The question whether a Housing Finance Company ("HFC") can invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") in cases where the secured debt is below ₹20 lakhs has recently generated significant judicial debate across various High Courts in India.

The issue assumes considerable importance because a substantial portion of housing loans granted by Housing Finance Companies fall below the ₹20 lakh threshold. If HFCs are held to be governed by the monetary threshold prescribed for Non-Banking Financial Companies ("NBFCs"), a large category of secured creditors would be deprived of the powerful recovery mechanism available under the SARFAESI Act.

Two important High Court decisions have recently examined this issue from different perspectives:

1. Virendra Rathore & Ors. v. Tehsildar, District Mandsaur & Ors., 2024 SCC OnLine MP 3427 (Madhya Pradesh High Court); and

2. Piramal Capital & Housing Finance Ltd. & Ors. v. Golam Sabir & Ors., FMA 161 of 2026, decided on 09 April 2026 (Calcutta High Court).

These decisions have reopened an important discussion regarding the legal status of Housing Finance Companies under the SARFAESI framework and the applicability of the Government Notification dated 12 February 2021 prescribing a minimum debt threshold of ₹20 lakhs for NBFCs.

Statutory Framework

The SARFAESI Act enables a "secured creditor" to enforce its security interest without intervention of courts or tribunals. Such right is available only to banks and financial institutions recognised under the Act.

Section 2(1)(m)(iv) of the SARFAESI Act empowers the Central Government to notify any institution or NBFC as a "financial institution" for the purposes of the Act.

Historically, SARFAESI was primarily available to Banks and certain Financial Institutions. Over time, the Central Government extended the benefit to eligible NBFCs and Housing Finance Companies through separate notifications.

The Notification of 24 February 2020 and 12 February 2021

By Notification dated 24 February 2020, the Central Government permitted certain NBFCs having asset size of ₹100 crores and above to invoke SARFAESI.

Subsequently, by Notification dated 12 February 2021, the Government reduced the minimum secured debt requirement from ₹50 lakhs to ₹20 lakhs for such NBFCs.

The controversy arises because the notification specifically refers to NBFCs as defined under Section 45-I(f) of the Reserve Bank of India Act, 1934.

The central question therefore is:

Are Housing Finance Companies merely a subset of NBFCs and therefore bound by the ₹20 lakh threshold, or do they constitute a separate class of Financial Institutions entitled to invoke SARFAESI irrespective of debt amount?

The Madhya Pradesh High Court View – HFCs Can Invoke SARFAESI Below ₹20 Lakhs

In Virendra Rathore, the borrower had obtained a housing loan of approximately ₹8 lakhs from SRG Housing Finance Limited. Upon default, SARFAESI proceedings were initiated and possession proceedings under Section 14 were commenced before the Chief Judicial Magistrate. The borrowers challenged the proceedings contending that since the debt was below ₹20 lakhs, the Housing Finance Company could not invoke SARFAESI.

The High Court undertook an extensive examination of:

• The SARFAESI Act;

• The National Housing Bank Act, 1987;

• The Reserve Bank of India Act, 1934; and

• Various Government Notifications.

The Court held that Housing Finance Companies are institutions specially created and regulated under the National Housing Bank Act and constitute a distinct class of financial institutions. The Court observed that HFCs may be notified as Financial Institutions under Section 2(1)(m)(iv) of the SARFAESI Act independently of NBFCs.

The Court further reasoned that the Notification dated 12 February 2021 applies specifically to NBFCs notified under the RBI Act framework and does not automatically extend to Housing Finance Companies notified separately under the National Housing Bank Act. Consequently, the Court concluded that the ₹20 lakh threshold prescribed for NBFCs does not apply to HFCs.

The practical consequence of this interpretation is that an HFC may invoke SARFAESI even where the secured debt is substantially below ₹20 lakhs, provided it is otherwise a notified financial institution under the Act.

The Calcutta High Court Approach – HFCs Are Now Part of the NBFC Regulatory Framework

A different perspective emerged before the Calcutta High Court in Piramal Capital & Housing Finance Ltd. v. Golam Sabir.

