By Legum Pacific Editorial ·
Suppose your factory loan is suddenly marked as non‑performing and the bank moves to sell the loan. You face SARFAESI notices, an insolvency petition and a web notice that the loan will go to an asset reconstruction company (ARC). The lender and the ARC then fight with you in several courts for years.
What does the law say?
Banks can classify accounts as Non‑Performing Assets (NPA) by applying RBI guidance. Banks may also transfer (assign) their loans to other entities such as ARCs. Earlier Supreme Court decisions noted that a bank owns the debt and may transfer that asset, and that assignment transfers the bank’s right to recover the debt. The borrower continues to have the defences that existed against the bank. The Transcore judgment observed that remedies under the SARFAESI Act are additional to remedies under the DRT Act in suitable cases.
In this dispute the bank pursued several routes at once: recovery proceedings before the Debts Recovery Tribunal, a petition under the Insolvency and Bankruptcy Code before the NCLT, and steps under the SARFAESI Act.
What did the Supreme Court decide?
The Bench (Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana) dealt with a long-running commercial dispute between Atibir Industries Co. Ltd. (the borrower), State Bank of India (the lender) and an ARC (the assignee). The bank had classified the borrower’s account as NPA and assigned the debt to the ARC for Rs.250 crore. The assignment and the NPA classification were contested in the High Court and before this Court.
Rather than determine every contested legal question about the correctness of the NPA classification or the assignment, the Supreme Court accepted a pragmatic route after considering a detailed report by a former judge, Hon’ble Mr. Justice Anil R. Dave. That report reviewed amounts paid, suggested what might constitute a reasonable commercial return to the ARC, and proposed figures to settle the dispute.
Balancing the competing interests and to bring finality to prolonged litigation, the Supreme Court directed the borrower to pay an additional Rs.125 crore to the ARC. The Court recorded that this Rs.125 crore, together with the Rs.250 crore already paid, would operate as full and final settlement of the assignee’s claims in these proceedings. The Court ordered that on receipt of the additional sum the respondents must return title deeds and release all securities and guarantees held by them. The Court also recorded that proceedings before the NCLT and the DRT would stand disposed of in the light of the settlement. The Court left undecided, for the present, questions about the validity of classification as NPA and certain other legal issues.
What does this mean for ordinary people, businesses and guarantors?
- If a bank assigns a loan, the assignee generally steps into the bank’s shoes to recover the debt, while the borrower retains the same defences it had against the bank.
- Courts may frame commercial settlements to allow a running business to continue while compensating the assignee. Settlements can include lump‑sum payments and return of title deeds once payment is made.
- A bank can pursue recovery through different forums (DRT, IBC/NCLT and SARFAESI) in parallel; such concurrent action may be part of the factual background in disputes about assignment and classification.
How long does the process take?
The Supreme Court’s order set timelines for the settlement it approved: the borrower was to pay the additional sum within 12 weeks, and the respondents were to return title deeds and release securities within four weeks after receipt of that sum. The litigation itself had run for several years across different forums before reaching the Supreme Court’s settlement order.
Key points
- The Supreme Court directed payment of Rs.125 crore in addition to Rs.250 crore already paid, as full and final settlement.
- On receipt of that payment, the respondents must return title deeds and release securities.
- The Court did not finally decide whether the NPA classification or the assignment was legally correct; those issues remain open if the settlement is not honoured.
- The case shows how lenders, ARCs and borrowers can be entangled in parallel proceedings under SARFAESI, DRT and IBC before a settlement is reached.
Source: Supreme Court of India (official judgment) (opens in a new tab) · Atibir Industries Co. Ltd. v. State Bank of India & Anr., C.A. Nos. 13916-13917 of 2026, 2026 INSC 1156