When an Institution or a NBFC is notified as a Financial Institution u/s Sec. 2(1)(m)(iv) of SARFAESI Act, 2002, it is only for the purposes of SARFAESI Act and not for RDB Act, 1993 | Arbitration is an adjudicatory process and proceedings under SARFAESI Act are enforcement proceedings | Reference to SARFAESI Act in an agreement cannot be a bar to invoke Arbitration – Tata Motors Finance Solutions Ltd. Vs. Naushad Khan c/o. Nazbul Hoda Khan – Bombay High Court
In this important judgment on Arbitration and SARFAESI, Hon’ble High Court of Bombay High Court:
(i) Section 2(1)(m)(iv) of the SARFAESI Act specifies that an institution, which is notified by the central government, shall be a ‘financial institution for the purposes of this Act’. The words used in the aforesaid provision make it very clear that when an institution or a non-banking financial company like the petitioner is notified as a financial institution, it is only for the purposes of the SARFAESI Act.
(ii) This is distinct from the definition of ‘financial institution’ under Section 2(h) of the RDDB Act. It is undisputed that the petitioner is not notified as a financial institution by the central government upon exercising power under Section 2(h)(ii) of the RDDB Act.
(iii) The petitioner is notified as a ‘financial institution’, only under Section 2(1)(m)(iv) of the SARFAESI Act, for the purposes of the said Act and only in that context, can the petitioner approach the DRT for the purposes of enforcement. While arbitration is an adjudicatory process, the proceedings under the SARFAESI Act are enforcement proceedings. It is only after the adjudicatory process of arbitration in the present case leads to determination and crystallization of the debt due to the petitioner, that the petitioner would be able to resort to the enforcement process under the SARFAESI Act.