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SUPREME COURT OF INDIA
Dipankar Datta, Aravind Kumar, JJ.
North Eastern Development Finance Corporation Ltd. (Nedfi) – Appellant
Versus
M/S L. Doulo Builders And Suppliers Co. Pvt. Ltd. – Respondent
Civil Appeal No. 6492 of 2024
Decided On : 16-12-2025
Based on the provided legal document, the following key points are relevant:
The SARFAESI Act cannot be applied retroactively; it only applies to security interests created after its enactment. Since the loan agreement was executed prior to the SARFAESI Act becoming operational, the Act's provisions were not applicable at the time of the initial agreement (!) (!) .
A security interest, such as a mortgage or hypothecation, must be created in favor of the secured creditor for the SARFAESI Act to be invoked. In this case, no such security interest was established by the Corporation over the properties of the Company or the Council, rendering the invocation of the SARFAESI Act without jurisdiction (!) (!) .
The agreement between the Company and the Corporation included a deed of guarantee by the Model Village Council, which guaranteed repayment but did not create any security interest in the properties. Therefore, the Corporation lacked the authority to proceed under the SARFAESI Act against the Company based solely on this guarantee (!) (!) .
The special constitutional provisions applicable to Nagaland, specifically Article 371A, restrict the application of certain laws, including the SARFAESI Act, unless explicitly authorized by the State Legislative Assembly. Although the SARFAESI Act was later implemented in Nagaland, this was well after the loan was granted, and the Act's retrospective application is not permissible (!) (!) .
The notification issued in 2021, which allowed the implementation of the SARFAESI Act in Nagaland, came into effect many years after the loan agreement and the initial disbursement. This indicates that the Act was not applicable at the time of the loan or the subsequent recovery actions (!) .
The law requires that for the SARFAESI Act to be invoked, there must be a present, actionable debt, and the security interest must be properly created and enforceable. Since these conditions were not met, the actions taken by the Corporation under the SARFAESI Act were deemed invalid (!) (!) .
The law also emphasizes that in the absence of a security agreement creating a security interest, the Corporation cannot invoke the SARFAESI Act and must pursue remedies through other legal channels, such as recovery proceedings under different statutes or laws (!) (!) .
The Court upheld the decision of the High Court, which found that the Corporation's actions were without jurisdiction due to the lack of a security interest, and dismissed the appeal accordingly (!) .
In summary, the application of the SARFAESI Act in this case was invalid because no security interest was created under the law at the relevant time, and the constitutional provisions specific to Nagaland restrict its retroactive application. The Corporation is therefore required to seek remedies through appropriate legal procedures outside of the SARFAESI framework.
| Table of Content |
|---|
| 1. loan agreements and security provisions (Para 1 , 2 , 3 , 4 , 5) |
| 2. loan disbursement and default actions (Para 6 , 7 , 8 , 9 , 10 , 11) |
| 3. high court's ruling on the legality of actions (Para 12 , 13 , 14 , 15) |
| 4. sarfaesi act considerations in nagaland (Para 16 , 17 , 18 , 19 , 20) |
| 5. (Para 21 , 22 , 23 , 24 , 25) |
| 6. analysis of security interest creation (Para 26 , 27 , 28 , 29 , 30 , 31) |
| 7. previous case law references and relevance (Para 32 , 33 , 34) |
| 8. order and conclusion of the appeal (Para 37 , 38 , 39) |
JUDGMENT :
DIPANKAR DATTA, J.
FACTS
1. On or about 13th December, 2000, the respondent-Company1[Company, hereafter] approached the appellant-Corporation2[Corporation, hereafter] for financial assistance to set up a cold storage unit in the District of Dimapur, Nagaland.
2. The Corporation agreed to offer financial assistance. To secure the said loan, particularly in view of the provisions of law prevalent in the State of Nagaland, a couple of agreements were executed on 11th May, 2001. The first one was a loan agreement3[loan agreement, hereafter] between the Corporation and the Company, the second was an agreement4[Second agreement, hereafter] between the 5th Model Village Council5[Council, hereafter] and Sh. K. Doulo (Director of the Company), and the third was a deed of guarantee by which the Council stood as guarantor for the loan disbursed to the Company by the Corporation.
3. The loan agreement executed by and between the Company and the Corporation contained several terms and conditions, which formed part of Articles (I) to (VI) and Schedules (I) to (IV) thereto. Relevant terms and conditions from such loan agreement read as follows:
SECURITY
3.1 SECURITY FOR THE LOAN
(A) The Loan together with all interest, liquidated damages, premia on prepayment or on redemption, costs, expenses and other monies whatsoever stipulated in this Agreement shall be secured by:-
(a) a first mortgage and charge in favour of the Lenders in a form satisfactory to the Lenders or all the Borrower’s immovable properties, both present and future; and
(b) a first charge by way of hypothecation in favour of the Lenders of all the Borrower’s movables (save and except book debts), including movable machinery, machinery spares, tools and accessories, present and future, subject to prior charges created and/or to be created:-
(i) in favour of the Borrower’s Bankers on the Borrower's stocks of raw materials, semi-finished and finished goods, consumable stores and such other movables as may be agreed to by the Lenders for securing the borrowings for working capital requirements in the ordinary course of business; and
(B) The Borrower shall make out a good and marketable title to its properties to the satisfaction of the Lenders and comply with all such formalities as may be necessary or required for the said purpose.
3.2 CREATION OF ADDITIONAL SECUIRTY
If, at any time during the subsistence if this Agreement, the Lenders is of the opinion that the security provided by the Borrower has become inadequate to cover the balance of the Loans then outstanding, then, on the Lenders’ advising the Borrower to that effect, the Borrower shall provide and furnish to the Lenders, to their satisfaction such additional security as may be acceptable to the Lenders to cover such deficiency.
3.3 ACQUISITION OF ADDITIONAL IMMOVABLE PROPERTIES
So long as any monies remain due and outstanding to the Lenders, the Borrower undertakes to notify them in writing of its acquisition of immovable properties and as soon as practicable thereafter to make out a marketable title to the satisfaction of the Lenders and charge the same in favour of Lenders by way of first charge in such form and manner as may be decided by the Lenders.
3.4 AGREEMENT OF GUARANTEE
The Borrower shall procure irrevocable and unconditional personal guarantee(s) from Shri Lhoupenyi Doulo and Shri Kevechutso Doulo, the main promoters, in favour of the Lenders for the due repayment of the Loan and th
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