Section 31 SARFAESI Act: Transactions and Securities the Act Excludes

Every powerful remedy needs a boundary, and Section 31 is SARFAESI's. It lists the transactions and securities the Act leaves alone, so that the summary power to seize and sell cannot reach a farmer's land, a pawnbroker's pledge, a trivial loan or a nearly-repaid one. For the examiner these exclusions are prime material, agricultural land most of all, and for the practitioner they are the first defence a borrower raises. This note sets out the full list and the logic behind it.

1. The Exclusion List

What the Act does not touch

Figure 1: What the Act does not touch

Liens and pledges. A lien on goods, money or security under the Indian Contract Act or the Sale of Goods Act, and a pledge of movables within the meaning of s.172 of the Contract Act: both already give the creditor possession, so the Act's possession machinery is redundant.
Aircraft and vessels. A security interest in an aircraft under the Aircraft Act 1934, and in a vessel under the Merchant Shipping Act 1958, each governed by its own specialised enforcement regime.
Contracts creating no security interest. A conditional sale, hire-purchase, lease or any other contract in which no security interest has been created: without a security interest there is nothing for the Act to enforce.
Unpaid seller and exempt property. The rights of an unpaid seller under s.47 of the Sale of Goods Act, and any property not liable to attachment or sale under the proviso to s.60(1) of the CPC, excluding properties specifically charged.
Small debts. A security interest securing repayment of a financial asset not exceeding one lakh rupees: the heavy remedy is kept off trivial debts.
Agricultural land. Any security interest created in agricultural land, the most litigated exclusion, protecting cultivable land from summary enforcement.
The twenty per cent floor. Cases where the amount due is less than twenty per cent of the principal amount and interest thereon: a nearly-repaid debt falls outside the Act.

2. The Logic of the Exclusions

Why each is left out

Figure 2: Why each is left out

Agricultural land. The central protective exclusion: cultivable land is a livelihood, so Parliament kept it outside the summary remedy. What counts as agricultural land turns on actual use and classification, not the borrower's mere assertion, and the burden lies on the borrower to prove the land is genuinely agricultural, a recurring litigation point.
Liens and pledges. A lienholder or pledgee already holds the goods, so there is no need for the Act's power to take possession; the creditor realises its security through the possessory remedy the general law already gives.
Aircraft and vessels. Their security and sale are governed by dedicated statutes, so SARFAESI steps aside to avoid overlap.
Small debts and the floor. The one-lakh threshold and the twenty per cent floor keep the remedy proportionate: it is not deployed for trivial sums or against borrowers who have substantially repaid.
No security interest. Where the arrangement creates no security interest at all, hire-purchase or a true lease, there is simply nothing for the enforcement chapter to bite on, so the Act does not apply.

⚠ Exam trap

Reproduce the list accurately and lead with the two numbers examiners test, the one lakh rupees minimum secured amount and the twenty per cent floor of principal and interest, and the agricultural land exclusion. On agricultural land, add that the character of the land is decided by its actual use and classification, with the borrower bearing the burden of proof, so a non-agricultural plot described as agricultural does not escape the Act. Remember that pledges and liens are excluded because the creditor already has possession, not because the debts are small.

3. Frequently Asked Questions

To which transactions does the SARFAESI Act not apply?

Section 31 lists them: a lien under the Contract Act or Sale of Goods Act; a pledge of movables under Section 172 of the Contract Act; security interests in aircraft and vessels under their own statutes; conditional sale, hire-purchase, lease or any contract creating no security interest; the unpaid seller's rights under Section 47 of the Sale of Goods Act; property exempt from attachment under the proviso to Section 60 of the CPC; a security interest securing not more than one lakh rupees; a security interest in agricultural land; and cases where the amount due is less than twenty per cent of the principal and interest. These stay outside the Act's enforcement machinery.

Can a bank proceed under SARFAESI against agricultural land?

No. Section 31 expressly excludes any security interest created in agricultural land, so the Act's enforcement powers cannot be used against genuinely agricultural land. The question that arises in practice is whether the land is in fact agricultural: courts decide this by the land's actual use and classification rather than by the borrower's label, and the borrower claiming the exemption bears the burden of proving that the land is genuinely agricultural; land that is not actually cultivated or used for agriculture does not attract the exclusion.

4. Related Topics

Topic 4: Section 1 and Application. The clause that imports these exclusions.
Topic 99: Agricultural Land Exemption. The exclusion and State land laws in depth.