Earlier DRT Decree No Bar to SARFAESI Action: SC Dismisses Plea Citing Section 35

In K.K. Praveen v. J.M. Financial Asset Reconstruction Company Pvt. Ltd. & Ors. [W.P. (Civil) No. 1091/2026], the Hon’ble Supreme Court, by an order dated September 9, 2026, dismissed at the admission stage a borrower’s challenge to recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The borrower had argued that an earlier ex parte decree of the Debts Recovery Tribunal (DRT) barred those proceedings. Rejecting this contention, the court held that, as Section 35 gives the SARFAESI Act effect notwithstanding anything inconsistent in any other law, its provisions would override.

The dispute arose from recovery measures pursued by J.M. Financial Asset Reconstruction Company (ARC), including action under Sections 13(2), 13(4) and 14 of the SARFAESI Act, as well as proceedings under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). Earlier, O.A. No. 439/2014 before the DRT, Ernakulam had culminated in an ex parte decree. According to the petitioner, that decree brought the original cause of action to an end and left the ARC with the remedy of execution alone. Fresh SARFAESI proceedings, it was contended, were therefore barred by the principles of merger, transit in rem judicatam and res judicata.

The petition also raised wider constitutional and statutory challenges. Relying on Entry 45 of List I of the Seventh Schedule to the Constitution, the petitioner contended that ARCs, which are not authorised to accept deposits or lend money as banks are, are not banking companies and cannot, therefore, invoke the SARFAESI and RDB Acts.

The petitioner further relied upon Section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 and Notification S.O. 1432(E) dated May 29, 2015, issued under that section, which notified the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSME Framework) and provides a mechanism for addressing financial stress in MSME accounts. In this context, the petitioner also referred to the Supreme Court’s July 28, 2025, decision in Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd., 2025 INSC 908, which held that if an MSME borrower, in its reply under Section 13(3-A) to a Section 13(2) demand notice, asserts its MSME status and claims the benefit of the MSME Framework with reasons supported by an affidavit, the lender must examine that claim and keep further SARFAESI action in abeyance. The petition in that case was nonetheless dismissed, as the borrower had not invoked the Framework at that stage.

Another objection concerned the alleged availability of multiple recovery mechanisms for the same debt. The petitioner questioned simultaneous proceedings under the SARFAESI Act, RDB Act and Insolvency and Bankruptcy Code, 2016, invoking the doctrine of election and the principle of ne bis in idem and relying, among other provisions, on Section 13(10) of the SARFAESI Act and the first proviso to Section 19 of the RDB Act. The petition also sought records concerning NPA classification, notices under Sections 13(2) and 13(4), the Section 14 order and the proceedings under Section 19 of the RDB Act, and sought to have them quashed.

Section 35 formed the basis of the Court’s decision. After recording that it would “only refer to Section 35”, the Court noted that the provision gives the SARFAESI Act overriding effect notwithstanding anything inconsistent contained in any other law for the time being in force or any instrument having effect by virtue of such law. Applying the provision, the Court held that the SARFAESI Act would override and declined to accept the petitioner’s contentions. The writ petition was accordingly dismissed, with pending applications also disposed of.

The September 9 order is narrow in its reasoning. Although the petition raised issues concerning the status of ARCs, the MSME framework, concurrent proceedings, NPA classification and the validity of various statutory provisions, the Court did not separately adjudicate these questions. Its reasoning was confined to Section 35, in answer to the petitioner’s challenge based on the earlier DRT decree.