Kolkata, April 16 -- The Calcutta High Court has ruled that housing finance companies cannot invoke the SARFAESI Act to recover loans of less than Rs 20 lakh, holding that they are bound by the same threshold applicable to non-banking financial companies (NBFCs).

A division bench of Justices Shampa Sarkar and Ajay Kumar Gupta dismissed an appeal by a housing finance company, upholding a single bench order which had set aside a recovery notice issued to borrowers.

The case stemmed from a housing loan of about Rs 12.7 lakh taken by two borrowers. After they defaulted, the lender classified the account as a non-performing asset and issued a demand notice under the SARFAESI Act seeking recovery of dues. The borrowers challenged the notice before the High Court, arguing that the law could not be used as the amount involved was below Rs 20 lakh. A single bench accepted this contention and set aside the notice, prompting the lender to file an appeal before a division bench.

The lender argued that housing finance companies form a distinct category governed by a separate law and should not be treated as NBFCs. It contended that the Rs 20 lakh minimum threshold, fixed by central government notifications for NBFCs, did not apply to them.

Rejecting this, the court examined Reserve Bank of India directions, master circulars and central government notifications. It found that housing finance companies are treated as a category of NBFCs for regulatory purposes and are recognised as financial institutions under the law. As such, the same Rs 20 lakh threshold applies to them for initiating SARFAESI proceedings.

The bench also upheld the maintainability of the writ petition. It held that although an alternative remedy before the Debt Recovery Tribunal exists, a writ court can intervene where the issue concerns the very authority of a lender to act under the statute.

The court noted that while the borrowers had defaulted and the loan had been declared an NPA, the outstanding amount was below Rs 20 lakh. Therefore, the lender could not legally proceed under the SARFAESI Act. The court clarified that the lender is free to pursue other remedies available in law to recover its dues.

Published by HT Digital Content Services with permission from Millennium Post.