The dispute again concerned a housing finance company seeking to invoke SARFAESI for a claim below ₹20 lakhs. The borrowers argued that the HFC was merely a category of NBFC and therefore subject to the monetary threshold prescribed under the 2021 Notification.

The Court analysed the post-2019 regulatory framework after the transfer of regulatory powers from the National Housing Bank to the Reserve Bank of India.

Particular emphasis was placed on the RBI Press Release dated 13 August 2019, wherein RBI expressly stated that:

"HFCs will henceforth be treated as one of the categories of Non-Banking Financial Companies (NBFCs) for regulatory purposes."

The Court further examined the RBI Master Directions of 2021, which define a Housing Finance Company as an NBFC whose housing finance assets constitute at least 60% of its total assets.

The Court also referred to RBI Master Circulars recognising HFCs as part of the broader NBFC framework and noted that RBI's own classification lists place Housing Finance Companies within categories of NBFCs.

The reasoning adopted by the Calcutta High Court indicates a movement toward treating HFCs as a subset of NBFCs for SARFAESI purposes, thereby supporting the argument that the ₹20 lakh threshold may equally apply to Housing Finance Companies.

The Core Legal Conflict

The judicial disagreement essentially stems from two competing approaches.

The first approach focuses on the source of statutory recognition under the SARFAESI Act. If an HFC is separately notified as a Financial Institution under Section 2(1)(m)(iv), then it constitutes a distinct class and cannot be subjected to restrictions applicable only to NBFCs.

The second approach focuses on contemporary regulatory treatment by RBI. Since HFCs are now regulated as a category of NBFCs and are expressly recognised as such in RBI Directions, the restrictions applicable to NBFCs should equally apply to HFCs.

Both approaches possess substantial legal merit.

The Madhya Pradesh view emphasises statutory notification and legislative classification.

The Calcutta view emphasises regulatory integration and functional treatment under the RBI framework.

Practical Implications for HFCs and NBFCs

Until the issue is conclusively settled by the Supreme Court of India, Housing Finance Companies may encounter divergent judicial approaches across jurisdictions.

In States where the reasoning of the Madhya Pradesh High Court is followed, HFCs may successfully invoke SARFAESI irrespective of the debt amount.

In jurisdictions where the Calcutta High Court approach gains acceptance, borrowers may challenge SARFAESI proceedings involving debts below ₹20 lakhs on the ground that HFCs are merely a subset of NBFCs and therefore subject to the threshold requirement.

Accordingly, Housing Finance Companies should:

1. Carefully examine the notification under which they claim status as a Financial Institution under SARFAESI.

2. Review the prevailing High Court precedents within the relevant territorial jurisdiction.

3. Anticipate jurisdictional challenges in matters involving debts below ₹20 lakhs.

4. Consider alternative recovery proceedings where substantial litigation risk exists.

5. Monitor any appeal or future Supreme Court pronouncement on the issue.

Conclusion

The legal position regarding invocation of SARFAESI by Housing Finance Companies for debts below ₹20 lakhs is presently not free from doubt.

The Madhya Pradesh High Court has strongly held that Housing Finance Companies are a distinct class of Financial Institutions and are not bound by the ₹20 lakh threshold applicable to NBFCs.

The Calcutta High Court, however, has highlighted the post-2019 regulatory regime under which HFCs are treated as one of the categories of NBFCs and therefore may not be entitled to bypass the threshold prescribed for NBFCs.

Until authoritative resolution by the Supreme Court, the controversy remains open. Nevertheless, the stronger statutory argument presently appears to favour the view that a Housing Finance Company separately notified as a Financial Institution under Section 2(1)(m)(iv) of the SARFAESI Act possesses an independent statutory footing and can invoke SARFAESI notwithstanding that the secured debt is below ₹20 lakhs. At the same time, lenders must remain conscious that the issue is now the subject of conflicting judicial interpretation and is likely to witness further litigation in the coming years.