Supreme Court Fixes Rs. 375 Crore Settlement, Leaves Disputed Loan Sale Unanswered

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NEW DELHI, October 26, 2026: The Supreme Court has ended a long-running dispute between a steel-sector borrower, State Bank of India and an asset reconstruction company by directing the borrower to pay Rs. 125 crore over and above the Rs. 250 crore it has already paid, as full and final settlement. In doing so, a bench of Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana deliberately left open whether the loan was validly classified as a Non-Performing Asset and whether the bank's sale of the loan was valid. The pending insolvency and debt recovery proceedings stand disposed of, and the lenders must return title deeds and release securities within four weeks of receiving the money.

The answer to the headline: The Court acted as a court of equity, not of strict law. It left the contested questions unanswered and chose a number: Rs. 250 crore (the price the asset reconstruction company paid the bank) plus Rs. 125 crore, calculated by reference to the highest return of 15 percent per annum suggested in a retired Supreme Court judge's report, the delay since that report, and the company's costs. The borrower's last offer to the bank, before the loan was sold, had been Rs. 238 crore.

Case at a Glance

Case: Atibir Industries Co. Ltd. v. State Bank of India and Another
Citation: 2026 INSC 1156
Bench: Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana (judgment authored by Justice V. Mohana)
Proceeding: Civil Appeals arising out of Special Leave Petition (C) Nos. 21029-30 of 2024
Challenged order: Calcutta High Court Division Bench judgment dated July 25, 2024 in APO No. 180 of 2023 and APOT No. 393 of 2023, which reversed the Single Judge
Date: October 26, 2026
Outcome: Appeals disposed of; borrower to pay a further Rs. 125 crore within 12 weeks; NCLT and DRT proceedings disposed of; securities to be released

Background

The appellant manufactures sponge iron, pig iron and allied products. It borrowed cash credit, term loans and letters of credit from a consortium of banks led by State Bank of India, secured by hypothecation of current assets and plant and machinery, equitable mortgages over factory land and other plots, and personal and corporate guarantees. Against a sanctioned cash credit limit of Rs. 155 crore, the outstanding amount was Rs. 278.56 crore on March 31, 2020 and Rs. 302 crore on June 6, 2020. The borrower attributed its default to factors including the COVID-19 pandemic and relied on three Reserve Bank of India circulars extending the repayment moratorium to August 31, 2020.

The Timeline That Mattered

September 15, 2020: the bank revised the term loan repayment schedule, fixing the first instalment on September 30, 2020. The borrower paid Rs. 21,07,157 on November 1, 2020 and Rs. 80 lakhs on December 11, 2020.
March 31, 2021: the bank classified the account as a Non-Performing Asset with effect from October 16, 2020, that is, retrospectively.
January 17, 2022: recall notice for Rs. 341 crore, followed by an Original Application before the Debts Recovery Tribunal-I, Kolkata (claim of about Rs. 396 crore) and a Section 7 petition under the Insolvency and Bankruptcy Code before the National Company Law Tribunal, Kolkata.
July 8, 2022: notice under Section 13(2) of the SARFAESI Act demanding about Rs. 410 crore. A Section 13(4) notice of October 28, 2022 was recalled on November 4, 2022.
January 2022 to February 2023: the borrower's one-time settlement offers rose from Rs. 227 crore to Rs. 237 crore and finally Rs. 238 crore. None was accepted. It paid about Rs. 25 crore during this period.
February 10, 2023: the bank published a web notice placing the account for transfer as a stressed loan exposure, and on March 23, 2023 advanced the e-auction to March 24, 2023.
March 24, 2023: the borrower filed a writ petition and the bank assigned the loan to the asset reconstruction company for Rs. 250 crore the same day.

The High Court Split

The Single Judge held that the NPA classification was premature, since the moratorium extended due dates to after August 31, 2020 and the 90-day norm applied thereafter, and set aside both the classification and the assignment. The Division Bench reversed. It held that asset classification is borrower-wise, that the cash credit account had become non-performing in any case, that the bank had proceeded under Section 5 of the SARFAESI Act and not Section 13(4), and that the borrower had not rebutted the presumption that the account became an NPA on the web notice date.

Who Argued What

The borrower argued that the NPA classification was contrary to the Reserve Bank's circulars, that its settlement offers were dealt with perfunctorily, and that the Rs. 250 crore used to buy its loan was not the assignee's own money. It alleged the funds came through an entity connected to a competitor in the same business, suggesting an attempt to take over its running business. In the alternative, it said any amount above Rs. 250 crore should carry interest of no more than 7.5 percent per annum.

The asset reconstruction company argued that, as assignee, it could recover everything the borrower owed the bank, including interest and penal interest, that Rs. 342 crore was payable as principal at the date of assignment, and that the source of its Rs. 250 crore was irrelevant. It called the borrower a habitual defaulter and said the retired judge's report went beyond its mandate and blurred the difference between debt value and acquisition value.

Issue 1: Why Did the Court Not Decide the NPA and Assignment Questions?

The Court recorded that the NPA classification was itself under challenge, and that the assignment came "in a very quick succession" after the bank approached the tribunals, started SARFAESI proceedings and rejected the settlement offer. It observed that the bank had pursued the Debts Recovery Tribunal, the National Company Law Tribunal and SARFAESI remedies simultaneously, which Transcore v. Union of India permits in principle, but that the sequence here, including a retrospective NPA classification, left the borrower facing an e-auction notice that came "as a bolt out of the blue".

