Dear Client,  

Thank you for your query. According to the SARFAESI Act of 2002, it is the secured creditor alone who is entitled to issue a Section 13(2) notice. In this situation, since the NBFC availed a loan from a public sector bank under the 90:10 pool buyout arrangement and the loan is reported to CIBIL in the borrower's name by the bank, the NBFC is perhaps powerless to invoke the SARFAESI proceedings unless it has retained a portion of the loan, security interest, or credit risk. Whether the NBFC can invoke SARFAESI depends upon the *specific terms of the buyout agreement, the securitization structure, and whether the NBFC still qualifies as a secured creditor. It is appropriate that you analyze the loan documentation and the assertions made in the buyout here to appropriately determine its lawful position.  

Hope this helps. Feel free to revert in case any further clarity is needed. 

NBFC obtain loan from psb to lend to primary borrower. On default by end borrower, report is made to cibil. As NBFC is lender to end borrower, it can issue 13 (2) notice to defaulting borrower.

NBFC can issue notice under section 13(2) SARFEASI as loan was sanctioned by NBFC .there is  privity  of contract between borrower and NBFC 

Securitisation or pooling of assets is a well-accepted practice in the banking industry to buy out the retail portfolios of NBFCs. Under the proposed scheme, an NBFC sells a pool of assets (say, a set of affordable loans or loans in a certain category or geography) to a PSB in return for immediate payment.

The SARFAESI Act can be invoked against a borrower even if an NBFC "pools out" a loan, meaning it sells the loan to another financial institution, as long as the NBFC originally created the secured debt and meets the eligibility criteria under the SARFAESI Act, including having an asset size exceeding Rs. 100 crore and the loan amount being above Rs. 50 lakh; the new lender can then utilize the Act to recover the debt from the borrower if it becomes an NPA.

As for as the borrower is concerned, the NBFC is legally the creditor/lender. An NBFC taking refinance from another bank is a separate and exclusive arrangement, legally and totally outside the purview of the borrower-NBFC borrowing/lending arrangement. In the light of these facts, the NBFC is legally competent to issue a notice to the borrower under Sec-13 (2) of the Sarfaesi Act.

Only for the loan granted by nbfc it can invoke sarfesi act against you

In the given scenario, the NBFC has availed a loan from a public sector bank under a pool buyout arrangement in a 90:10 ratio and has not reported the loan to CIBIL in its own name but has instead been reported in the name of the borrower. The key question is whether the NBFC can initiate action under Section 13(2) of the SARFAESI Act against the borrower.

Legal Analysis:

1. Eligibility of NBFC under SARFAESI Act:

   • Not all NBFCs are eligible to take action under the SARFAESI Act, 2002. Only those NBFCs with asset size of ₹100 crore or more and notified by RBI under Section 2(1)(m)(iv) of SARFAESI can enforce security without court intervention.
   • If the concerned NBFC qualifies under the Act, it must have classified the account as NPA before issuing a 13(2) notice.

2. Ownership of Debt – Does NBFC Have the Right?

   • Under a pool buyout structure, the public sector bank (PSB) has effectively acquired an interest in the loan.
   • If the NBFC has sold the loan under a “true sale” arrangement, then the PSB is the actual owner of the debt, and the NBFC cannot issue a 13(2) notice.
   • If it was a “co-lending” or partial risk-sharing arrangement, then the NBFC may still have the right to initiate SARFAESI proceedings, but this depends on the terms of the agreement between the NBFC and PSB.

3. Reporting to CIBIL – Impact on Borrower:

   • If the PSB has reported the loan to CIBIL in the borrower’s name, it indicates that the PSB holds the debt exposure, not the NBFC.
   • If the NBFC has not reported the loan to CIBIL, it may imply that it no longer holds the receivable, weakening its legal standing to initiate SARFAESI action.

Conclusion:

If the NBFC has completely transferred the loan to the public sector bank as part of a true sale, then it cannot issue a 13(2) notice under SARFAESI, as it no longer holds the financial asset. However, if the NBFC retains partial exposure under a co-lending or risk-sharing model, it may still have enforcement rights, subject to the agreement terms. The borrower may challenge the 13(2) notice if the NBFC no longer holds the debt.

Would you like assistance in drafting a response to such a notice or contesting it legally?

Thanks and Regards,
Advocate Aman Verma
Legal Corridor