Part Payments Cannot Halt SARFAESI Proceedings Once Initiated Even If Dues Fall Below 20%: Bombay HC

The Bombay High Court has recently clarified that the 20% benchmark under the SARFAESI framework operates at the threshold stage, and once that requirement is satisfied and action is initiated, subsequent payments by the borrower do not affect the creditor's right to continue enforcement.

“A proper reading of Section 31(j) of Securitisation Act makes it clear that the moment the amount due exceeds 20% of the principal amount and interest thereon, the secured creditor like the respondent No.1 herein, is well within its rights to take recourse to the provisions of the Securitisation Act.”

A division bench of Justices Manish Pitale and Shreeram V. Shirsat upheld the action taken by IFCI Ltd against Citron Infraprojects Ltd, rejecting the borrower's challenge to the recovery measures.

The dispute arose upon defaults committed by Citron Infraprojects Ltd in repayment of credit facilities, pursuant to which IFCI issued a notice dated September 30, 2021 under Section 13(2) of the SARFAESI Act.

Upon failure to discharge the liability within the period specified in the notice, IFCI proceeded to take action under Section 13(4), and the matter was carried to the Magistrate, who by an order dated August 18, 2025 directed taking of physical possession of the secured asset.

During the course of proceedings, the borrower had filed a securitisation application before the Debts Recovery Tribunal and later sought interim stay on possession, contending that it had paid about Rs. 4.74 crore after initiation of action, which brought the outstanding dues below 20% of the principal and interest.

Rejecting this contention, the High Court held that once the threshold requirement is satisfied at the time of initiation, subsequent payments do not affect the validity of the proceedings, particularly when the borrower has not discharged the entire liability.

“Thus, it is abundantly clear that in order to avoid the measures which the secured creditor is entitled to undertake under sub-section (4) of Section 13 of the Securitisation Act, the borrower has to discharge its liability 'in full' within the period specified in sub-section (2) of Section 13 of the Securitisation Act. It is therefore only logical to conclude that any part payment by the borrower would not save it from the measures which the secured creditor is entitled to undertake under Section 13(4) of the Securitisation Act.”

The bench emphasised that the scheme of the law requires the borrower to clear the dues “in full” to avoid enforcement measures, and partial repayments cannot be used to stall recovery once action has been triggered.

“We find substance in the contention raised on behalf of the respondent No.1 (secured creditor) that Section 31 of the Securitisation Act indicating as to cases where provisions of the said statute will not apply concerns situations only at the threshold and once they are satisfied at the threshold, midstream during the action being pursued by the secured creditor, it cannot be disentitled merely because some payments are made by the borrowers that may even dip the amount due below 20% of the principal amount and interest thereon.”

The court also said that this interpretation is consistent with the objective of the SARFAESI law, which was enacted to address delays in recovery and rising levels of non-performing assets in the banking system.

“The said interpretation is in line with the objects and reasons for which the Securitisation Act was enacted. The Narasimham Committee and the Andhyarujina Committee were constituted by the Central Government for the purpose of examining banking sector reforms considering the need for changes in the legal system in respect of the slow pace of defaulting loans and the mounting levels of non-performing assets of banks and financial institutions.”

Finally, the court held that no prejudice was caused to the borrower, as it remained entitled to approach the Debts Recovery Tribunal at every stage of enforcement proceedings, and dismissed the writ petition.