The Supreme Court has held that the North Eastern Development Finance Corporation Ltd. (NEDFI) had no jurisdiction to invoke the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against M/s L. Doulo Builders and Suppliers Company Pvt. Ltd. in Nagaland, affirming a Gauhati High Court judgment that had quashed the entire enforcement action, including possession of the borrower’s assets.
Case Details
- Case Title: North Eastern Development Finance Corporation Ltd. v. M/s L. Doulo Builders and Suppliers Co. Pvt. Ltd.
- Citation: 2025 INSC 1446
- Court: Supreme Court of India
- Bench: Justice Dipankar Datta and Justice Aravind Kumar
- Jurisdiction: Civil Appellate Jurisdiction
- Case Number: Civil Appeal No. 6492 of 2024
- Date of Judgment: December 16, 2025
- Originating Court: Gauhati High Court
- High Court Case: W.P.(C) No. 9241 of 2019
- High Court Judgment Date: March 6, 2020
- Appellant: North Eastern Development Finance Corporation Ltd. (NEDFI)
- Respondent: M/s L. Doulo Builders and Suppliers Company Pvt. Ltd.
Case Background
The dispute arose from a term loan availed in 2001 by M/s L. Doulo Builders and Suppliers Company Pvt. Ltd. for setting up a cold storage unit in Dimapur, Nagaland.
The company had approached NEDFI in December 2000 seeking financial assistance, which was sanctioned subject to execution of multiple agreements on 11 May 2001 .
Given the constitutional and statutory restrictions in Nagaland on transfer of land by tribals to non-tribals, the security structure for the loan was unusual.
Three separate instruments were executed:
- A loan agreement between NEDFI and the company.
- An agreement between the Fifth Model Village Council and one of the company’s directors, K. Doulo, and
- Adeed of guarantee under which the Village Council stood guarantor for repayment of the loan to NEDFI.
Under this arrangement, the company’s immovable properties were effectively transferred to the Village Council, which agreed to act as guarantor.
The Council, in turn, undertook to repay NEDFI if the borrower defaulted. The properties listed in both the second agreement and the deed of guarantee were valued at ₹85 lakh and included a residential building, the project site, and a residential plot at Model Village, Dimapur .
Loan Default and Recovery Action
After disbursement of the loan, the company ran into financial difficulty and defaulted. NEDFI issued a loan recall notice in August 2010 claiming over ₹3.44 crore as outstanding, followed by a demand notice under Section 13(2) of the SARFAESI Act in June 2011 for ₹3.85 crore with interest .
Years later, NEDFI also initiated parallel proceedings before the Debts Recovery Tribunal (DRT), Guwahati, seeking recovery of more than ₹7.64 crore.
In March 2019, it obtained an order under Section 14 of the SARFAESI Act from the Deputy Commissioner, Dimapur, and took physical possession of the company’s assets, including the cold storage unit and properties belonging to the company’s directors .
Gauhati High Court’s Decision
Challenging the SARFAESI action, the company filed a writ petition before the Gauhati High Court.
A Division Bench allowed the petition in March 2020, holding that the notices issued under the SARFAESI Act and the order authorising possession were “wholly illegal and without jurisdiction” .
The High Court found that NEDFI had failed to establish the existence of any valid security interest in its favour over the borrower’s assets.
It noted that the deed executed by the Village Council was “merely a guarantee agreement” and did not create any right, title, or interest in favour of NEDFI over the immovable properties.
As a result, NEDFI could not be treated as a “secured creditor” under Section 2(1)(zd) of the SARFAESI Act .
Issues Before the Supreme Court
NEDFI challenged the High Court’s judgment before the Supreme Court.
The principal question framed by the Court was whether NEDFI could at all have invoked the SARFAESI Act against the borrower in the facts of the case, particularly given the legal position in Nagaland and the nature of the security arrangements .
The borrower also raised the issue of the non-applicability of the SARFAESI Act in Nagaland at the relevant time, contending that enforcement of security interest affecting land could not be undertaken without a resolution of the Nagaland Legislative Assembly, as required by Article 371A of the Constitution.
Article 371A and Applicability of SARFAESI in Nagaland
The Supreme Court examined Article 371A, which provides that no Act of Parliament relating to ownership and transfer of land shall apply to Nagaland unless the State Legislative Assembly so decides.
The Court noted that the SARFAESI Act contemplates transfer of property by way of sale of secured assets, directly implicating land rights .
Significantly, the Court relied on a notification dated 10 December 2021, by which the Governor of Nagaland formally notified the implementation of the SARFAESI Act in the State.
The notification made it clear that the Act would apply only prospectively from that date and that even then, sale of secured assets could be only to indigenous inhabitants of Nagaland .
From this, the Court concluded that the SARFAESI Act was not applicable in Nagaland when NEDFI issued its demand notice in 2011 and took possession in 2019.
Absence of a Security Interest
Independently of the constitutional issue, the Supreme Court held that NEDFI lacked the status of a secured creditor because no security interest had ever been created in its favour.
The Court emphasised that the properties were mortgaged, if at all, to the Village Council and not to NEDFI.
The deed executed by the Council was a guarantee to repay the loan and did not amount to a security agreement creating enforceable rights under the SARFAESI Act .
The Court observed that the concepts of “secured creditor,” “security interest,” and “security agreement” are specific to the SARFAESI Act and were unknown to law at the time the loan agreement was executed in May 2001.
In the absence of any mortgage or charge in favour of NEDFI, the statutory preconditions for invoking Section 13 of the Act were not satisfied.
Distinguishing Earlier Precedents
NEDFI relied on earlier Supreme Court decisions, including M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp, UCO Bank v. Deepak Debbarma, and United Bank of India v. Satyawati Tondon. The Court distinguished each of these cases, holding that they involved situations where a valid security interest existed and the SARFAESI Act was otherwise applicable .
In contrast, the present case involved neither a valid security interest in favour of the lender nor applicability of the SARFAESI Act in the State at the relevant time.
Final Ruling
Upholding the Gauhati High Court’s judgment in full, the Supreme Court dismissed NEDFI’s appeal.
It held that the invocation of the SARFAESI Act was “without jurisdiction” and that the High Court was correct in entertaining the writ petition despite the availability of an alternative remedy under Section 17 of the Act.
While dismissing the appeal, the Court clarified that NEDFI remained free to pursue recovery of its dues against the borrower or the Village Council in accordance with law, including under the Recovery of Debts and Bankruptcy Act, 1993.
It also noted that the Village Council was not a party to the appeal and that its rights and defences were left open.
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North Eastern Development Finance Corporation Ltd. v. M/s L. Doulo Builders and Suppliers Co. Pvt. Ltd.
