On 2 September 2026, a Supreme Court bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva held that a bank can use the SARFAESI Act, 2002 to recover secured loans it acquired from a non-banking finance company (NBFC) that was not a notified financial institution under the Act when the loans were advanced. The decision in Kotak Mahindra Bank Ltd. v. Trupti Sanjay Mehta (2026 LiveLaw (SC) 886) reverses the Bombay High Court.
What was decided
The loans had been given by an NBFC that was notified as a financial institution under Section 2(1)(m) of the SARFAESI Act only in August 2018. Kotak Mahindra Bank had acquired the mortgage-backed loan accounts in 2012-13 and then invoked SARFAESI. The Debt Recovery Tribunal, the Debt Recovery Appellate Tribunal and the Bombay High Court held that the bank could not do so.
The Supreme Court disagreed. Once a covered bank acquires a non-performing secured loan, the loan takes on the character of a secured debt under the Act, and the identity of the original lender does not defeat enforcement. The Court noted that the opposite view would give borrowers of uncovered lenders an advantage in defaulting. The appeal was allowed and the bank’s securitisation application was restored before the DRT.
Why it matters
Loan portfolios are frequently sold between NBFCs, banks and asset reconstruction companies. Borrowers whose loans have been assigned can now expect the new lender to use the faster SARFAESI route, including notices under Section 13(2) and possession measures, even if the original lender could not.
For business owners with property mortgaged to NBFCs, this narrows a defence that had succeeded in several forums. Challenges to SARFAESI action will now need to focus on other issues, such as the validity of the assignment, NPA classification, the adequacy of notices, or valuation.
Practical points
- If your loan has been assigned, ask for the assignment documents and the date of transfer.
- Reply to any Section 13(2) demand notice within time, recording specific objections.
- Check whether the account was correctly classified as a non-performing asset.
- Note the limitation for approaching the DRT under Section 17 after any possession measure.
- Explore restructuring or settlement in parallel, documenting all offers in writing.
Sources: LiveLaw, Sep 2026.
For a confidential discussion on SARFAESI notices and DRT proceedings, see SARFAESI and Debt Recovery.
General legal information only; not legal advice or solicitation.