"A quick somersault by the Respondent No.1 all of a sudden after rejecting the OTS offer."

The Court also noted that the allegation that the funds for the Rs. 250 crore were advanced by a competitor in business had not been denied, and that the asset reconstruction company had not provided its financial statements or the rate at which it borrowed the money, despite the retired judge's request. Even so, it chose not to rule on any of these questions.

Issue 2: How Was the Rs. 125 Crore Calculated?

Former Supreme Court judge Justice Anil R. Dave, appointed by the Court on December 9, 2024, reported on July 9, 2025. The bank abstained from his proceedings. Because the asset reconstruction company would not furnish its financial statements, he proceeded on what he called "guesswork", computing returns on the outstanding balance of about Rs. 100 crore as of March 1, 2025 at 13, 14 and 15 percent per annum, giving Rs. 57.74 crore, Rs. 62.18 crore and Rs. 66.62 crore. He also suggested Rs. 50 lakhs as costs.

He rejected the borrower's 7.5 percent proposal as unreasonable, since the assignment was a business transaction and the borrower itself had been paying 9.9 percent on working capital and 13.9 percent on the term loan. The Supreme Court accepted the report with a modification. Taking the highest rate of 15 percent, the more than 18 months that had passed since the report, and the assignee's costs, it fixed Rs. 125 crore. It said this was done "without going into the issue whether it is a return on investment or otherwise".

"Not only the Court of law but also a Court of equity."

What the Court Directed

The borrower shall pay a further Rs. 125 crore to the asset reconstruction company, over and above the Rs. 250 crore already paid, within 12 weeks.
This sum is full and final settlement of all the company's claims against the borrower towards the debt.
On receipt, the respondents shall together return the title deeds and release all other securities and guarantees within four weeks.
The Section 7 proceedings before the National Company Law Tribunal, Kolkata and the Original Application before the Debts Recovery Tribunal-I, Kolkata stand disposed of.
The timeline must be strictly followed. If the borrower defaults, the respondents may revive the proceedings and the benefit of this judgment will not be available to the borrower.

What the Court Did Not Do

The Court expressly kept open whether the NPA classification was valid, whether the assignment to the asset reconstruction company was valid, and whether the transfer complied with Section 5 of the SARFAESI Act. It did not decide whether compensation should be calculated on debt value or acquisition value, and expressed no opinion on the conduct of the parties. It also did not rule on the competitor-funding allegation. The order rests on what it called the "peculiar facts and circumstances" of the case and the interest of a running concern with employees dependent on it, so it should not be read as a general rule on what an assignee can recover.

What It Means Going Forward

The judgment is a reminder that, in a long-running lender dispute, the Supreme Court may use its powers to do complete justice and fix a negotiated-style outcome instead of deciding the legal questions, while leaving those questions open for future cases.

For Borrowers

Court-supervised payment schedules and settlement discussions can protect a running business, but missing instalments weakens your position, as the Court noted. Challenge classification and assignment promptly and document every settlement communication.

For Banks and Asset Reconstruction Companies

Retrospective classification, simultaneous recovery proceedings and a fast-tracked assignment after a rejected settlement offer will attract scrutiny. An assignee that withholds its financial statements and funding details may find the court making its own assessment of a reasonable return.

For Law Students and Insolvency Practitioners

Note the interplay of the Debts Recovery Tribunal, SARFAESI Act and Insolvency and Bankruptcy Code remedies, and the use of a retired judge as an adjudicator to quantify liability. The unanswered questions on Section 5 of the SARFAESI Act and the Reserve Bank's COVID-19 circulars remain live.

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Frequently Asked Questions

What did the Supreme Court decide in Atibir Industries v. State Bank of India?

The Court directed the borrower to pay Rs. 125 crore over and above the Rs. 250 crore already paid to the asset reconstruction company as full and final settlement, and disposed of the NCLT and DRT proceedings, without deciding the NPA or assignment questions.

Did the Supreme Court hold that the NPA classification was valid?

No. The Court kept open whether the Non-Performing Asset classification, the assignment and compliance with Section 5 of the SARFAESI Act were valid.

How did the Court arrive at Rs. 125 crore?

It accepted the retired judge's report with a modification, using the highest suggested return of 15 percent per annum, the more than 18 months since the report, and the assignee's costs.

What happens if the borrower does not pay within 12 weeks?

The respondents may revive the proceedings against the borrower, and the benefit of the judgment will not be available to it.

Can an asset reconstruction company recover more than it paid for a loan?

This order does not lay down a rule. The Court fixed the amount in the peculiar facts of the case, without deciding whether recovery is measured by debt value or acquisition value.

Keywords

Supreme Court loan assignment asset reconstruction company, Atibir Industries v. State Bank of India, 2026 INSC 1156, NPA classification COVID moratorium, SARFAESI Section 5 assignment, one time settlement dispute, Justice Anil R. Dave report, Debts Recovery Tribunal and NCLT proceedings, Chief Justice Surya Kant, Justice Joymalya Bagchi, Justice V. Mohana

Read the judgment: Download the PDF | Google Drive copy

Case Title: Atibir Industries Co. Ltd. v. State Bank of India and Another

Case No.: Civil Appeals arising out of Special Leave Petition (C) Nos. 21029-30 of 2024

Citation: 2026 INSC 1156

Bench: Chief Justice Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana