Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta and others — 2026 INSC 943 — 2 September 2026
What the case was about
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) equips banks and notified financial institutions with a swift, non-judicial route to recover bad loans. A nagging uncertainty had arisen: when a bank buys a distressed, secured loan from a non-banking finance company (NBFC) that was not covered by the SARFAESI Act at the time it originally sanctioned the loan, can the purchasing bank switch on the Act’s recovery machinery? Borrowers argued that a loan born outside the SARFAESI regime could never be pulled inside it simply by assignment. The Supreme Court had to settle whether the statute allows an assignee bank to enforce a debt whose original lender was beyond the Act’s reach at inception (para 1).
The key facts
Kotak Mahindra Bank Limited (KMBL), a banking company, took over non-performing secured loan accounts from City Financial Consumer Finance Limited (CFCFL) under deeds of assignment. When CFCFL originally sanctioned these loans, it was an NBFC that had not yet been notified as a “financial institution” under Section 2(1)(m) of the SARFAESI Act; that notification came only on 27 August 2018 (para 16). After acquiring the accounts, KMBL issued demand notices under Section 13(2) and moved to take possession of the secured assets under Sections 13(4) and 14 of the Act (paras 3, 6, 8).
The borrowers resisted on the ground that the debts were created outside the SARFAESI regime and could not be subjected to its recovery mechanisms merely because they were later assigned to a bank (paras 4, 25). In the lead matter, the Mehtas challenged KMBL’s measures before the Debts Recovery Tribunal, the Appellate Tribunal, and the Bombay High Court, all of which ruled against the bank (para 4). Two sets of connected borrowers—the Sables and Poorti Rent a Car—also lost before the lower forums, leading to two further appeals by special leave (paras 6–8).
The questions before the Court
The Court framed its inquiry around two questions. First, can a bank as defined under Section 2(1)(c) of the SARFAESI Act invoke its provisions to recover a debt assigned from a financial entity that was not governed by the Act when the debt was created? Second, does a loan that was not a “secured debt” under the SARFAESI Act at its inception assume that status merely because it is acquired by a bank to which the Act already applies? (paras 1, 21)
What the Court decided and why
The Supreme Court ruled in favour of KMBL.
In the lead appeal, it set aside the Bombay High Court judgment dated 16 July 2015 and the underlying tribunal orders. It restored Securitisation Application No. 39 of 2014 to the Debts Recovery Tribunal at Nagpur for decision on the remaining issues (para 38). As an interim condition, the Mehtas were required to deposit a further sum of ₹25 lakh with KMBL within eight weeks, an undertaking they had offered and the Court accepted (para 22). The Court dismissed the two connected appeals filed by the Sables and Poorti Rent a Car (para 41). It also dismissed pending impleadment and intervention applications, directing that the parties bear their respective costs (para 41).
On the substantive questions, the Court held that a bank already covered by the SARFAESI Act may invoke its provisions to recover a debt acquired from an entity that lay outside the Act when the debt was created (para 36). It reasoned that “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).
The judgment drew heavily on two earlier decisions—M.D. Frozen Foods Exports Private Limited v. Hero Fincorp Limited and Indiabulls Housing Finance Limited v. Deccan Chronicle Holdings Limited—where the Court had held that the SARFAESI Act reaches all claims that are “owing and live” (para 34). Applying that logic, the Court found no material distinction between an NBFC itself entering the Act’s ambit and a covered bank acquiring a loan from outside that ambit: in either event, the recovery provisions become available (para 36).
The Court firmly rejected the borrowers’ argument that the original lender’s exclusion from the SARFAESI Act at inception should permanently immunise the debt. It noted that accepting such a plea would allow borrowers with loans from un-notified NBFCs to “enjoy greater freedom to commit default” while saddling banks with slower civil remedies, undermining credit flow and economic stability (para 32). It also stressed that it is not open to borrowers to “dissect and nit-pick the definitions” in the statute to fabricate immunity from its recovery measures (para 37). The Reserve Bank of India, appearing in the proceedings, supported the bank’s position, emphasising that restricting assignee banks would frustrate the very purpose of cleaning up balance sheets and keeping capital flowing (paras 27–29).
Why it matters
The ruling removes a significant legal obstacle for India’s secondary market in stressed assets. By confirming that a bank’s purchase of a non-performing secured loan automatically brings that debt under the SARFAESI umbrella—even if the original NBFC was never covered by the statute—the Court has ensured that assignee banks need not wrestle with different recovery regimes depending on a loan’s origin. This uniformity should encourage institutions to acquire and resolve bad loans, clean up balance sheets, and recycle capital into the economy. The judgment also underscores that the fundamental obligation to repay a secured loan does not weaken simply because the debt changes hands or because the original lender once sat outside the SARFAESI net.