Kotak Mahindra Bank v Trupti Sanjay Mehta (2026): bank buying an NBFC loan can use SARFAESI, so what defences remain?

On 2 September 2026, the Supreme Court of India decided Kotak Mahindra Bank Ltd v Trupti Sanjay Mehta, 2026 INSC 943, in Civil Appeal 8531 of 2015 heard together with two special leave petitions. The bench of Sanjay Kumar and Sanjeev Sachdeva JJ answered a question that had kept three borrower families in litigation for over a decade: can a bank that buys a loan from a non-banking lender use the SARFAESI Act 2002 to enforce it, even though the original lender was not covered by the Act when the loan was made? The answer is yes. This playbook explains what that means for a borrower holding a Section 13(2) notice today, and which defences are still open after 2026 INSC 943.

The judgement is reported on Indian Kanoon. All statutory references below are to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI) and the Recovery of Debts and Bankruptcy Act 1993 (RDDB Act), both available on India Code.

The Statutory Position

SARFAESI is a creditor's statute. It lets a "secured creditor" enforce a security interest without going to a civil court, but only if the lender falls within the Act's definitions. Two definitions in Section 2(1) were at the centre of the 2026 case: Section 2(1)(c), which defines a "bank", and Section 2(1)(m), which defines a "financial institution" and lets the Central Government notify further entities under sub-clause (iv). In Kotak v Trupti Mehta, the original lender, City Financial Consumer Finance Ltd (CFCFL), was a non-banking financial company that was notified under Section 2(1)(m)(iv) only on 27 August 2018, years after the loans were created.

Kotak Mahindra Bank (KMBL), which is a bank under Section 2(1)(c), took over the CFCFL accounts in 2012-13 and then issued Section 13(2) notices. The borrowers' case was simple: the debt was born outside SARFAESI, so a later assignment to a bank could not bring it inside. That argument succeeded before the DRT Mumbai on 28 November 2014, before the DRAT, and before the Bombay High Court on 16 July 2015.

The Supreme Court disagreed. Relying on M.D. Frozen Foods Exports v Hero Fincorp (2017) 16 SCC 741 and Indiabulls Housing Finance v Deccan Chronicle Holdings (2018) 14 SCC 783, the court held that the acquisition of a non-performing secured loan by an institution to which SARFAESI applies immediately clothes that institution with the attributes of a secured debt. At paragraphs 36-37, the bench said borrowers cannot "dissect and nit-pick" the Section 2(1) definitions to escape the Act.

The table below sets out the core SARFAESI and RDDB provisions a borrower meets once a bank or financial institution starts enforcement.

Two points follow from the table. First, the DRT route under the RDDB Act is a separate recovery track for debts of Rs 20 lakh or more, with its own 75% pre-deposit under Section 21. Second, the SARFAESI appeal route under Section 18 uses a different 50% / 25% scheme. Confusing the two is a common drafting error in borrower appeals.

Procedure Step by Step

After 2026 INSC 943, an assignee bank's enforcement looks no different from that of the original lender. The sequence, using only the time limits in Sections 13, 14, 17 and 18, runs as follows.

1. NPA classification. The account is classified as a non-performing asset. This is the trigger for a Section 13(2) notice, so the classification date is the first fact to check.
2. Section 13(2) demand notice. The secured creditor (here, the assignee bank) serves a notice demanding the full outstanding within 60 days.
3. Section 13(3A) representation. Within the 60-day window, the borrower can object in writing. The lender must reply within 15 days with reasons. A reply that ignores the specific objections is itself a ground to attack later measures.
4. Section 13(4) measures. If the 60 days lapse without payment, the lender may take symbolic or physical possession, sell, lease, or appoint a manager, all without going to court.
5. Section 14 application. Where physical possession is resisted, the lender applies to the Chief Metropolitan Magistrate or District Magistrate, who is expected to dispose of it within 30 days after the 2016 amendment.
6. Section 17 securitisation application (SA). The borrower may challenge any Section 13(4) measure before the DRT within 45 days. A deposit is not mandatory, but the DRT may direct one as a condition of interim relief.
7. Section 18 appeal. Against the DRT order, the borrower may appeal to the DRAT within 30 days, after depositing 50% of the debt due (the lower of the creditor's claim and the DRT's determination). The DRAT may reduce this to not less than 25% for recorded reasons.
8. High Court or Supreme Court. Beyond the DRAT, matters move to writ or appellate jurisdiction, as the 2015 Bombay High Court decision and the 2026 Supreme Court appeal in this case show.

The deposit stakes at the DRAT stage are significant. The table below applies the Section 18 and RDDB Section 21 percentages to illustrative debt figures. These are arithmetic illustrations of the statutory percentages, not figures from the case.

A borrower weighing a settlement against an appeal should model both paths. Our loan foreclosure calculator shows what clearing the outstanding today would cost, and the debt consolidation calculator helps test whether refinancing other liabilities frees up cash for a deposit or a settlement offer.

Borrower Defences Available

The 2026 judgement removes one defence entirely and leaves the rest untouched. The useful way to read it is by sorting defences into "closed" and "still open".

