MISCELLANEOUSCentral

Section 31 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

The provisions of this Act shall not apply to--

(a)a lien on any goods, money or security given by or under the Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;
(b)a pledge of movables within the meaning of section 172 of the Indian Contract Act, 1872 (9 of 1872);
(c)creation of any security in any aircraft as defined in clause (1) of section 2 of the Aircraft Act, 1934 (24 of 1934);
(d)creation of security interest in any vessel as defined in clause (55) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958); 1** * * *
(f)any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930 (3 of 1930);
(g)2[any properties not liable to attachment (excluding the properties specifically charged with the debt recoverable under this Act)]or sale under the first proviso to sub-section (1) of section 60 of the Code of Civil Procedure, 1908 (5 of 1908);
(h)any security interest for securing repayment of any financial asset not exceeding one lakh rupees;
1. (i)any security interest created in agricultural land;
(j)any case in which the amount due is less than twenty per cent. of the principal amount and interest thereon.

Summary

The rules in this law do not apply to certain types of financial arrangements or specific assets.
If a borrower owes less than one lakh rupees, the lender cannot use this law to recover the money.
Lenders cannot take over agricultural land using the powers in this law.
The law does not apply to pledges of movable goods, or claims by unpaid sellers under the Sale of Goods Act.
It also excludes security interests in aircraft and vessels, which are governed by their own specific acts.

Practical examples

1Ramesh took a loan of 90,000 rupees to start a small shop. Because the loan amount is under one lakh rupees, the bank cannot use this specific law to seize his shop's inventory if he defaults.

2Sunita mortgaged her 5 acres of farming land to secure a loan. When she misses her payments, the bank must use other standard legal routes to recover the money, because agricultural land is protected from this law.

3A shipping company secures a loan using a cargo vessel. Because vessels fall under the Merchant Shipping Act, the bank cannot bypass courts using this law to seize the ship.

FAQ

1. Can a bank seize my farming land if I default on my loan?

No. The law clearly states that it does not apply to any security interest created in agricultural land.

2. Does this law apply if I pawned a piece of jewellery?

No. Pledges of movable items under the Indian Contract Act are excluded from this law.

Test yourself

Q1.Under Section 31 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which type of property is completely exempt from the enforcement powers of this law?

Q2.Under Section 31 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, at what financial threshold does a lender lose the right to use this law to recover an outstanding debt?

Q3.Under Section 31 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what is the maximum financial asset amount that is protected from being recovered under this law?

Q4.Section 31 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cross-references definitions from other laws for certain vehicles. Which of the following is excluded from this Act based on those cross-references?

30DPreviousSection 30D Recovery of penalties.31ANextSection 31A Power to exempt a class or classes of banks or financial institutions.

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