In a recent decision, the Supreme Court of India rejected an appeal by the North Eastern Development Finance Corporation Ltd. (NEDFI) against M/S L. Doulo Builders and Suppliers Co. Pvt. Ltd. This case is about a loan disagreement and whether a specific law, the SARFAESI Act, can be used in Nagaland.
The Loan and Agreements
- Initial Request: On December 13, 2000, M/S L. Doulo Builders and Suppliers Co. Pvt. Ltd. asked NEDFI for money to start a cold storage facility in Dimapur, Nagaland.
- Agreements Made: On May 11, 2001, several agreements were signed, including a loan agreement and a promise by the Model Village Council to back the loan.
"The project is to set up a cold storage unit at Model Village, 5th Mile, Dimapur, in the state of Nagaland at an estimated cost of Rs.346.00 lakh."
Financial Issues
- Loan Disbursed: M/S L. Doulo Builders claimed NEDFI gave them only Rs. 1,49,63,580 instead of the agreed Rs. 2 crore. NEDFI, however, said they approved an extra Rs. 1 crore for working money.
- Default and Actions: M/S L. Doulo Builders failed to pay back the loan, leading NEDFI to take action under the SARFAESI Act, sending a notice on August 31, 2010, asking for Rs. 3,44,58,174.
Legal Battle Begins
- High Court Intervention: M/S L. Doulo Builders took the case to the Gauhati High Court, which ruled in their favor on March 6, 2020, saying NEDFI's actions were not allowed because they didn't have the right to use the SARFAESI Act in Nagaland.
- Appeal in Supreme Court: NEDFI challenged this decision, but the Supreme Court agreed with the High Court.
Key Legal Findings
- SARFAESI Act Applicability: The Supreme Court said the SARFAESI Act couldn’t be used in Nagaland without a special decision by the state's legislative assembly, according to Article 371A of the Constitution.
- Lack of Security Interest: The court found no valid claim was created in favor of NEDFI, as needed under the SARFAESI Act.
"No security interest in respect of any property (secured asset) was created in favor of the Corporation within the meaning of the SARFAESI Act."
Verdict Summary
The Supreme Court's decision, delivered by Justice Dipankar Datta and Justice Augustine George Masih on December 16, 2025, dismissed NEDFI's appeal, allowing M/S L. Doulo Builders to keep their properties. The court highlighted that NEDFI could still try to get their money back through other legal methods but not under the SARFAESI Act in this case.
