Lok Sabha Question No. 2329 (UNSTARRED), answered on 2025-08-04
Subject: Misuse of SARFAESI Act
Ministry: FINANCE
Asked by: Adv K. Francis George, Shri Manish Tewari

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO- 2329

ANSWERED ON MONDAY, AUGUST 4, 2025/ SRAVANA 13, 1947 (SAKA)

## MISUSE OF SARFAESI ACT

## 2329. SHRI MANISH TEWARI: ADV K. FRANCIS GEORGE:

Will the Minister of FINANCE be pleased to state:-

- (a)  whether  the  Government  is  aware  of  instances  of  misuse  of  the  Securitisation  and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 by banks and NBFCs, particularly against MSMEs, including wrongful classification of NPAs and violations of borrower rights;
- (b) whether complaints have been received regarding NBFCs bypassing RBI and SARFAESI guidelines while sanctioning property loans and resorting to coercive recovery measures and if so, the details thereof;
- (c) whether the Government proposes to mandate District Magistrates to verify compliance with  RBI  norms  and  examine  loan  sanction  documents  before  granting  possession  under Section 14 of the Act;
- (d) whether the Government intends to strengthen safeguards to ensure that borrowers are offered a One-Time Settlement (OTS) option before initiation of recovery proceedings; and
- (e) if so, the details of the measures being taken to ensure fair enforcement and regulatory oversight under the SARFAESI Act?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

## (SHRI PANKAJ CHAUDHARY)

(a):  Central  Government  administers  the  Securitisation  and  Reconstruction  of  Financial Assets and Enforcement of Security interest Act, 2002, (SARFAESI Act), which provides an enabling legal framework for banks and financial institutions to recover their dues above a specified  threshold  by  enforcing  their  security  interests  without  the  intervention  of  the court/tribunals. In case of banks, the specified threshold is Rs. 1 lakh and in case of NBFCs having assets size of Rs. 100 crore and above, the threshold stands at Rs. 20 lakh. In terms of Reserve Bank of India (RBI) guidelines, all banks and NBFCs are required to have in place a Board-approved loan recovery policy and they are guided by the same for initiating any loan recovery action.  The  Government is not involved in  such decisions.  Further,  to  safeguard borrowers' rights and to address their concerns, Sections 17 and 18 of the SARFAESI Act provide  that  a  person,  including  an  MSME,  may  file  a  securitisation  application  (SA)  in  a Debt Recovery Tribunal (DRT) against an action of a secured creditor under the SARFAESI Act.  Also,  any  decision  of  DRT  can  be  challenged  before  the  Debts  Recovery  Appellate Tribunal (DRAT).

Furthermore,  banks  and  NBFCs  for  classifying  a  loan  account  as  Non  Performing  Assets (NPA),  are  required to  follow  the  RBI's Prudential  norms  on  Income  Recognition,  Asset Classification and Provisioning pertaining to Advances.

Also,  compliance  to  provisions  of  the  SARFAESI  Act  by  lenders  is  examined  on  sample basis by RBI during the supervisory assessment, and any non-compliance observed are taken up  with  the  concerned  Financial  Institution/Bank/NBFC  for  rectification  apart  from initiating supervisory/enforcement action.

(b):  As  per  RBI's  Master  Directions  on  Fair  Practices  Code  dated  1.7.2015,  NBFCs  are advised to furnish a copy of the loan agreement as understood by the borrower along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans. Further, RBI has advised all regulated entities, including NBFCs,  to  strictly  ensure  that  they  or  their  agents  do  not  resort  to  intimidation  or harassment of any kind, either verbal or physical, against any person in their debt collection efforts,  including  acts  intended  to  humiliate  publicly  or  intrude  upon  the  privacy  of  the debtors'  family  members,  referees  and  friends,  sending  inappropriate  messages  either  on mobile  or  through  social  media,  making  threatening  and/  or  anonymous  calls,  persistently calling the borrower and/ or calling the borrower before 8:00 a.m. and after 7:00 p.m. for recovery of overdue loans and making false and misleading representations.

(c):  In  terms  of  the  Section  14  of  the  SARFAESI Act,  banks and financial  institutions are required  to  make  application  to  the  Chief  Metropolitan  Magistrate  (CMM)  or  the  District Magistrate (DM) for taking possession of the secured assets. While making such application, Authorised Officer of the secured creditor furnish a duly affirmed affidavit to CMM/DM. Such  affidavit  includes declaration, inter  alia, regarding  loan  amount,  creation  of  security interest,  default  in  repayment,  compliance  with  the  provisions  of  the  SARFAESI  Act, objection/representation received from the borrower and reasons for non-acceptance of the same.

(d): In terms of RBI's guidelines dated 8.6.2023, regulated entities (REs) are required to have in  place  a  Board-approved  policy  for  undertaking  any  compromise  settlement.    The guidelines  also  provide  that  the  objective  of  compromise  settlements  is  to  maximise  the possible recovery from a distressed borrower at minimum expense, in the best interest of the RE. REs take decision regarding compromise settlements based on the said policy.

(e):  As  mentioned  at  part  (a)  to  (c),  adequate  safeguards  have  been  provided  under  the provisions of the SARFAESI Act and rules made thereunder, to ensure fair enforcement and regulatory oversight. In addition, Section 19 of the SARFAESI Act provides for rights of a borrower to receive compensation and cost, in case a court or tribunal holds that possession of the secured assets is not in accordance with the provisions of the Act.