Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Supreme Court Annual Digest 2025

Framework “Identification by Banks or Creditors” comes first, it is immediately followed by “Identification by the Enterprise”- An MSME may voluntarily initiate proceedings under the FRAMEWORK if it reasonably apprehends business failure or inability to pay debts and accumulated losses equal half or more of its net worth - MSME's obligation does not end there, an application must be verified by an affidavit, and upon receipt, the lending, bank/secured creditor is mandatorily bound to proceed under the Framework - Intention of Framework was not to obligate every lending bank/secured creditor to ascertain if a defaulting borrower is an MSME and is suffering from an inability to pay debts before classifying an account as NPA - Such interpretation would render sub paragraphs 2 & 3 of paragraph 1 of the Framework redundant. [Para 5] Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd., 2025 LiveLaw (SC) 760 : 2025 INSC 908

Jurisdiction of Civil Courts vs. Debts Recovery Tribunal (DRT) - Whether the civil court has jurisdiction to entertain a suit challenging the validity of a sale deed and mortgage deed, or whether such matters fall exclusively within the jurisdiction of the DRT under the SARFAESI Act. Held, Civil Court has jurisdiction to decide the validity of the sale deed and mortgage deed, as these matters do not fall within the scope of the DRT's powers under Section 17 of the SARFAESI Act. The DRT is only empowered to examine whether the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act are in accordance with the law, and it cannot adjudicate on title disputes or the validity of documents executed prior to the invocation of the SARFAESI Act. The DRT's powers are limited to restoring possession to the borrower or someone claiming through the borrower. It cannot hand over possession to a third party who was never in possession. The DRT also lacks jurisdiction to decide on the validity of sale deeds or mortgage deeds, which are matters for the civil court. Central Bank of India v. Smt Prabha Jain, 2025 LiveLaw (SC) 96

One Time Settlement Scheme (OTS) - Eligibility criteria and conditions - Failure to comply with up-front payment requirement under OTS Scheme - Principle of natural justice and eligibility considered – Held, defaulting borrower cannot claim OTS benefit without fulfilling bank's conditions - The High Court erred in directing reconsideration without considering the mandatory up-front payment clause, which disentitled the respondent's application from processing - Respondent did not make the mandatory upfront payment if 5% of the OTS amount as required under Clause 4(i) of the Scheme - The rejection letter did not mention this ground, but courts can uphold administrative orders on alternative grounds found in the record if fairness is maintained - Principle that invalid orders cannot be later validated by additional grounds unless fairness and notice are ensured was emphasized - Supreme Court granted respondent liberty to make fresh OTS proposal, not under 2020 Scheme - Appeal allowed. [Paras 25-29, 40, 44, 45] State Bank of India v. Tanya Energy Enterprises, 2025 LiveLaw (SC) 918 : 2025 INSC 1119

Recovery of Debts and Bankruptcy Act, 1993 - Debt Recovery Tribunal – Held, the e-auction notice and sale held by the DRT were invalid for non-disclosure of statutory dues of DDA and failure to comply with provisions of the Income Tax Act and Income Tax Certificate Proceedings Rules, 1962 regarding proclamation of sale - Banks failure to disclose encumbrances of property in auction notice invalidates sale - The auction purchaser, though innocent and bona fide, was entitled to restitution as the sale was in violation of lease terms and statutory provisions - The Court quashed and set aside the auction and sale confirmation, directing refund with interest to the auction purchaser while upholding the DDA's rightful claims - The principle of restitution flows from the very heart of justice that no one shall unjustly enrich himself at the instance of another and that those who suffered without fault should, so far as money can achieve, be restored to the position they once occupied - The jurisdiction to make restitution is inherent in every court and will be exercised wherever the justice of the case demands - Appeal allowed. [Para 23-27, 30-32] Delhi Development Authority v. Corporation Bank, 2025 LiveLaw (SC) 953 : 2025 INSC 1161

Retrospective application of amended Section 13(8) – Held, the amended provisions apply to all cases where auction notice was issued after 01.09.2016, regardless of the loan sanction date - the amended restriction and its procedural nature render it applicable to pending actions, aligning with principles outlined in precedents - Supreme Court summarised principles on retrospective application of legislations - i. Presumption against retrospectively is not applicable to enactments which merely affect procedure or change forum or are declaratory; ii. Retroactive/retrospective operation can be implicit in a provision construed in the context where it occurs; iii. A provision can be held to apply to cause of action after such provision comes into force, even though the claim on which the action may be based may be of anterior date and; iv. A remedial statute applies to pending proceedings and such application may not be taken to be retrospective if application is to be in future with reference to appending cause of action; v. SARFAESI Act is a remedial statute intended to dela with problem of pre-existing loan transactions which need speedy recovery. [Paras 179-183] M Rajendran v M/s KPK Oils and Proteins India Ltd, 2025 LiveLaw (SC) 931 : 2025 INSC 1144

