Can a bank that buys a loan portfolio from a non-banking financial company use the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to enforce security — even though the NBFC that originated the loan was not a notified "financial institution" under that Act? In Kotak Mahindra Bank Ltd v. Trupti Sanjay Mehta, 2026 INSC 943, decided on 2 September 2026, a Bench of Justices Sanjay Kumar and Sanjeev Sachdeva answered yes, settling a question with large consequences for the secondary loan market and for borrowers facing enforcement in Delhi and elsewhere.
The transactions that raised the question
Three sets of proceedings travelled together. In each, City Financial Consumer Finance Ltd — an NBFC outside the SARFAESI net — had extended secured loans in the late 2000s: a home-purchase loan, housing loans, and a corporate loan of nearly three crore rupees. Each account slipped into default, and in each, Kotak Mahindra Bank acquired the loan between 2012 and 2013 and set the SARFAESI machinery in motion: demand notices under Section 13(2), possession measures, and in one matter an eventual sale of the secured asset. The borrowers' answer everywhere was the same threshold objection: the debt was born outside the Act, so the Act could never apply to it.
The holding
The Court rejected the threshold objection. Its reasoning, as recorded in the judgment, proceeds on the character of the debt at the time of enforcement rather than at the time of origination. Once the claim is subsisting — live and owing — when it comes to be held by a bank to which the SARFAESI Act applies, the statutory attributes attach and the bank may deploy the Act's remedies. The Court drew on its earlier decisions upholding SARFAESI action where debts moved to covered institutions, and found no legally material difference between an institution coming within the Act and a loan coming within the Act through acquisition by a covered bank.
The Court also addressed the policy dimension: allowing borrowers in admitted default to escape the enforcement regime because of the original lender's status would create perverse incentives and impede the statutory objective of expeditious recovery of financial assets.
Outcomes across the three matters
| Matter | Result |
|---|---|
| Civil Appeal No. 8531 of 2015 (home-loan security) | Allowed; High Court judgment set aside; securitisation application restored to the DRT for decision on merits, subject to a further deposit by the borrowers |
| Housing-loan matter | Bank held entitled to invoke SARFAESI measures for possession |
| Corporate-loan matter | Appeal dismissed, the secured asset having already been sold |
Why the decision matters
Practical notes for Delhi practice
Enforcement in the National Capital Region frequently involves assigned portfolios, and challenges before the Debts Recovery Tribunals at Delhi have often led with the non-notified originator argument. After Trupti Sanjay Mehta, that argument is closed at the threshold. Borrowers retain their substantive remedies — Section 17 scrutiny of every measure under Section 13(4) remains full and meaningful — and settlements, one-time settlements and restructuring remain open at every stage. But strategy built solely on the identity of the original lender no longer has a foundation.
The judgment was delivered on 2 September 2026 by a Bench of Justices Sanjay Kumar and Sanjeev Sachdeva; the full text is linked below. This case note is an informational summary and not legal advice.
Frequently Asked Questions
What was the core dispute in this case?
Borrowers had taken loans from City Financial Consumer Finance Ltd, an NBFC that was not a notified financial institution under the SARFAESI Act when the loans were made. After default, Kotak Mahindra Bank acquired the loans and invoked SARFAESI measures. The borrowers argued the Act could not apply because the originating lender was outside it when the debt was created.
What did the Supreme Court hold?
That once a debt is live and owing when it comes into the hands of an institution covered by the SARFAESI Act, the Act's recovery machinery is available — the status of the original lender at the time the loan was made does not immunise the debt. The Court treated this as consistent with its earlier assignment jurisprudence and with the legislative intent of the Act.
What does the decision mean for borrowers?
A borrower cannot resist Section 13 measures merely by pointing to the originating NBFC's non-notified status. Defences must instead engage the merits — the debt, the classification as NPA, procedural compliance under Section 13 and the Rules — through the Debts Recovery Tribunal under Section 17.
Where can the judgment be read?
The full text is available on Indian Kanoon, reflecting the Supreme Court record of the decision dated 2 September 2026 in Civil Appeal No. 8531 of 2015 with connected matters.