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 debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid" by the debtor or corporate debtor (Section 3(12)) — a dispute does not prevent a default for a financial creditor's Section 7 application; a pre-existing dispute is a ground of rejection only for an operational creditor's Section 9 application (Section 9(5)(ii)(d)).

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 debt when the whole or any part or instalment of it has become due and payable and is not paid, 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 a debt that has fallen due and remains unpaid. A pre-existing dispute defeats an operational creditor's Section 9 application, but a dispute is not, by itself, a ground to reject a financial creditor's Section 7 application. 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.