SUPREME COURT CLARIFIES AN IMPORTANT SARFAESI QUESTION
Can a bank invoke the SARFAESI Act for a secured loan originally granted by an NBFC that was not covered by SARFAESI at the time of lending?
Yes.
In Kotak Mahindra Bank Ltd. v. Trupti Sanjay Mehta & Ors., 2026 INSC 943, decided on 2 September 2026, the Supreme Court held that when a bank to which SARFAESI applies acquires a non-performing secured loan from an entity outside the SARFAESI framework, the acquired loan can acquire the attributes of a secured debt under the Act.
The Court relied upon the principles laid down in M.D. Frozen Foods and Indiabulls Housing Finance.
Why does this matter?
The judgment has significant implications for:
• Assignment of NPAs by NBFCs to banks
• SARFAESI enforcement proceedings
• Section 13 recovery measures
• Section 14 possession proceedings
• DRT litigation concerning assigned debts
Importantly, the judgment does not mean that every SARFAESI action is automatically valid. Other factual and legal objections of the borrower can still be examined on their merits.
The key principle:
The fact that the original lender was not covered by SARFAESI when the loan was created does not, by itself, prevent a subsequent bank-assignee from invoking SARFAESI.
Case: Kotak Mahindra Bank Ltd. v. Trupti Sanjay Mehta & Ors.
Citation: 2026 INSC 943
Date: 02.09.2026
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