In a landmark decision, the Madhya Pradesh High Court, sitting at its Indore Bench, has delineated a pivotal distinction between Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) regarding loan recovery procedures under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARAFAESI Act).
The Court, presided over by the esteemed Justices SA Dharmadhikari and Ganjendra Singh, delivered a resolute verdict asserting that the ₹20 lakh minimum threshold, a requisite for NBFCs to invoke the SARFAESI Act for loan recovery, does not extend its sway over HFCs. This judgment was rendered in the case of Virendra Rathore and others versus Tehsildar Distt. Mandsaur (Madhya Pradesh) SRG Housing Finance Limited and others.
In a meticulous and comprehensive analysis, the Court dissected the legal landscape, emphasizing the distinctiveness of HFCs as financial entities enshrined under the National Housing Bank Act, 1987. Drawing upon statutory provisions and precedents, the Court emphasized the exclusive regulatory framework governing HFCs, which sets them apart from the purview of NBFCs.
Crucially, the Court dismissed a petition challenging an HFC’s invocation of the SARFAESI Act to recover a loan amounting to ₹8 lakh. Addressing the core issues of jurisdiction and legal interpretation, the Court underscored the maintainability of the petition before the High Court, deeming it pivotal in delineating legal nuances of substantive significance.
The crux of the dispute hinged on whether an HFC could resort to the SARFAESI Act for loan recovery below the stipulated ₹20 lakh threshold. While petitioners contended HFCs to be a subset of NBFCs, subject to identical regulatory constraints, respondents vehemently advocated for the distinctiveness of HFCs within the financial ecosystem.
Embracing a holistic approach, the Court meticulously scrutinized legislative provisions, unearthing the legislative intent behind the statutory frameworks governing HFCs and NBFCs. Distilling the essence of the National Housing Bank Act and the SARFAESI Act, the Court unequivocally affirmed the autonomy of HFCs in exercising their prerogatives for loan recovery, unshackled from the confines of NBFC regulations.
Furthermore, the Court underscored the divergent notifications issued by the Central government, corroborating the distinct treatment accorded to HFCs vis-Ã -vis NBFCs under the SARFAESI Act. This discernible legislative dichotomy, the Court opined, epitomized the legislature’s intent to accord differential treatment to HFCs, reaffirming their distinctiveness within the financial ecosystem.
In culmination, the Court pronounced its verdict in favor of the respondent-HFC, affirming its right to invoke the SARFAESI Act for loan recovery below the prescribed ₹20 lakh threshold. With sagacious insights and a meticulous legal analysis, the Madhya Pradesh High Court has illuminated a pathbreaking precedent, safeguarding the autonomy and prerogatives of Housing Finance Companies in the realm of loan recovery jurisprudence.
