Secured Creditor

SARFAESI Act, 2002 — Section 2(zd)

A creditor holding a security interest over the assets of the borrower. Under SARFAESI, "secured creditor" means any bank or financial institution (including qualifying NBFCs and HFCs) that has security interest over any property. Secured creditors have priority in distribution over unsecured creditors in liquidation proceedings.

In practice, secured-creditor status is what unlocks every fast remedy in Indian recovery law. Under Section 2(zd) of the SARFAESI Act, 2002 it means a bank or financial institution — including qualifying NBFCs and HFCs — that holds a security interest over the borrower's property. That status is the gateway: only a secured creditor can enforce under SARFAESI, and in an IBC liquidation a secured creditor that relinquishes its security ranks, after the process and liquidation costs, equally with workmen's dues — to the extent of the value of the security, the balance ranking as unsecured — ahead of financial debts owed to unsecured creditors. The practical work, therefore, is proving and protecting the security itself — that the charge was validly created, properly documented, registered where required, and subsists over the asset being enforced. A creditor who assumes it is secured but holds a defective or unregistered charge finds itself relegated to unsecured status at exactly the moment priority matters, in an auction contest or an insolvency distribution. Borrowers and competing creditors attack precisely this — the validity and priority of the security. Well-advised creditors verify that their security interest is intact before relying on secured status to enforce.