Supreme Court Annual Digest 2025: SARFAESI Act

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...

Supreme Court Annual Digest 2025: SARFAESI Act

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