Monthly Archives: August 2015

Ambit of SARFAESI Act, 2002 in case of Assignment of Debt by NBFC to other Banks and Financial Institutions.

Kotak Mahindra Bank Ltd vs Trupti Sanjay Mehta And 8 Ors.

The Hon’ble Bombay High Court was pass the judgement on 16th July, 2015 under WP/722/2015.

Bench – V.M. Kanade.

The question which falls for consideration before the Hon’ble High Court is whether the Bank to whom the debt has been assigned by the Non-Banking Financial Institution (NBFC) is entitled to adopt proceedings under the SARFAESI Act, 2002?

Writ Petition was filed under Article 226 of the Constitution of India for the relief that to hold and state the status of the assignor, if the assignee of the Debt along with its underlying security is a bank or Financial institution it is open to such a bank or financial institution to adopt steps under said writ and the RDDB Act or SARFAESI or Civil Laws.

In the case where a Petitioner is a Banking Co. registered under the Companies Act who signed the Deed of Assignment with Respondent no.3 i.e. NBFC on dated July 18, 2012 for the debt which was secured by the Flat (Mortgaged Property). The owner of said property is Respondent no.1 & 2 but the NBFC offered the loan to Respondent no 4 on security of the said property. When committed default for payment of loan amt. NBFC invoke the arbitration clause in the agreement and finally award passed in favour of NBFC and directing to pay sum amt. with interest. After that NBFC transfer the said loan by executing the assignment deed in favour of Petitioner.

After execution of deed of assignment Petitioner stared taking steps for realization of loan amt and invoke the provision of SARFAESI Act, 2002. Notice under Section 13(2) of SARFAESI Act, 2002 was issued by Petitioner to but they didn’t get any reply from The absence of reply finally Petitioner filed an application under Section 14 of the SARFAESI Act, 2002 for taking possession of the said property. At the time of taking possession Petitioner found that have the possession of the said property.

In the said case & 2 claiming the ownership of said mortgaged property and challenging the action by filing Securitization application before DRT. Principal contention of the were Res.3 is a NBFC was not entitled to invoke the provision of SARFAESI Act, 2002 and secondly its assignee i.e. Petitioner. In short in case where NBFC assign the loan to any bank then in that case bank is not comes under the ambit of the SARFAESI Act.

As per the Securitization Application filed by Presiding Officer DRT-II, Mumbai passed the judgement that is a NBFC which is not comes under the ambit of Financial Institution under SARFAESI Act, and therefore Petitioner despite the Bank, was not entitled to exercise the any powers or authority as a Bank under provision of said Act and also order to Petitioner to handover the possession of the said property to

Against the said order, Petitioner filed an appeal but under the Provision of SARFAESI Act, the said appeal was dismissed and restored the possession of the said property towards

There are some important circulars which invite attention of Prudent.-

RBI Guidelines dated July 13, 2005 in that virtue of the said Notification, permitted assignment of debt with or without security in the course of banking activity and, therefore, such an assignment was legally permissible and, therefore, enforceable.

The object of SARFAESI Act,2002 and various provisions of the said Act as well mechanism which has been provided under said Act clearly disclose that this mechanism which is non-adjudicatory in nature and designed only for the benefit of the banks and financial institutions and not for the categories such as Non-Banking Financial Institutions. Therefore it’s clear that NBFC is not cover under ambit of said Act. On the basis on said provision the application made under section 13 of said Act is not enforceable.

 It’s important to note that Hon’ble court held that guidelines issued by RBI dated July 13, 2005 have statutory force and not ultra-virus the Banking Regulations Act, 1949 and therefore held that assignment of Debts of NBFC by one bank to other bank is permissible under 1949 Act and not violate section 130 of Transfer of Property Act, 1882

Result – Writ Petition is dismissed.

In short as per the judgement, assignment of loan from NBFC to Bank is not cover under

ambit of SARFAESI Act, 2002.