Banks Can Invoke SARFAESI for Loans Acquired from NBFCs: Supreme Court

Case Title: Kotak Mahindra Bank Limited versus Trupti Sanjay Mehta and others (with connected matters)

Case No.: Civil Appeal No. 8531 of 2015

Coram:  Justice Sanjay Kumar and Justice Sanjeev

Court Observation

“…when the institution (bank) is one to which the SARFAESI Act is already applicable, 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.”,

“The argument of the borrowers before us, if accepted, would mean that those who avail financial assistance from NBFCs not covered by Section 2(1)(m) of the SARFAESI Act enjoy greater freedom to commit default in repayment of such loans, as recovery could only be through ordinary, time-consuming civil processes, when compared with those who avail financial assistance from NBFCs covered by Section 2(1)(m) of the SARFAESI Act, entailing quicker and easier recovery thereunder. Irrespective of whether a financial institution comes under the SARFAESI Act or not, the failure on the part of borrowers to repay their loans to such institution invariably sets off a chain reaction resulting in an adverse impact on the whole economy.”

“In essence, it makes no difference as to whether it is the loan/debt along with the institution that comes within the ambit of the SARFAESI Act, as in the earlier two decisions, or it is the loan/debt alone which comes within the ambit thereof, by virtue of it being taken over by a ‘bank’ to which the SARFAESI Act is already applicable. In both cases, the provisions of the SARFAESI Act would be available for effecting recovery of the loan/debt.”

Kotak Mahindra Bank Limited versus Trupti Sanjay Mehta and others (with connected matters)