Supreme Court Holds Assignment of Loan to Bank Attracts SARFAESI Act Despite Original Lender Not Being Covered

Case Snapshot

• Case Name: Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta and Others

• Citation: 2026 INSC 943

• Bench: Justice Sanjay Kumar and Justice Sanjeev Sachdeva

• Date of Judgment: September 2, 2026

• Area of Law: Banking Law, Securitisation, SARFAESI Act, Debt Recovery

The Judgment in One Line

Supreme Court holds that a bank covered under SARFAESI Act can invoke its provisions for debts assigned from NBFCs not covered under the Act at the time of loan creation.

Why This Judgment Matters

This judgment resolves a critical question in the banking sector: whether banks acquiring non-performing assets from NBFCs not covered by SARFAESI can use the Act's recovery mechanisms. By affirming that the SARFAESI Act applies to all "live and owing" debts when acquired by a covered institution, the Court removes a significant legal hurdle in the assignment of loan portfolios. This ruling strengthens the secondary market for NPAs and reinforces the legislative intent behind the SARFAESI Act.

Background

Kotak Mahindra Bank (KMBL) took over loan accounts from City Financial Consumer Finance Limited (CFCFL), a non-banking financial company. CFCFL was not notified as a "financial institution" under Section 2(1)(m) of the SARFAESI Act at the time of lending. KMBL invoked SARFAESI provisions for recovery, leading to possession of secured properties.

The borrowers challenged KMBL's actions, arguing that since CFCFL was not covered by SARFAESI at the time of loan creation, the debts could not be recovered under the Act even after assignment to KMBL. The Bombay High Court in one case (Mehtas) accepted this argument, while in another (Poorti Rent a Car) rejected it, citing conflicting Supreme Court precedents.

Three separa

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