SC Allows SRA to Claim Dues Despite 'Clean Slate' Argument

The Supreme Court has held that a secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act can proceed to recover dues even when the borrower raises claims of set-off or counter-claims based on the original loan agreement. The Court rejected the 'clean slate' doctrine in this context, noting grave inequity in preventing creditors from challenging such defences.

The issue arose when a bank, having enforced security under SARFAESI, was sued by the borrower for alleged deficiencies in loan disbursal. The borrower claimed that enforcement wiped the slate clean, precluding the bank from defending based on the same contract. The Court disagreed, observing that allowing such a defence would unfairly tilt the balance in favour of defaulters.

"It would be manifestly unjust to bar a creditor from pleading facts central to the transaction merely because enforcement has occurred,"

the judgment stated. The ruling affirms that a creditor’s right to defend rests on the integrity of the underlying contract.

For banking and financial sector lawyers, this decision validates a proactive defence strategy in SARFAESI recovery cases. It also reinforces that the 'clean slate' principle does not override equitable defences or set-off claims rooted in contractual performance.