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Cases/2026 INSC 943
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2026 INSC 943 • Supreme Court of India

Kotak Mahindra Bank v. Trupti Sanjay Mehta

“A Bank Can Use SARFAESI to Recover Loans It Takes Over from an NBFC, Even if the Original Lender Was Not Covered by the Act”

2 September 2026Justice Sanjay Kumar, Justice Sanjeev Sachdeva
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TL;DR

The Supreme Court held that a bank, as defined in Section 2(1)(c) of the SARFAESI Act, 2002, can invoke the Act to recover a debt that it takes over or has assigned to it from a financial entity (here an NBFC, City Financial Consumer Finance Limited) which was not governed by the SARFAESI Act when the debt was created. Relying on M.D. Frozen Foods Exports v. Hero Fincorp and Indiabulls Housing Finance v. Deccan Chronicle Holdings, the Court held that when the SARFAESI Act already applies to the institution acquiring a non-performing secured loan, the loan is immediately clothed with the attributes of a secured debt under the Act. Kotak Mahindra Bank Limited's appeal (Civil Appeal No. 8531 of 2015) was allowed and the Bombay High Court judgment set aside, with the borrowers' securitisation application restored to the Debts Recovery Tribunal on conditions. The other two appeals, by the Sables and by Poorti Rent a Car and Logistics Pvt. Ltd., were dismissed.

The Bottom Line

Borrowers who took loans from an NBFC that was not then covered by the SARFAESI Act cannot escape the Act's quick recovery route if the loan is later taken over by a bank. What matters is that the loan is acquired by an institution to which the Act already applies. The Court described the borrowers' argument as lacking "legal foundation" and held that a bank can enforce the security interest under Sections 13 and 14, while the Mehtas got a chance to argue their remaining objections before the DRT.

Case Timeline

The journey from FIR to Supreme Court verdict

order
31 Jul 2010

Arbitral Award Against Amit Bipin Shah

Shah, who had borrowed from CFCFL to buy the Mehtas' flat, was directed to pay Rs. 75,30,872 with interest to CFCFL.

event
13 Jul 2012

KMBL Takes Over the Mehtas Loan Account

Kotak Mahindra Bank Limited took over the loan account from CFCFL.

filing
3 Jul 2013

Section 13(2) Demand Notice

KMBL issued a demand notice under the SARFAESI Act claiming Rs. 1,10,39,111 as on 02.07.2013.

order
5 Mar 2014

Magistrate Orders Possession

The Chief Metropolitan Magistrate, Mumbai, passed an order under Sections 13(4) and 14 enabling KMBL to take physical possession of the flat.

order
28 Nov 2014

DRT Rules Against KMBL

The Debts Recovery Tribunal-II held that KMBL could not invoke the SARFAESI Act for the debt taken over from CFCFL and directed restoration of possession to the Mehtas.

judgment
16 Jul 2015

Bombay High Court Dismisses KMBL Writ Petition

A Division Bench affirmed the DRT and Appellate Tribunal view in WP No. 722 of 2015, leading to the appeal before the Supreme Court.

order
20 Apr 2017

Interim Arrangement in Supreme Court

The Court accepted the Mehtas' offer to deposit Rs. 40 lakh with KMBL and directed restoration of possession of the flat, subject to final adjudication.

event
27 Aug 2018

CFCFL Notified as Financial Institution

The Central Government notified CFCFL under Section 2(1)(m)(iv) of the SARFAESI Act, well after KMBL had taken over the loans in question.

judgment
24 Feb 2022

Bombay High Court Rules for KMBL in Poorti Rent a Car Case

A Division Bench dismissed the borrowers' writ petition, holding that the issue was covered by M.D. Frozen Foods and Indiabulls.

judgment
2 Sept 2026

Supreme Court Delivers Judgment

The Court allowed KMBL's appeal, dismissed the other two appeals, and restored the Mehtas' securitisation application to the DRT subject to a further deposit of Rs. 25 lakh.

The Story

The issue in these appeals was whether a bank, as defined by Section 2(1)(c) of the SARFAESI Act, can take recourse to the Act for recovery of a debt assigned to or taken over by it from a financial entity that was not governed by the Act when the debt was created.

Civil Appeal No. 8531 of 2015 (the Mehtas): City Financial Consumer Finance Limited (CFCFL), a non-banking financial company (NBFC), was initially not a "financial institution" notified under Section 2(1)(m) of the SARFAESI Act. Amit Bipin Shah took a home loan of Rs. 69,60,000 from CFCFL to buy a residential flat from Trupti Sanjay Mehta and her husband Sanjay Walchand Mehta. He defaulted, and an arbitral Award dated 31.07.2010 directed him to pay Rs. 75,30,872 with interest. Kotak Mahindra Bank Limited (KMBL) took over the loan account from CFCFL on 13.07.2012, issued a demand notice under Section 13(2) on 03.07.2013, and obtained an order dated 05.03.2014 from the Chief Metropolitan Magistrate, Mumbai under Sections 13(4) and 14 to take physical possession of the flat. KMBL found the Mehtas still in possession, despite having sold the property to Shah. The Mehtas filed S.A. No. 39 of 2014 before the Debts Recovery Tribunal-II, Mumbai, arguing that KMBL could not invoke the Act for a debt of an entity not covered by it. The DRT (28.11.2014), the Debts Recovery Appellate Tribunal (20.01.2015) and the Bombay High Court (judgment dated 16.07.2015, Writ Petition No. 722 of 2015) all ruled for the Mehtas. During the appeal, the Supreme Court stayed the High Court judgment on 22.09.2015 on the plea of the Indian Banks Association, and by order dated 20.04.2017 the Mehtas deposited Rs. 40 lakh with KMBL and were given possession of the flat on 02.06.2017 on an interim basis.

SLP (C) No. 33113 of 2018 (the Sables): The Sables took two housing loans of Rs. 28,50,000 and Rs. 13,36,000 from CFCFL on 25.02.2009. After default, an ex parte arbitral award dated 23.04.2012 held them liable for Rs. 43,57,965. KMBL took over their account under a deed of assignment dated 09.04.2013, issued a demand notice on 13.11.2013 and took symbolic possession on 25.06.2014. Their securitisation application was dismissed on a delay condonation application, and an order dated 03.10.2018 of the Additional District Magistrate, Nagpur directed possession to be handed to KMBL.

SLP (C) No. 9399 of 2022 (Poorti Rent a Car): Poorti Rent a Car and Logistics Pvt. Ltd. and its directors took a Rs. 2.98 crore loan from CFCFL in February 2009, which was declared a non-performing asset in November/December 2009. KMBL took it over under a deed of assignment dated 18.07.2012 and issued a Section 13(2) notice on 22.04.2014. The Chief Metropolitan Magistrate ordered delivery of possession on 01.10.2014. The Bombay High Court dismissed the borrowers' writ petition on 24.02.2022, holding the matter covered by M.D. Frozen Foods and Indiabulls and that the earlier Mehtas ruling stood impliedly overruled. The secured property was sold in 2023.

CFCFL itself was notified as a financial institution under Section 2(1)(m)(iv) only on 27.08.2018, after KMBL took over these accounts.

Legal Issues

Click each question to reveal the Supreme Court's answer

1Question

Whether a loan or debt secured by a mortgage in favour of an NBFC which was not, at that time, a "financial institution" under Section 2(1)(m) of the SARFAESI Act becomes a secured debt under the Act when it is acquired by a "bank" under Section 2(1)(c), so that the bank can take recovery measures under the Act?

Tap to reveal answer
1SC Answer

Yes. The Court held that when the institution is one to which the SARFAESI Act already applies, acquiring a non-performing secured loan account from an entity outside the Act "would immediately clothe the said loan account with the attributes of a secured debt" covered by the Act. It makes no difference whether the loan and the institution come within the Act together (as in M.D. Frozen Foods and Indiabulls) or whether only the loan does, by being taken over by a bank to which the Act already applies.

Extends the reasoning of M.D. Frozen Foods and Indiabulls from changes in the status of the lender to changes in the status of the debt, giving banks clarity on the use of SARFAESI for acquired NPAs.

2Question

Whether borrowers can rely on the definitions in Section 2(1) (such as "borrower", "financial assistance", "non-performing asset" and "security arrangement") and on the economic rationale upheld in Mardia Chemicals to argue that their debts cannot be subjected to SARFAESI recovery?

Tap to reveal answer
2SC Answer

No. The Court held that it is not open to borrowers to "dissect and nit-pick" the definitions, since the purposive interpretation in earlier judgments forecloses such arguments. It also held that the borrowers' argument would give those who borrow from NBFCs outside the Act greater freedom to default, and that the premise of their argument is without legal foundation.

Confirms the purposive reading of the SARFAESI definitions and rejects technical objections to the Act's application.

3Question

What should be the outcome in the three appeals on their own facts?

Tap to reveal answer
3SC Answer

In the Mehtas' case, the High Court was incorrect in ruling against KMBL at the threshold; its judgment and the underlying DRT and DRAT decisions were set aside and S.A. No. 39 of 2014 restored to the DRT-II, Mumbai, with the Mehtas to deposit a further Rs. 25 lakh within eight weeks. For the Sables, KMBL was legally entitled to invoke Section 14 to take physical possession. For Poorti Rent a Car, the High Court was fully justified in holding the issue covered by earlier decisions, and since the property was sold in 2023 nothing further needed to be said.