SARFAESI Act vs. RDB Act, 1993- Recovery Procedures- Maintainability of Writ Petition despite Alternative Remedy- Held that unlike the SARFAESI Act, which requires a mortgage to enforce security interest without court intervention, an original application under the Recovery of Debts and Bankruptcy (RDB) Act can be filed for the recovery of both secured and unsecured loans- Held that although High Courts should generally refrain from exercising jurisdiction when statutory remedies under Section 17 of the SARFAESI Act are available, a writ petition is maintainable if the action of the financial institution is wholly without jurisdiction- If no security interest was ever created, the lender cannot relegate the borrower to the Debts Recovery Tribunal (DRT) under the SARFAESI Act- Appeal dismissed. [Distinguished from M.D. Frozen Foods Exports Private Limited v. Hero Fincorp (2017) 16 SCC 741; UCO Bank v. Deepak Debbarma (2017) 2 SCC 585; Paras 21-36] North Eastern Development Finance Corporation Ltd. (Nedfi) v. L. Doulo Builders and Suppliers Co. Pvt. Ltd., 2025 LiveLaw (SC) 1216 : 2025 INSC 1446

SARFAESI Act, 2002; Article 371A of the Constitution of India — Implementation in Nagaland- Held that the provisions of the SARFAESI Act could only be implemented in the State of Nagaland with effect from 10th December, 2021, pursuant to the notification issued under Article 371A(1)(a)(iv)- Any recovery process initiated under the SARFAESI Act prior to this date in Nagaland is without jurisdiction, especially regarding the transfer of land ownership which is protected under special constitutional provisions. North Eastern Development Finance Corporation Ltd. (Nedfi) v. L. Doulo Builders and Suppliers Co. Pvt. Ltd., 2025 LiveLaw (SC) 1216 : 2025 INSC 1446

Section 2 (f), 11 - Exclusion of Lender-Borrower Disputes - Section 11 does not apply to disputes where one bank or financial institution is a borrower, as defined under Section 2(f) of the SARFAESI Act, which includes entities receiving financial assistance by creating a security interest. (Para 124 (iv)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Sections 2(1)(zd), 2(1)(zf), and 13- Secured Creditor and Security Interest - For the invocation of the SARFAESI Act, the existence of a "security agreement" and the creation of a "security interest" in favour of a "secured creditor" is a mandatory prerequisite- Where a borrower (Company) mortgages property to a third party (Village Council) as a guarantor, rather than directly to the lender (Corporation), the lender does not qualify as a "secured creditor" under Section 2(1)(zd)- A mere guarantee agreement without the creation of a right, title, or interest in the immovable property in favour of the lender does not constitute a "security agreement". North Eastern Development Finance Corporation Ltd. (Nedfi) v. L. Doulo Builders and Suppliers Co. Pvt. Ltd., 2025 LiveLaw (SC) 1216 : 2025 INSC 1446

