The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) provides a framework for the enforcement of security interests, the securitization, and the reconstruction of financial assets. However, Section 31 of the Act outlines specific exceptions, ensuring that certain types of transactions, interests, or assets are exempt from the scope of this law. This section serves to clarify where the SARFAESI Act does not apply, providing necessary boundaries for various legal situations.
Here are the key exceptions under Section 31:
The SARFAESI Act does not cover liens on goods, money, or securities established under certain laws. These include:
Additionally, pledges of movable assets, as defined in Section 172 of the Indian Contract Act, are also excluded from the purview of the SARFAESI Act. This ensures that these types of security interests follow the rules laid down in other legal frameworks.
Section 31 of the SARFAESI Act explicitly excludes security interests created in aircraft from its scope. The Aircraft Act, 1934, defines the creation and enforcement of security interests in aircraft, which is treated separately from the provisions of the SARFAESI Act.
Similar to aircraft, security interests in vessels are exempted. These interests are governed under the Merchant Shipping Act, 1958, and fall outside the reach of the SARFAESI Act, ensuring that maritime assets are dealt with under specialized laws.
The Sale of Goods Act, 1930 provides specific rights to unpaid sellers, such as a lien over the goods. Section 31 of the SARFAESI Act confirms that these rights of unpaid sellers are not impacted or overridden by the provisions of the SARFAESI Act.
Certain properties that are non-attachable, as per the Code of Civil Procedure, 1908, are excluded from the SARFAESI Act. However, properties that are specifically charged with debts recoverable under the SARFAESI Act, or those covered under the first proviso of Section 60(1) of the CPC, may still be subject to attachment.
The SARFAESI Act does not apply to security interests created to secure financial assets of amounts not exceeding ₹1 lakh. This ensures that smaller financial transactions are not subjected to the often complex processes involved in the enforcement of security interests under the SARFAESI Act.
One of the key exclusions under Section 31 is agricultural land. The Act does not cover security interests created in agricultural land, recognizing the unique nature of agricultural transactions. This exemption aims to protect farmers and the agricultural sector from being subject to stringent provisions of the SARFAESI Act.
Section 31 also ensures that claims involving amounts less than 20% of the principal amount and accrued interest are exempt from the SARFAESI Act. This means that smaller debts are handled through alternative legal methods, rather than through the more formal and rigid enforcement mechanisms of the SARFAESI Act.
Section 31 of the SARFAESI Act serves to define its limitations by outlining specific exemptions that protect certain traditional transactions, minor claims, and assets like agricultural land from being affected by its provisions. These exclusions are essential for ensuring that the SARFAESI Act does not disrupt specialized legal frameworks in place for dealing with liens, pledges, unpaid sellers’ rights, or smaller debts. Additionally, recognizing the unique nature of certain assets, like aircraft, vessels, and agricultural land, helps to maintain balance between modern financial systems and traditional sectors that require more tailored regulation