The Court balanced finality for the legal question with fairness to the Mehtas, whose other objections to the recovery had never been examined.

Arguments

The battle of arguments before the Supreme Court

Petitioner

Vihaan Kumar

1

Assignee bank can invoke SARFAESI for loans acquired from an NBFC

KMBL, a bank under Section 2(1)(c), contended that having acquired the loan accounts from CFCFL it could take recourse to the SARFAESI Act. As regards the Sables, it pointed out that their loan agreements with CFCFL authorised assignment of the debts and entitled the assignee to exercise all rights of the original lender, so they could not dispute enforcement of the security interest by the assignee. KMBL claimed the Sables' outstanding dues as on 21.07.2026 were Rs. 1,55,02,922.

M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd. (2017) 16 SCC 741Indiabulls Housing Finance Ltd. v. Deccan Chronicle Holdings Ltd. (2018) 14 SCC 783
2

RBI supports banks acquiring and enforcing NBFC non-performing assets

The Reserve Bank of India (respondent No. 6 in Civil Appeal No. 8531 of 2015) said it had no objection to banks purchasing non-performing assets from financial institutions and NBFCs, relying on its Circular dated 13.07.2005 and on ICICI Bank v. Official Liquidator of APS Star Industries. It said a restrictive reading of the Act, as done by the Bombay High Court in 2015, would stop an assignee bank from enforcing security on a borrower's default, and that it was in the interest of the financial system that banks can enforce security interests of NPAs acquired from other institutions.

ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd. (2010) 10 SCC 1

Respondent

State of Haryana

1

Debt not covered by SARFAESI at inception does not become a secured debt by assignment to a bank

The Mehtas argued that KMBL, as assignee of CFCFL whose debt was not covered by the SARFAESI Act, had no right to invoke it. Poorti Rent a Car and its directors argued that banks and financial institutions covered by the Act cannot enforce security interests acquired by buying non-performing assets of entities not covered by it, as that would be without jurisdiction. They relied on the definitions of "non-performing asset", "borrower" and "security arrangement" in Sections 2(1)(o), 2(1)(f) and 2(1)(zb) to argue that both the borrower and the financial institution must qualify under the Act at the time of classification.

Section 2(1)(f), 2(1)(o), 2(1)(zb) SARFAESI Act
2

Harsh recovery mechanism was upheld only because NPAs affect the economy

Poorti Rent a Car relied on Mardia Chemicals Ltd. v. Union of India, where the Act was upheld because of the adverse impact of non-performing assets on the economy. They argued that permitting banks to deliberately acquire NPAs from entities not governed by the Act would run contrary to the basis on which the validity of the Act was upheld.

Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311

Court's Analysis

How the Court reasoned its decision

The Court first described the scheme of the SARFAESI Act, including its Statement of Objects and Reasons and the definitions of "bank", "financial institution", "secured creditor" and related terms (paragraphs 9 to 15). It noted that the cases "turn on facts which do not fit squarely within the framework" of the Act because CFCFL was not a financial institution when the loans were made, but the bank that took over the accounts was a "bank" under Section 2(1)(c) (paragraph 16). It then reviewed M.D. Frozen Foods (an NBFC later notified as a financial institution could use the Act for existing live debts) and Indiabulls (a successor by merger could use it even though the original lender was not covered). The Court observed that those cases turned more on the identity of the financial entity, while the present ones concern the status of the loan itself, but "semantics aside, the issue is the same" and the earlier observations "clinch the issue" (paragraphs 30 to 33). Had the loans remained with CFCFL, they would have been recoverable under the Act after its notification on 27.08.2018 (paragraph 31). On policy, the Court rejected the borrowers' reliance on Mardia Chemicals, stressing that default by borrowers of non-notified NBFCs equally sets off a chain reaction affecting the economy, and that "every borrower is bound to honour his commitment and repay his loan" regardless of the mode of recovery (paragraph 32). It recorded the RBI position that assignment of debts is a permissible activity for banks, referring to ICICI Bank v. Official Liquidator of APS Star Industries (paragraphs 27 to 29). The Court concluded that borrowers cannot nit-pick the definitions in Section 2(1) given the purposive interpretation in earlier decisions (paragraph 37).

acquisition of a non-performing secured loan account by such institution from an entity, that does not come within the ambit of the SARFAESI Act, would immediately clothe the said loan account with the attributes of a ‘secured debt’ covered by the provisions of the SARFAESI Act

Para 36

This is the core holding: acquisition by an institution already covered by the Act converts the loan into a secured debt for SARFAESI purposes.

There can be no deviating from this legal and moral obligation of a borrower, irrespective of the mode of recovery in the event of default by such borrower in repaying the loan.