Closed: the "assignee cannot use SARFAESI" plea. After paragraphs 36-37 of 2026 INSC 943, a borrower can no longer argue that a debt created by a non-notified NBFC stays outside SARFAESI after a bank or notified financial institution acquires it. The CFCFL notification date of 27 August 2018 did not matter, because KMBL itself was a Section 2(1)(c) bank when it took over the loans in 2012-13. This builds on the 2017 M.D. Frozen Foods and 2018 Indiabulls rulings, so three Supreme Court decisions now point the same way.

Still open: defects in the Section 13(2) notice. The 60-day notice must follow NPA classification. A borrower can still challenge the classification date, the amount demanded, and the identification of the secured asset. The Supreme Court restored the Mehtas' SA No. 39 of 2014 to the DRT precisely so that "other issues" could be decided on merits.

Still open: a non-speaking reply under Section 13(3A). The lender must answer a representation within 15 days with reasons. Where the reply is late or does not engage with the objections, that can be raised in the Section 17 application.

Still open: statutory exclusions under Section 31. Liens, agricultural land, crops, and financial assets below Rs 1 lakh fall outside the Act. Whether a mortgaged property is agricultural land is a fact question that survives the 2026 ruling.

Still open, but strictly policed: limitation. The Section 17 window is 45 days. In the companion matter decided with Kotak v Trupti Mehta, the Sables' securitisation application had been dismissed for a delay of 32 days, and the Supreme Court left them to pursue fresh remedies rather than reviving the SA. A 32-day slip cost them their forum on the merits.

Still open, but time-sensitive: the property itself. In the third matter, the Poorti Rent a Car appeal was dismissed because the property had already been sold in 2023. Once a sale is complete, a win on the legal question may not translate into recovering the asset.

The following table summarises where each defence now stands.

Recent Tribunal/HC Position

The procedural history of Kotak v Trupti Mehta is itself the clearest map of how the lower forums had treated assigned NBFC loans. On 28 November 2014 the DRT Mumbai held that KMBL could not use SARFAESI. The DRAT agreed. On 16 July 2015 the Bombay High Court took the same view. Civil Appeal 8531 of 2015 was then pending in the Supreme Court for roughly 11 years before the 2 September 2026 decision set the Bombay High Court view aside.

The interim history matters for anyone considering a similar appeal. By an interim order dated 20 April 2017, the Mehtas had deposited Rs 40 lakh. When restoring their SA No. 39 of 2014 to the DRT, the Supreme Court required a further Rs 25 lakh within eight weeks. In total, that is Rs 65 lakh deposited to keep a merits hearing alive, even after losing the main legal question.

The three outcomes in the single judgement show how procedure decided each family's position:

• Mehtas: SA No. 39 of 2014 restored to the DRT on merits, conditional on a further Rs 25 lakh within eight weeks.
• Sables: SA dismissed earlier for 32 days' delay; left to fresh remedies.
• Poorti Rent a Car: appeal dismissed because the property had been sold in 2023.

For a borrower, the practical message from 2026 INSC 943 is to spend effort on the merits and on deadlines, not on the identity of the lender. The secured loan and collateral entries in our glossary explain the security concepts the DRT will apply on merits. The Oquilia Research Desk is a research byline and does not represent parties before the Supreme Court of India or any tribunal; borrowers facing a Section 13 notice should take advice from an advocate enrolled with their State Bar Council.

FAQ

What did the Supreme Court decide in Kotak Mahindra Bank v Trupti Sanjay Mehta?

On 2 September 2026, in 2026 INSC 943, the Supreme Court held that a bank under Section 2(1)(c) of SARFAESI can use the Act to recover a secured loan it acquired from an NBFC, even if that NBFC was not a notified financial institution under Section 2(1)(m) when the loan was made. It set aside the Bombay High Court's 16 July 2015 view.

My loan was originally from an NBFC and is now with a bank. Can I still argue SARFAESI does not apply?

Not on that ground alone. Paragraphs 36-37 of the judgement, following M.D. Frozen Foods (2017) 16 SCC 741 and Indiabulls (2018) 14 SCC 783, say that acquisition by a SARFAESI-covered institution immediately clothes the debt with the attributes of a secured debt. Other defences, such as notice defects or Section 31 exclusions, remain available.

How long do I have to challenge possession before the DRT?

Section 17 gives 45 days from the Section 13(4) measure. The Sables' application in the companion matter was dismissed for a 32-day delay, so treat the 45-day limit as strict.

Do I have to deposit money to file a Section 17 application?

A deposit is not mandatory under Section 17, but the DRT may direct one. In this case the Mehtas deposited Rs 40 lakh under a 20 April 2017 interim order and were asked to deposit a further Rs 25 lakh within eight weeks for their SA to be heard on merits.

What deposit is needed to appeal to the DRAT?

Under SARFAESI Section 18, the appeal must be filed within 30 days with a deposit of 50% of the debt due, which the DRAT may reduce to not less than 25%. For an RDDB Act recovery order, Section 20 allows 45 days and Section 21 requires 75% of the debt determined, which the DRAT may waive or reduce.

What is the time limit for the bank's Section 13(2) notice and my reply?

The Section 13(2) notice gives 60 days to pay. You can object under Section 13(3A), and the lender must reply with reasons within 15 days.

What happens if the property is sold while my appeal is pending?

Your appeal may become infructuous. The Poorti Rent a Car appeal was dismissed in 2026 because the property had already been sold in 2023, so seek interim protection early if you intend to contest.