The primary objective of enacting the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (or the SARFAESI Act) was to empower the financial institutions by identifying and remedying the problem of non-performing assets (NPA) by providing efficient solutions such as recovery of NPA without intervention of courts.
By Notification No. SO 2641 (E) dated 05/08/2016, NBFC covered under clause (f) of section 45-I of the Reserve Bank of India Act, 1934; registered with RBI and having asset of Rs. 500 crore and above as per their last audited balance sheet were included in the definition of ‘financial institutions’ defined in section 2 (1) (m) of the SARFAESI Act. By the said Notification, 196 NBFC’s which came to be notified and included under this definition.
Further, the notification stated that all the provisions of the SARFAESI Act shall apply to the notified NBFCs except “the provisions of section 13 to 19, which shall apply only to such security interest which is obtained for securing repayment of secured debt with principal amount of Rs. 1 crore and above.”
Thus, NBFC’s having assets of Rs. 500 crore and above could take recourse under the SARFAESI Act for recovery of NPA by selling the secured assets only if the principal amount due is Rs. 1 crore and above.
By Notification No. SO 4176 (E) dated 27/08/2018, 46 more NBFC’s came to be included in the definition of financial institution.
By Notification No. SO 856 (E) dated 24/02/2020, NBFC’s having assets of Rs. 100 crore and above now qualify as ‘financial institution’ under SARFAESI Act and can take action under the said Act if the principal amount of secured debt is Rs. 50 lakhs and above.