Virendra Rathore Vs Tehsildar (Madhya Pradesh High Court)
Summary: The Madhya Pradesh High Court, in Virendra Rathore and Others Vs Tehsildar, District Mandsaur and Others, examined whether a Housing Finance Company (HFC) could initiate recovery proceedings under the SARFAESI Act, 2002, for a secured loan below the monetary threshold of Rs.20 lakh prescribed for certain Non-Banking Financial Companies (NBFCs). The petitioners had obtained a secured loan of Rs.8,00,000 from SRG Housing Finance Limited by mortgaging their property. Following default in repayment and classification of the loan account as a Non-Performing Asset (NPA), proceedings were initiated under Section 13 of the SARFAESI Act. The Chief Judicial Magistrate, Mandsaur, subsequently authorised possession measures under Section 14. Challenging this action, the petitioners contended that the finance company could not invoke SARFAESI provisions because the outstanding debt was below Rs.20 lakh, relying on the Ministry of Finance notification dated 12 February 2021.
The petitioners argued that Housing Finance Companies formed part of the broader category of NBFCs and were consequently bound by the monetary restrictions applicable to NBFCs. They relied upon RBI circulars and regulatory directions to contend that HFCs could not initiate SARFAESI proceedings unless the secured debt amounted to at least Rs.20 lakh. Conversely, SRG Housing Finance Limited maintained that it was registered under Section 29-A of the National Housing Bank Act, 1987, and qualified as a financial institution under Section 2(1)(m)(iv) of the SARFAESI Act. The company relied upon the Central Government notification dated 17 June 2021, bearing S.O. 2405(E), which separately recognised qualifying Housing Finance Institutions as financial institutions for SARFAESI purposes. It submitted that the Rs.20 lakh threshold applicable to notified NBFCs did not govern HFCs covered by this separate notification.
Before examining the substantive dispute, the High Court considered the objection that the petitioners should pursue the statutory remedy before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act. The Court acknowledged that writ petitions challenging SARFAESI recovery proceedings are ordinarily discouraged when an effective alternative remedy exists. However, relying upon the Supreme Court’s decision in Godrej Sara Lee Ltd. Vs Excise and Taxation Officer-cum-Assessing Authority, it held that the availability of an alternative remedy does not prevent the High Court from examining a pure question of law concerning jurisdiction or the existence and exercise of statutory powers. Since the controversy concerned the legal authority of the housing finance company to invoke SARFAESI provisions, the Court rejected the preliminary objection and entertained the writ petition.
On merits, the High Court analysed the SARFAESI Act, the National Housing Bank Act, 1987, and the Reserve Bank of India Act, 1934, together with the notifications issued under these enactments. It distinguished Housing Finance Institutions registered under Section 29-A of the National Housing Bank Act from NBFCs governed by the separate notification framework under Section 45-I of the RBI Act. The Court observed that the notification dated 12 February 2021, bearing S.O. 652(E), reduced the minimum debt threshold for the relevant NBFC category from Rs.50 lakh to Rs.20 lakh. However, the notification dated 17 June 2021, bearing S.O. 2405(E), separately covered qualifying Housing Finance Companies having the prescribed asset base of more than Rs.100 crore, without imposing the same minimum debt-recovery threshold. Accordingly, the Court held that the Rs.20 lakh restriction applicable to the notified NBFC category could not automatically be extended to Housing Finance Companies covered by the separate notification.
The High Court consequently upheld the entitlement of SRG Housing Finance Limited to invoke the SARFAESI Act for recovery of the secured loan notwithstanding that the borrowing was only Rs.8 lakh. It rejected the petitioners’ challenge based on the alleged absence of monetary jurisdiction and dismissed the writ petition without costs. The Court nevertheless preserved the petitioners’ liberty to approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act to raise other permissible factual or legal objections, excluding the jurisdictional issue already determined. The decision establishes, in the context of the notifications examined, that the Rs.20 lakh monetary threshold prescribed for certain NBFCs does not automatically restrict SARFAESI enforcement by separately notified Housing Finance Companies.
