By S&S Co. Advocates & Solicitors · Published 28 September 2026 · Informational content, not legal advice: see our disclaimer
Overview
Explains, for borrowers and lenders alike, when a bank or ARC can invoke SARFAESI on a loan account it acquired or took over by assignment from an NBFC or other financier that was itself not a notified 'financial institution' under the Act at the time the loan was made: the issue the Supreme Court settled in Kotak Mahindra Bank Ltd. v. Trupti Sanjay Mehta & Ors. (2026 INSC 943).
What You Need to Know
- What makes an entity a 'bank' or 'financial institution' under Section 2(1)(c)/2(1)(m) of the SARFAESI Act, and why that status matters for who can invoke the Act
- How assignment or securitisation of a loan account changes (or doesn't change) the borrower's rights and the enforcing entity's SARFAESI powers
- The Kotak Mahindra Bank v. Trupti Sanjay Mehta ruling and why 'the loan wasn't originally with a SARFAESI-covered lender' is no longer a valid defence once a covered bank holds it
- Practical steps for a borrower served with a Section 13(2) notice by an assignee bank: what to verify, what can still be challenged, and what can't
- How this interacts with the borrower's separate right to challenge the underlying assignment itself (as opposed to the mode of recovery)
Frequently Asked Questions
Can a bank use SARFAESI on a loan that originally came from an NBFC?
Yes: the Supreme Court has held that a bank covered by SARFAESI can enforce a secured debt it lawfully acquired by assignment, even if the originating NBFC was never itself a notified financial institution under the Act.
Does this mean any assignee can use SARFAESI on any acquired debt?
No: what matters is that the assignee itself is an entity covered by SARFAESI (such as a bank or a registered ARC) at the time it invokes the Act; an assignee outside the Act's coverage still cannot use SARFAESI merely by acquiring a secured debt.
What should a borrower check if a bank invokes SARFAESI on an assigned loan?
Whether the assignment itself was validly executed and the underlying security interest was properly created and perfected: the ruling doesn't cure a defect in how the original loan or security was made, only the originating lender's regulatory status.
References & Further Reading
This guide references the following statutes, rules and sources, cross-checked at the time of writing.
- Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta & Ors., 2026 INSC 943, decided 2026-09-02 by the Supreme Court: confirmed via verdictum.in, livelaw.in and ibclaw.in
- Definition of 'bank' under Section 2(1)(c) and 'financial institution' under Section 2(1)(m) of the SARFAESI Act, 2002: to be confirmed against the bare Act text when drafting
- Standard 60-day timeline and remedies under Sections 13(2)-13(4) of the SARFAESI Act for a borrower after notice: already confirmed in the site's existing SARFAESI 13(2) guide, to be cross-referenced rather than re-verified
- See also our Banking & Finance Notable Judgments and Legal Updates, Banking & Finance archive.