Kiran Raj

The Supreme Court Division Bench of Justices Dipankar Datta and Aravind Kumar on Tuesday (December 16) dismissed a secured creditor’s appeal seeking to pursue recovery action under the SARFAESI Act against a borrower in Nagaland and affirmed that the steps taken under the Central law were without effect when the statute was not in force in the State. The dispute arose from recovery measures initiated by the lender in 2011, including a demand notice under Section 13(2), to enforce alleged security for a loan extended to a Nagaland-based company. The Court noted that Nagaland formally implemented the SARFAESI framework only on December 10, 2021 through a gubernatorial notification, and concluded that proceedings commenced before that date could not stand, while leaving other lawful remedies open.

The dispute arose from a term loan extended by a financial institution to a private company for setting up a cold storage unit in Dimapur, Nagaland. Due to restrictions on transfer of land in Nagaland, the loan was structured through a loan agreement with the company, a separate agreement with the local Village Council, and a deed of guarantee under which the Council acted as guarantor. After the borrower allegedly defaulted, the lender issued a loan recall notice followed by a demand notice under the SARFAESI Act and subsequently took possession of the assets with the assistance of the district administration.

Also Read: When Marriage Exists Only On Paper Due To Prolonged Litigation, Better To End Ties: Supreme Court Allows Husband’s Appeal, Restores Divorce After 24-Year Separation

The borrower challenged these actions before the High Court, contending that no valid security interest existed and that the SARFAESI Act was not applicable in Nagaland at the relevant time. The High Court accepted these contentions and set aside the recovery actions, leading to the present appeal before the Supreme Court.

The Court recorded that “the (non)applicability of the provisions of the SARFAESI Act in the State of Nagaland strikes at the root of the matter and being a pure question of law, it can be raised even at the appellate stage.” It observed that Section 35 of the SARFAESI Act “cannot and does not override any provision of the Constitution, to wit, Article 371A.” Referring to the constitutional scheme, the Bench noted that “no Act of Parliament in respect of ownership and transfer of land shall apply to the State of Nagaland unless the Legislative Assembly so decides.”

The Court took note of the notification dated 10 December 2021 and stated that “bare perusal of the aforesaid notification leads one to the conclusion that provisions of the SARFAESI Act could be implemented in the State of Nagaland with effect from 10th December, 2021.” It further recorded that no mortgage or security interest had been created in favour of the lender and held that “no security interest in respect of any property was created in favour of the Corporation within the meaning of the SARFAESI Act.” The Bench also observed that the guarantee executed by the Village Council “was merely a guarantee and did not create any right, title or interest in favour of the lender.”

Also Read: Protracted Trial And Reformative Conduct Of Convict Sufficient For Sentence Reduction: Punjab & Haryana High Court Partly Allows Revision, Cuts Jail Term To Period Undergone In Rash & Negligent Driving Case

The Court ordered that “for the reasons aforesaid, we agree with the Division Bench and uphold the impugned judgment and order. The appeal stands dismissed, leaving it open to the Corporation to pursue/seek remedies against the Company or the Council in accordance with law. Since the Council is not a respondent before us, any observation made in this judgment may not be read as foreclosing any lawful plea that the Council might raise in proceedings that are initiated against it by the Corporation. Parties shall bear their own costs.”

Advocates Representing the Parties

For the Appellant: Dr. Manish Singhvi, Sr. Adv. Mr. Rituraj Biswas, Adv. Mr. Mayan Prasad, Adv. Mr. Chandan Kumar, AOR Ms. Sujaya Bardhan, Adv. Mr. Aayush Garg, Adv. Mr. Sami Ahmed, Adv.

For the Respondent: Mr. Kaushik Choudhury, AOR Mr. Madhurjya Choudhury, Adv. Mr. Saksham Garg, Adv. Mr. Jyotirmoy Chatterjee, Adv.

Case Title: North Eastern Development Finance Corporation Ltd. v. M/s L. Doulo Builders and Suppliers Co. Pvt. Ltd.
Neutral Citation: 2025 INSC 1446
Case Number: Civil Appeal No. 6492 of 2024
Bench: Justice Dipankar Datta, Justice Aravind Kumar