal, not a writ petition in the High Court.

Q3: Why did the court dismiss the writ petition?

A: The court found that the notifications imposing the minimum debt threshold were prospective and did not apply to the petitioners’ loan, which was taken before the notifications. Also, the petitioners did not use the proper statutory remedy.

Q4: What is the significance of the Godrej Sara Lee Ltd. case here?

A: The petitioners cited it to argue that a writ petition is maintainable, but the court distinguished the facts and found that the statutory remedy under the SARFAESI Act was more appropriate in this case.

Q5: What happens next for the petitioners?

A: They can still approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act to challenge the recovery proceedings.