Does the SARFAESI Act apply to a loan agreement executed when the lender was not a notified ‘financial institution’?

Yes. The definition clauses convey the legislative intent that the Act applies to all existing loan agreements, irrespective of whether or not the lender was a notified ‘financial institution’ on the date of execution of the agreement with the borrower, and it becomes applicable qua all loans owing and live when the Act became applicable. The date on which the loan is declared to be a non-performing asset has no relevance. Here, the loans were extended by a NBFC that was notified under Section 2(1)(m) only in 2018, long after the accounts had been taken over.

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — s.2(1)(c) — s.2(1)(m) — s.2(1)(zd) — s.13 — s.14 — Debt taken over by a bank from an entity outside the Act — Secured debt — Enforcement of security interest — SARFAESI Act, 2002 — s.2(1)(c) — Loan account acquired by a bank — Attributes of a secured debt — Held: Acquisition of a non-performing secured loan account by an institution to which the SARFAESI Act already applies clothes that account with the attributes of a ‘secured debt’. The status of the entity it was taken over from makes no difference. (¶36) SARFAESI Act, 2002 — s.2(1)(m) — Existing loan agreements — Debts owing and live — Held further: The Act applies to all loans owing and live when it became applicable, irrespective of whether the lender was a notified ‘financial institution’ on the date of execution. The date of classification as a non-performing asset has no relevance. (¶34) SARFAESI Act, 2002 — s.2(1) — Definitions — Purposive interpretation forecloses dissection — Held further: It is not open to a borrower to dissect and nit-pick the definitions in Section 2(1) to claim that the loan cannot be subjected to recovery measures thereunder; the purposive interpretation of those definitions forecloses any such argument. (¶37) SARFAESI Act, 2002 — s.13 — s.14 — Obligation to repay — No escape from the rigours of the Act — On facts, held: Borrowers who availed financial assistance from an entity outside the Act enjoy no greater freedom to commit default in repayment; their premise for escaping its rigours is without legal foundation. The bank's appeal allowed and the securitisation application restored; the other two appeals dismissed. (¶32, 41)

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