You took a loan from an NBFC — a non-banking financial company like a housing finance company, a microfinance institution, or a consumer finance company. The NBFC was not covered under the SARFAESI Act when your loan was given. Later, the NBFC sells your loan account to a bank. The bank then sends you a SARFAESI notice — a demand under Section 13(2) — threatening to seize your property. Can it do this? The Hon'ble Supreme Court has said yes, in a ruling that significantly expands the reach of SARFAESI.

What the Court Held

When a bank that is already covered under the SARFAESI Act acquires a non-performing secured loan account from an NBFC — even an NBFC that was not a notified financial institution under SARFAESI when the loan was originally advanced — the loan account immediately becomes covered by SARFAESI the moment it is assigned to the bank.

The principle: it is the nature of the acquiring institution, not the nature of the originating lender, that determines whether SARFAESI applies to a particular loan account at any given time.

Why This Matters

Many housing finance companies, micro-finance institutions, and consumer finance NBFCs routinely assign or sell their non-performing loan portfolios to banks. Borrowers who took loans from these NBFCs often believed they were protected from the drastic SARFAESI enforcement mechanisms — because the NBFC itself could not use SARFAESI. This ruling removes that assumption entirely.

For Borrowers Who Received a SARFAESI Notice From a Bank on an NBFC Loan

The notice is legally valid even though your original loan was with an NBFC not covered under SARFAESI. The Supreme Court has confirmed that the bank can invoke SARFAESI after acquiring the loan. Your remedy for challenging the SARFAESI action remains a Section 17 application before the Debt Recovery Tribunal (DRT) — but you cannot challenge the applicability of SARFAESI merely because the original lender was an NBFC.

Practical Guidance

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If you received a Section 13(2) SARFAESI notice from a bank on a loan originally from an NBFC — do not ignore it. Respond within 60 days with your representation. If the bank proceeds with possession, file a Section 17 application before the DRT within the limitation period.

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Grounds to challenge SARFAESI action remain available: notice not given properly, security interest not registered, loan amount disputed, property valuation incorrect, no NPA declaration served — these remain valid grounds even after this ruling.

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For businesses and individuals with NBFC loans: if the NBFC has sold your loan to a bank, treat the bank with the same caution as if you had borrowed directly from it. SARFAESI enforcement is now available to the bank against your security.

Case Reference
Kotak Mahindra Bank Limited v. Trupti Sanjay Mehta and Others | 2026 LiveLaw (SC) 886 | Hon'ble Justice Sanjay Kumar & Hon'ble Justice Sanjeev Sachdeva | September 2, 2026 | Hon'ble Supreme Court of India

Frequently Asked Questions

Questions people commonly search on this topic

Can a bank use SARFAESI for a loan it bought from an NBFC? +
Yes. The Supreme Court has held that when a bank acquires a non-performing loan from an NBFC — even one not originally covered under SARFAESI — the loan immediately becomes subject to SARFAESI because the acquiring institution (the bank) is covered under the Act. The bank can invoke SARFAESI to recover the assigned loan.
What is SARFAESI Act? +
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 allows banks and specified financial institutions to enforce their security interests without the intervention of a court. Under Section 13, a bank can take possession of secured assets after giving 60 days' notice if the borrower has defaulted and the account has been classified as NPA.
What is a Section 17 DRT application under SARFAESI? +
Under Section 17 of the SARFAESI Act, a borrower aggrieved by any action of a bank or financial institution under SARFAESI can apply to the Debt Recovery Tribunal (DRT) to challenge the action. The application must be filed within 45 days of the date of such action. This is the primary legal remedy for borrowers facing SARFAESI action.
Can I challenge SARFAESI action if my original loan was from an NBFC? +
You cannot challenge SARFAESI applicability merely because your original loan was from an NBFC not covered under the Act. However, you can still challenge specific procedural defects in the SARFAESI action — such as improper notice, incorrect NPA classification, wrong valuation, or unregistered security interest — before the DRT under Section 17.