Loan granted under state govt sponsored scheme not Amounts debt u/s 2(g) of RDB Act, Proceeding...

The Debt Recovery Appellate Tribunal (DRAT) has ruled that a loan granted under a State Government-sponsored scheme does not amount to "debt" as defined under Section 2(g) of the Recovery of Debts and Bankruptcy (RDB) Act. Consequently, proceedings under the SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act are not maintainable for recovering such loans. This crucial distinction clarifies the scope of recovery mechanisms available to banks and financial institutions. The RDB Act and SARFAESI Act are powerful tools for recovering commercial debts. However, if a loan falls under a special government-sponsored scheme, its nature and recovery procedures might be governed by the scheme's specific terms or other relevant statutes, rather than general banking recovery laws. This ruling provides significant relief to beneficiaries of such schemes by preventing the initiation of SARFAESI proceedings, which can lead to quick asset attachment, and reinforces that the legal framework for recovery must align with the specific nature of the loan.