Whether a bank, as defined by Section 2(1)(c) of the SARFAESI Act, can take recourse to the provisions thereof for recovery of a debt assigned to or taken over by it from a financial entity that was not governed by the SARFAESI Act at the time of creation of such debt?

Yes. Once a claim is live and owing on the date the SARFAESI Act comes into force, its provisions are available as and when the Act becomes applicable to the institution holding that loan account. By the same logic, acquisition of a non-performing secured loan account by an institution to which the Act already applies, from an entity that does not come within its ambit, immediately clothes that loan account with the attributes of a ‘secured debt’ covered by the Act. It makes no difference whether it is the loan along with the institution that comes within the ambit of the Act, or the loan alone, by being taken over by a ‘bank’ to which the Act is already applicable.

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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