Section 31 of the SARFAESI Act: Meaning, Process and What It Means for You (Part 1)

Section 31 isn't a defence you raise after the bank has already acted. It's a boundary drawn into the law itself. The categories listed under Section 31 were never within SARFAESI's reach to begin with. If the facts fall within a category listed under Section 31, the enforcement provisions of the SARFAESI Act may not apply. The specific facts and supporting evidence should be assessed by a qualified legal professional.

The full list runs to nine categories. A lien on goods, money, or security under the Indian Contract Act or the Sale of Goods Act. A pledge of movables under Section 172 of the Indian Contract Act. Security interests created in aircraft, which fall under the Aircraft Act instead. Security interests in vessels, governed by the Merchant Shipping Act. The rights of an unpaid seller under the Sale of Goods Act. Properties that cannot be attached under the Code of Civil Procedure. A security interest securing a financial asset not exceeding ₹1 lakh. Security interest created in agricultural land. And cases where the amount due is less than 20% of the principal and interest combined.

Most people only ever hear about two of these. The agricultural land exemption and the ₹1 lakh threshold get talked about often, mostly because they come up in news coverage of farmer loan disputes and small-ticket lending. The 20% repayment threshold and the non-attachable-property category almost never get a mention, even though they're written into the same section of the same law and are just as real.

That gap is what this guide fixes. Read through the full list once. Even the entries that don't seem to apply to you.

Some of this ground was also covered in FREED's broader guide on the SARFAESI Act, meaning, applicability, and how it affects borrowers.

Up next, the exemption most people assume they qualify for just by looking at their land records, and why that assumption trips a lot of borrowers up.

Security interest created in agricultural land falls entirely outside SARFAESI's scope. That's the plain reading of Section 31(i), and on its own it sounds like a clean, simple rule. In practice, courts have examined the actual use and nature of the land when determining whether the agricultural land exemption applies.

Here's the catch. Revenue records showing your land as agricultural aren't, by themselves, enough to claim this exemption. Courts have said this more than once now. Courts have considered whether the land was actually being used for agricultural purposes when the security interest was created. Revenue records may be relevant evidence, but they may not be sufficient on their own.

The Supreme Court made this point directly in a case involving a Telangana property that appeared agricultural on paper but showed no farming activity on the ground. The bank had photographs showing the land sitting unused. The borrower had only the revenue record entry and nothing else, no cultivation history, no proof of any actual farming. The Court sided with the bank. Paper classification and real, physical use aren't the same thing, and the Court has been consistent about drawing that line, most recently reaffirming it in a January 2023 ruling that leaned on two earlier Supreme Court decisions saying the exact same thing.

So if you're relying on this exemption, revenue records alone won't carry your case. You need real evidence of actual agricultural use. Cultivation records if you have them. Photographs showing crops or farming activity, not just an empty plot. Statements from neighbours or the local patwari confirming farming was genuinely happening there. The stronger and more specific this evidence is, the stronger your claim under Section 31(i) becomes.

There's one more exemption most borrowers have never heard of, and it has nothing to do with what kind of land you own. It's about how much you've already paid back.

Here's the exemption almost nobody talks about. If the amount still due is less than 20% of your original principal and interest combined, meaning you've repaid more than 80% of what you originally owed, SARFAESI cannot be invoked against you at all. Not delayed. Not made harder. Cannot be invoked.

Most borrowers assume any outstanding default, however small, leaves them fully exposed to SARFAESI enforcement. If the amount due falls below the statutory threshold under Section 31(j), the exemption may become relevant. Borrowers should obtain a complete loan statement and seek legal advice before concluding that SARFAESI proceedings are barred. This isn't a loophole or a grey area. It's written directly into Section 31(j) of the Act.

Here's how it plays out with real numbers. Say you originally owed ₹10,00,000 in combined principal and interest. If the remaining outstanding balance has fallen below ₹2,00,000, roughly 20% of that original figure, this exemption becomes relevant. That's worth raising directly and immediately if enforcement action is threatened or already underway.

The part that trips people up is the base number. The 20% is measured against your original combined principal and interest, not against whatever figure currently shows on a recent statement, and not against just the principal you borrowed. Banks sometimes calculate differently, and a mismatch here is exactly the kind of thing worth checking carefully rather than assuming either way.

If you think you might be in this position, don't work from a rough guess. Calculate your actual repayment ratio carefully, using your original combined principal and interest as the base figure. Then raise it specifically, with exact numbers, the moment you receive any SARFAESI notice. Vague language like "I've paid most of it" won't hold up. A precise figure will.

Section 31(h) sets a floor. A security interest securing a financial asset that doesn't exceed ₹1 lakh falls entirely outside SARFAESI's reach. This exists for a specific reason. SARFAESI hands banks extraordinary, extra-judicial powers, powers that skip the usual court process entirely, and Parliament didn't want those powers turned loose on genuinely small-value debts. Section 31(h) excludes a security interest securing repayment of a financial asset not exceeding ₹1 lakh. Whether the provision applies depends on the nature of the financial asset and the facts of the security arrangement.

A handful of other categories sit outside SARFAESI for a different reason entirely. Liens and pledges of movable goods already have their own home in the Indian Contract Act. Security interests in aircraft belong to the Aircraft Act. Vessels are covered by the Merchant Shipping Act. None of these needed SARFAESI's powers layered on top, because a dedicated legal framework was already handling them, and SARFAESI was never meant to override or duplicate that.

Then there's a quieter category that rarely gets mentioned. Section 31(g) excludes certain properties that are not liable to attachment or sale under the relevant provisions of the Code of Civil Procedure, subject to the statutory exclusion for properties specifically charged with the debt recoverable under the Act. It's the same underlying idea as the protection given to gratuity and pension amounts elsewhere in Indian law. Some things stay out of reach regardless of which recovery law a bank tries to use.

Last on the list, an unpaid seller keeps their own rights under the Sale of Goods Act, untouched by anything SARFAESI does. If you've sold goods and haven't been paid, that right exists on its own footing.

Nine categories in total, and most borrowers only know about one or two of them.