Supreme Court Criticizes High Courts for Granting Unreasoned Interim Stays in SARFAESI Act Proceedings

Supreme Court Slams High Courts for “Unreasoned” Interim Orders Halting SARFAESI Proceedings

New Delhi – The Supreme Court of India has once again voiced its strong disapproval of High Courts indiscriminately granting interim stays in matters concerning the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. A bench comprising Justices Dipankar Datta and Augustine George Masih described the practice as a "great disservice to institutional credibility" while hearing a petition filed by LIC Housing Finance Ltd.

Case Background

The case, LIC Housing Finance Ltd vs Nagson and Company , brought to light an instance where the High Court of Karnataka had halted recovery proceedings initiated by the finance company against a defaulting borrower. LIC Housing Finance had issued two demand notices under Section 13(2) of the SARFAESI Act on August 5, 2021, for outstanding amounts of approximately Rs. 41 crore and Rs. 31 crore .

Despite the substantial dues, the High Court, in an order dated September 29, 2021, restrained the secured creditor from proceeding further. This interim relief was granted on the condition that the borrower, Nagson and Company, deposit a mere Rs. 5 crore, a fraction of the total claimed amount. The Supreme Court noted with dismay that the High Court’s order did not provide any reasoning for its decision to interfere.

Supreme Court's Observations and Rebuke

The bench expressed its astonishment that the interim order has remained in effect for over thirty months, allowing the defaulting borrower to "reap the benefit" while the writ petition awaits a final hearing.

The Court observed:

"We still come across cases where, without just and sufficient reason being recorded, proceedings taken by secured creditors have been interdicted by the high courts, with or without imposition of conditions, amounting to great disservice to institutional credibility."

Referring to its own precedent in United Bank of India Vs. Satyawati Tondon & Ors. , the bench reiterated that High Courts must exercise their writ jurisdiction judiciously. The SARFAESI Act was specifically enacted to provide a swift and effective mechanism for financial institutions to recover their dues, and undue judicial interference defeats this legislative purpose.

The judges stated they were "taken aback" by the prolonged pendency of the writ petition alongside the "subsisting unreasoned interim orders."

Final Order and Implications

While refraining from commenting on the merits of the case, the Supreme Court has requested the High Court of Karnataka to prioritize the hearing of the writ petition and decide it, subject to its convenience, by the end of September 2025. The apex court directed the concerned roster bench at the High Court to decide the matter in accordance with the law, uninfluenced by the Supreme Court's observations.

The Court has issued a notice on the special leave petition and the application for condonation of delay, making it returnable on October 10, 2025.

This judgment serves as a stern reminder to High Courts to be cautious and provide sound legal reasoning before intervening in SARFAESI proceedings, reinforcing the sanctity of the statutory remedy available to secured creditors and underscoring the economic importance of timely debt recovery.