Section 11 - Bank of India (BOI) and Punjab National Bank (PNB) claimed rights over the same hypothecated stock of M/s Sri Nangli Rice Mills Pvt. Ltd., which defaulted in 2015. BOI approached the DRT, which ruled in its favor in 2017. The DRAT overturned this in 2019, citing lack of DRT jurisdiction and directing arbitration. The Delhi High Court upheld DRAT's view in 2020. The Supreme Court dismissed BOI's appeal, affirming arbitration as the appropriate recourse. Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 - Mandatory Nature - The use of “shall” in Section 11 makes arbitration mandatory, and parties cannot bypass this by seeking recourse elsewhere. (Para 124 (vi)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 - Overruling Prior Precedent - The Court clarified that earlier decisions requiring express consent for arbitration (e.g., Federal Bank Ltd. 2 v. LIC Housing Finance Ltd., 2010 SCC OnLine DRAT 138) are overridden by the statutory fiction under Section 11. (Para 107) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 - Scope of Non-Payment - The phrase “non-payment of any amount due, including interest” in Section 11 is broad, encompassing disputes arising from borrower defaults, including conflicts over priority of charges over secured assets. (Para 124 (iii)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 - Statutory Arbitration - Whether the Debt Recovery Tribunal (DRT) has jurisdiction to adjudicate inter-creditor disputes under the SARFAESI Act, 2002, or whether such disputes must be resolved through arbitration under Section 11 of the Act read with the Arbitration and Conciliation Act, 1996. Held, Section 11 of the SARFAESI Act mandates arbitration for disputes between banks, financial institutions, asset reconstruction companies, or qualified buyers concerning securitization, reconstruction, or non-payment of dues, including interest. No explicit written arbitration agreement is required, as the provision creates a legal fiction of deemed consent for arbitration. (Para 124 (v)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 - Twin Conditions for Arbitration: For Section 11 to apply, (i) the dispute must involve banks, financial institutions, asset reconstruction companies, or qualified buyers, and (ii) it must relate to securitization, reconstruction, or non-payment of dues. If these conditions are prima facie satisfied, DRT lacks jurisdiction, and arbitration is the sole recourse. (Para 124 (ii)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 11 of the SARFAESI Act creates a legal fiction by using the word 'as if,' which presumes the existence of an arbitration agreement among the designated parties. This provision negates the requirement for a formal written arbitration agreement. Appeal dismissed; dispute to be resolved through arbitration under Section 11 of the SARFAESI Act read with the Arbitration and Conciliation Act, 1996. (Para 106) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 : (2025) 9 SCC 225

Section 13 - Procedure for secured creditors to enforce their security interests when a borrower defaults on loan payment – Supreme Court expressed strong disapproval that despite previous cautions in judgments United Bank of India vs. Satyawati Tondon & Ors. (2010) 8 SCC 110, regarding judicious exercise of writ jurisdiction in SARFAESI Act matters, some High Courts continue to grant interim relief “on the mere asking” and “without just and sufficient reason being recorded” causing great disservice to institutional credibility - High Court in present case interfered with the proceedings initiated under section 13 of the SARFAESI Act by petitioner-secured creditor and restrained it from proceeding further on condition of payment of Rs. 5 crore only by the defaulting borrower - Court expressed disappointment on the fact that the writ petition has been pending for more than 30 months and defaulting borrower is reaping the benefit of such interim orders - Court directed High court to give precedence to the Writ Petition of defaulting borrower and decide the same by end of September, 2025. This Court also issued notice returnable on 10 October, 2025. [Paras 1, 2, 4] LIC Housing Finance Ltd v. Nagson and Company, 2025 LiveLaw (SC) 722

Section 13(2) - Demand notice - Rights of Tenant in Secured Asset - Unregistered Tenancy Agreement - Interplay between SARFAESI Act, TP Act and rent control laws – Held, Onus lies on tenant claiming through an oral/unregistered agreement to produce rent receipts, property/water taxes receipts, electricity charges etc. to establish creation of valid tenancy - Held that the tenant cannot resist eviction without establishing tenancy was created before mortgage - Even if such tenancies are created through an oral/unregistered agreement, it would not continue beyond 1 year from issuance of notice under section 13(2) of SARFAESI Act and tenant upon expiry of said period shall be deemed to be a 'tenant in sufferance' - Held that tenant in present case failed to prove tenancy. Set aside order passed by High Court and directed status quo in respect of secured asset till disposal of securitization application. Appeal allowed. [Relied on Bajarang Shyamsunder Agarwal v. Central Bank of India & Anr. (2019) 9 SCC 94; Para 17, 18, 23, 24] PNB Housing Finance v. Sh. Manoj Saha, 2025 LiveLaw (SC) 723 : 2025 INSC 847

Section 13(2) – Held, Framework is binding on lending banks/secured creditors and an MSME borrower must assert its MSME status and claim the benefit the FRAMEWORK upon receiving a demand notice under section 13(2) of SARFEASI Act - Supreme Court interpreted Framework harmoniously with the SARFEASI Act stating that the leading bank/secured creditor is not prohibited from classifying a defaulting MSME's account as NPA and issuing a demand notice under Section 13(2) of the SARFEASI Act without prior identification of incipient stress - If the borrower asserts in its response under Section 13(3-A) of the SARFAESI Act that it is an MSME and claims the benefit of the FRAMEWORK with supporting reasons and an affidavit, the lending bank/secured creditor would then be mandatorily bound to look into such claim, keeping further action under SARFAESI Act in abeyance - If the claim is found worthy, the bank must act according to the FRAMEWORK for the defaulting borrower's revival and rehabilitation - The Petitioner did not claim the benefit of Framework after the demand notice under section 13(2) of the SARFAESI Act was issued - Writ petition was presented at the stage of compliance with an order passed under section 14 of SARAESI Act - Petition dismissed. [Paras 5-9] Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd., 2025 LiveLaw (SC) 760 : 2025 INSC 908

