The SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002, was enacted by the Parliament to regulate securitization and reconstruction of financial assets. Further, it also provides enforcement rights to the financial institutions in respect of security interest created on Financial Assets.

The Act empowers banks and financial institutions to take possession of properties of borrower for recovering their dues without the intervention of the Court or tribunal, where borrower fails to discharge his liability in repayment of secured debts.

The matter whether the above Act is applicable on the State of Jammu and Kashmir is decided by the Hon’ble Supreme Court in  the recent ruling (State Bank of India v. Santosh Gupta).

Brief facts of the case

To know better, we have to go through in depth of the case. The facts of the case are as under:

  • Borrower from the State of Jammu and Kashmir had taken a loan facility from the State Bank of India which is situated in India.
  • The Borrower has failed to discharge its liability to the State Bank of India.
  • Being a secured creditor the bank has the right to recover its dues from borrower.
  • The Bank has initiated measures under SARFAESI act by sale of secured assets of the borrower.
  • After that, an appeal was filed by the borrower against the measures taken by the bank to recover its due under the provisions of the SARFAESI Act.
  • HC held that provisions of SARFAESI Act could not apply in the State of Jammu and Kashmir as it collides with the provisions of section 140 of Transfer of Property Act of Jammu and Kashmir, 1920.
  • Further, provisions of SARFAESI Act could be availed by the banks only which originate from the State of J&K for securing monies.
  • The High Court held that the SARFAESI act could not be enforced in the State of J& K as the State has its own constitution and sovereign character which cannot be challenged, altered or abridged.
  • The State Bank of India preferred an appeal before the Apex Court.

Apex Court Judgement

  • The Apex court referred the provisions of the Constitution of India. Entry 45 and 95 of the List I of Constitution provides that the Parliament has exclusive power to make laws with respect to Banking and SARFAESI Act. Therefore, SARFAESI Act as a whole applicable to whole India including the State of J&K.
  • It was held that the State of J&K has no vestige of sovereignty to be outside the Constitution of India and its own Constitution. The citizen of the State of J&K are the first and foremost citizen of India.
  • The verdict clearly provides that provisions of the SARFAESI Act, 2002 are within the legislative competence of Parliament and could be enforced in Jammu and Kashmir.
  • The Apex court set aside the High Court verdict, and held that notices issued by the banks under Section 13 (for loan recovery through sale of security) and other coercive methods taken under the said section are valid and can be proceeded with further.


The SARFAESI Act is within the competence and domain of the parliament to extend this law through-out the territory of India including the State of Jammu and Kashmir and as such banks and financial institutions lending money within the State of J&K were have rights to enforce the provisions of the SARFAESI Act as against the borrowers who has defaulted in making repayment.

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January 2021