Default

SARFAESI Act, 2002 — Section 2(j); IBC, 2016 — Section 3(12)

Failure to repay loan installments or interest as per the repayment schedule. Under SARFAESI, default triggers the NPA classification process. For SARFAESI enforcement, a "default" means failure to discharge a liability under a security agreement; under IBC, a "default" means non-payment of a debt that is due, payable, and not being disputed.

In practice, default is the trigger that switches a performing loan into a recovery file — but the same word carries two different legal meanings, and conflating them is a frequent and costly error. Under SARFAESI, default means failure to discharge a liability under a security agreement, and it sets the NPA classification process in motion; only after NPA classification can a secured creditor move to enforcement. Under the IBC, default means non-payment of a debt that is due and payable and is not genuinely disputed, and it is the gateway to triggering CIRP. The practical consequence is that the proof a creditor needs differs by forum: for SARFAESI the focus is the security agreement and the overdue position; for the IBC the focus is an undisputed, crystallised debt. A creditor that files an IBC application on a debt the borrower has plausibly disputed will see it rejected. Well-advised creditors match the type of default to the chosen forum before initiating action under Section 2(j) SARFAESI or Section 3(12) IBC.