Section 13(8) - Transfer of Property Act, 1882 - Section 60 – Issue of Right of Redemption under SARFAESI Act - Held, mortgagor's right of redemption survives until the completion of sale by way of a registered conveyance and mere auction or issuance of sale certificate does not extinguish this right - The amended provision extinguishes the right of redemption of the borrower in the event he fails to repay his dues and redeem the asset before publication of the Auction Notice - This unambiguous language used in the amended provision of Section 13(8) furthers the object and reasons of the SARFAESI Act for which it was enacted i.e., to ensure that the lender is able to enforce his security interest at the earliest and with least possible intervention of the courts - The right of redemption is a statutory right and not a contractual one, and it is subject to modification by special Laws like SARFEASI Act - Supreme Court flags inconsistency between Section 1398) of Act and Rules on borrower's redemption right, urges government to amend - Appeal allowed. [Paras 51-55, 68, 75-76, 115] M Rajendran v M/s KPK Oils and Proteins India Ltd, 2025 LiveLaw (SC) 931 : 2025 INSC 1144

Sections 17(4A), 18- Securitization application - Constitution of India - Article 227- Supreme Court examined rights of a tenant claiming possession of a secured asset under an unregistered tenancy agreement against measures initiated by a financial institution under SARFAESI Act - High Court entertained application of tenant under Article 227 and directed restoration of possession - Supreme Court held that the High Court wrongly entertained application under Article 227, as alternate remedies exists under section 18 of SARFAESI Act - After 2016 amendment, Section 17(4A) enables lessees/tenants to approach DRT against measures under Section 13(4) and DRT orders are appealable under Section 18 - Supreme Court noted that it has always disapproved interference of High Courts under Article 226/227 in matters of SARFAESI Act - Held High Court wrongly relied on Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited & Ors. (2014) 6 SCC 1, to entertain such application, which was applicable prior to amendment. [Para 12, 13] PNB Housing Finance v. Sh. Manoj Saha, 2025 LiveLaw (SC) 723 : 2025 INSC 847

Section 17(5) - Expeditious Disposal of Securitisation Application (S.A.) - Time Limit – Held, any application made under sub-section (1) of Section 17 of the SARFAESI Act must be dealt with by the Debts Recovery Tribunal (DRT) as expeditiously as possible and disposed of within sixty days from the date of such application - The DRT may extend the sixty-day period for reasons to be recorded in writing, provided that the total period of pendency of the application with the DRT shall not exceed four months from the date of making of such application - Once the statute itself mandates that the DRT should dispose of the matter within the stipulated time, it is incumbent upon the DRT to abide thereby - In the event the DRT fails to dispose of the matter within the stipulated time, the proviso to Section 17(5) ordains that reasons need to be recorded. Indian Overseas Bank v. Radhey Infra Solutions (Pvt.) Ltd., 2025 LiveLaw (SC) 997

Section 18 - Pre-Deposit - Appeals against procedural orders of the Debts Recovery Tribunal (DRT) under the SARFAESI Act, 2002, do not mandate a pre-deposit as required under Section 18 for appeals to the Debts Recovery Appellate Tribunal (DRAT). The Court set aside High Court order affirming a DRAT directive requiring a Rs. 125 crore pre-deposit for an appeal against a DRT's procedural order rejecting an application by auction purchasers to be impleaded in a securitization application. Emphasizing that the phrase "any order" in Section 18 should be interpreted meaningfully, the Court clarified that pre-deposit obligations typically apply to final orders determining liability, not procedural orders like the one in question. The matter was remanded to the High Court for reconsideration. (Para 14 - 16) Sunshine Builders and Developers v. HDFC Bank, 2025 LiveLaw (SC) 459

Section 26E - Secured Creditor's Priority - Workmen's Dues - Workmen's Dues (Unquantified): The workmen's dues which have not been quantified as of now cannot have any priority over the secured creditor's claim, which is conferred priority under Section 26E of the SARFAESI Act, if the proceeds can only satisfy the secured debt - Appeals allowed. [Para 28] Jalgaon District Central Coop. Bank Ltd. v. State of Maharashtra, 2025 LiveLaw (SC) 1125 : 2025 INSC 1335

