Supreme Court on Monday, the long-running financial dispute between North Eastern Development Finance Corporation (NEDFI) and a Dimapur-based company finally reached closure. The bench, speaking through Justice Dipankar Datta, made it clear that recovery shortcuts taken under the SARFAESI Act had no legal footing in Nagaland at the relevant time. The appeal filed by NEDFI was dismissed, affirming the Gauhati High Court’s earlier intervention in favour of the borrower company.
Background
The case dates back more than two decades. In 2000–2001, M/s L. Doulo Builders and Suppliers Pvt. Ltd. approached NEDFI for financial help to set up a cold storage unit in Dimapur. A loan agreement was signed, but due to Nagaland’s special constitutional protection under Article 371A, land owned by tribal residents could not be directly mortgaged to a non-tribal financial institution.
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To work around this, the local Model Village Council stepped in as a guarantor, executing a guarantee deed and holding certain properties as security. When the project later failed and loan repayments stopped, NEDFI initiated recovery steps. In 2011, it issued a demand notice under the SARFAESI Act and eventually took physical possession of the company’s assets in 2019.
The borrower moved the Gauhati High Court, which struck down the entire SARFAESI action as illegal. NEDFI then carried the matter to the Supreme Court.
Court’s Observations
The Supreme Court spent considerable time unpacking the legal structure behind SARFAESI. Simply put, the law allows banks and financial institutions to seize and sell secured assets without going to court-but only where a valid “security interest” exists.
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The bench noted that no property had ever been mortgaged directly in favour of NEDFI. “No right, title or interest was created in favour of the Corporation over the borrower’s properties,” the court observed, adding that a mere guarantee does not automatically convert a lender into a secured creditor under SARFAESI.
More importantly, the judges highlighted Nagaland’s special status. Article 371A bars parliamentary laws dealing with land ownership and transfer unless the State Assembly adopts them. The SARFAESI Act was formally made applicable to Nagaland only in December 2021. “The Corporation’s actions began years before that,” the bench noted, calling the invocation of SARFAESI “without jurisdiction”.
While NEDFI argued that recovery laws should apply to old, unpaid debts, the court was unconvinced. It clarified that lenders could still pursue recovery through regular legal routes, such as proceedings before the Debt Recovery Tribunal, but not by bypassing constitutional safeguards.
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Decision
Upholding the Gauhati High Court judgment in full, the Supreme Court dismissed NEDFI’s appeal. The bench left it open for the Corporation to pursue recovery against the borrower company or the village council strictly “in accordance with law”, but firmly shut the door on SARFAESI proceedings in this case.
Case Title: North Eastern Development Finance Corporation Ltd. v. M/s L. Doulo Builders and Suppliers Co. Pvt. Ltd. NORTH EASTERN DEVELOPMENT
Case No.: Civil Appeal No. 6492 of 2024 NORTH EASTERN DEVELOPMENT
Case Type: Civil Appeal (Loan Recovery / SARFAESI Act Dispute) NORTH EASTERN DEVELOPMENT
Decision Date: 16 December 2025