Para 32

The Court stressed that the duty to repay does not depend on which recovery route is available.

it is not open to the borrowers to dissect and nit-pick the definitions in Section 2(1) of the SARFAESI Act

Para 37

Technical definitional objections cannot defeat the purposive interpretation settled in earlier decisions.

once a claim is ‘live and owing’ as on the date of coming into force of the SARFAESI Act, the provisions thereof would be available, as and when it becomes applicable to the institution holding that loan account

Para 36

The Court restated the principle from M.D. Frozen Foods and Indiabulls that it then applied to the acquired loans.

The fundamental premise on which the borrowers before us seek to escape the rigours of the SARFAESI Act is, therefore, without legal foundation.

Para 32

The Court rejected the borrowers' central contention.

Partly Allowed

The Verdict

Relief Granted

KMBL succeeded on the legal question; the Mehtas get a fresh hearing before the DRT on remaining issues on condition of a further deposit; the Sables and Poorti Rent a Car obtain no relief.

Directions Issued

  • The Bombay High Court judgment dated 16.07.2015 and the underlying judgments of the DRT and the Appellate Tribunal are set aside.
  • S.A. No. 39 of 2014 is restored to the file of the Debts Recovery Tribunal-II, Mumbai, for consideration in accordance with law on the other issues raised by the Mehtas.
  • The Mehtas may urge those issues on depositing a further Rs. 25 lakh with KMBL within eight weeks; the deposit is without prejudice and will abide by the final decision in their securitisation application.
  • The original documents submitted by KMBL shall be returned to it by the Registry under proper acknowledgement.
  • The Sables: KMBL was legally entitled to invoke Section 14 of the SARFAESI Act to take physical possession; as their securitisation application was dismissed on delay, they must take recourse to legal remedies if a fresh cause of action arises.
  • Poorti Rent a Car: the Bombay High Court was fully justified in holding the issue covered by M.D. Frozen Foods and Indiabulls; as the property was sold in 2023, no more needs to be said.
  • The impleadment applications of the Mehtas seeking to add Punjab National Bank and the Assets Reconstruction Company of India Limited are dismissed. Parties bear their own costs.

Key Legal Principles Established

1

A bank to which the SARFAESI Act applies can invoke it to recover a non-performing secured loan it acquires from an NBFC that was not covered by the Act at the time of lending.

2

Once a claim is live and owing, the SARFAESI provisions become available when the Act becomes applicable to the institution holding the loan account.

3

Whether the loan and the institution come under the Act together or only the loan does by being taken over by a covered bank, the Act is available for recovery.

4

Borrowers cannot nit-pick the definitions in Section 2(1) to avoid SARFAESI recovery, given the purposive interpretation adopted in earlier decisions.

5

The obligation of a borrower to repay does not depend on the mode of recovery available to the lender.

6

Where a threshold objection is wrongly accepted, other issues in a securitisation application may be restored for decision on merits, subject to conditions.

Key Takeaways

What different people should know from this case

  • If your loan from an NBFC is sold or assigned to a bank, the bank can use SARFAESI procedures to recover it, even if the NBFC could not do so earlier.
  • You cannot avoid SARFAESI recovery by arguing that the original lender was not covered by the Act when you took the loan.
  • The duty to repay a loan exists regardless of the recovery route used by the lender.
  • Even if your threshold objection fails, you may still raise other defences before the DRT if they have not been decided yet.
  • Securitisation applications must be filed on time; the Sables could not revive theirs after it was dismissed on delay.

Frequently Asked Questions

The Court held that a bank covered by the SARFAESI Act can use it to recover a loan taken over from an NBFC that was not covered by the Act when the loan was made. It allowed Kotak Mahindra Bank's appeal and dismissed the appeals of the Sables and Poorti Rent a Car.
They said that the original lender, CFCFL, was not a notified financial institution under Section 2(1)(m) when the loans were given, so the debts were never secured debts under the Act and could not become so merely by assignment to a bank.
The Court relied on M.D. Frozen Foods Exports v. Hero Fincorp (2017) 16 SCC 741 and Indiabulls Housing Finance v. Deccan Chronicle Holdings (2018) 14 SCC 783, holding that the principle that SARFAESI applies to live and owing debts when it becomes applicable to the holder equally covers a loan taken over by a bank.
Their securitisation application (S.A. No. 39 of 2014) is restored to the Debts Recovery Tribunal-II, Mumbai, so that their other objections can be decided on merits. They must deposit a further Rs. 25 lakh with the bank within eight weeks, without prejudice to their rights.
No. The Court noted Mardia Chemicals upheld the Act, but held that borrower default has an economic impact whether or not the lender is covered by the Act, and that every borrower is bound to repay irrespective of the mode of recovery.

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