Section 26E - Priority of Dues - First Charge Vs. Priority to Secured Creditors – Held, the statutory first charge created under Section 11(2) of the EPF&MP Act in respect of provident fund dues has precedence over the priority conferred on a secured creditor under Section 26E of the SARFAESI Act - While Section 26E of the SARFAESI Act (introduced later in 2020) provides an overriding non-obstante clause conferring priority to a secured creditor's debts over all other debts and government dues, this priority cannot be equated with a "first charge" - Section 11(2) of the EPF&MP Act expressly creates a statutory first charge on the establishment's assets for the amount due, and this first charge prevails over the priority given under Section 26E of the SARFAESI. [Paras 22 - 24] Jalgaon District Central Coop. Bank Ltd. v. State of Maharashtra, 2025 LiveLaw (SC) 1125 : 2025 INSC 1335

Section 34 - The respondent filed a civil suit seeking a declaration that a sale deed and mortgage deed were null and void, and for possession of the suit property. The property was allegedly sold by her brother-in-law without her consent, and the buyer mortgaged it to the Central Bank of India. The Bank filed an application under Order VII Rule 11 CPC, arguing that the civil court had no jurisdiction due to Section 34 of the SARFAESI Act, which bars civil courts from entertaining matters that the DRT is empowered to decide. The trial court rejected the plaint, but the High Court reversed this decision, holding that the civil court had jurisdiction to decide the validity of the sale and mortgage deeds, as these matters were outside the scope of the DRT's powers. The Supreme Court dismissed the appeals, upholding the High Court's decision that the civil court has jurisdiction to entertain the suit. The Court emphasized that the DRT's powers are limited and do not extend to adjudicating on title disputes or the validity of documents. The civil suits were allowed to proceed, and the interim orders were vacated. Central Bank of India v. Smt Prabha Jain, 2025 LiveLaw (SC) 96

Security Interest (Enforcement) Rules, 2002 (SARFAESI Rules) - i. Rules 8(6), the proviso thereto, Rule 8(7) and Rule 9(1) of the SARFAESI Rules do not speak of any separate or distinct notice of sale that is required to be issued by the secured creditor for the transfer of the secured asset by way of lease, assignment or sale in accordance with any of the methods enumerated in Rule 8(5); ii. The different manner in which the notice of sale has to be served, cased, published, affixed, uploaded as stipulated in Rules 8(6) and 8(7) of the SARFAESI Rules, do not constitute separate notices of sale by themselves, they are part and parcel of one single composite intended 'notice of sale' of the secured asset by the secured creditor, by any of the mode of sale listed in Rule 8(5); iii. Similarly, the stipulation under Rule 9(1) of a third-days gap between the date of publication of notice of sale and the date of actual sale does not impute a distinct characteristic to the public notice in the newspaper in contrast to the notice of sale that is served to the borrower; iv. The embargo enshrined under Rule 9(1), that no sale, in the 1st instance shall take place before the expiry of 30 days, would be reckoned from the date of issuance of the 'notice of sale', which would include both the public notice of sale in the newspaper and the service thereof to the borrower; v. Under Rule 8(6) read with Rule 9(1) both the notice of sale can be served as well as published in the newspaper, simultaneously on the same date; All that is required under Rule 9(1) is that 30 day gap is maintained between when the notice of sale is served, affixed and published. [Paras 116-118, 161, 162] M Rajendran v M/s KPK Oils and Proteins India Ltd, 2025 LiveLaw (SC) 931 : 2025 INSC 1144

Writ Jurisdiction in SARFAESI matters – Held, High Courts should refrain from exercising writ jurisdiction in SARFEASI matters, which is vested with the DRT alone - Highlighted the impropriety of financial institutions and banks approaching Constitutional Courts instead of forums designated under SARFAESI law - The original borrower was recognized to have the right to challenge the auction and sale certificate validity by appropriate legal steps before competent forums - Supreme Court expressed disturbance at the manner in which the settlement in Lok Adalat was arrived at and questioned the Bank's intentions regarding departmental proceedings against erring officials responsible for the litigation - Matter to be treated as part-heard. [Paras 1,2, 6-9] Mohammad Zubair Ahmad v. Punjab National Bank, 2025 LiveLaw (SC) 939