In Brief
A financial institution (NEDFI) sought to enforce non-performing loan against a borrower (L. Doulo Builders) using the SARFAESI Act, 2002. The loan was granted in 2001, before the SARFAESI Act came into force. The borrower challenged the enforcement action as invalid. The Supreme Court upheld the High Court's decision to quash the proceedings, holding that no valid security interest was created under the SARFAESI Act. The Court ruled that mere loan documentation, guarantees, or informal arrangements cannot substitute for formal creation of security interest. Without a validly created security interest, SARFAESI proceedings are wholly without jurisdiction. The appeal was dismissed.
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