Amended Section 13(8) of the SARFAESI Act extinguishes the borrower's right of redemption upon publication of the notice for public auction. The right is drastically curtailed and is available only till the date of publication of the notice under Rule 9(1) of the SARFAESI Rules, not till completion of sale or transfer.
āļø Overview
This landmark judgment by a two-judge bench of the Supreme Court of India (Justice J.B. Pardiwala and Justice R. Mahadevan) clarifies the scope of Section 13(8) of the SARFAESI Act, 2002 post the 2016 Amendment. The Court examined whether the borrowers' right of redemption under Section 13(8) stands extinguished upon publication of the auction notice or only after the sale certificate is issued.
Whether the High Court was justified in quashing the Sale Certificate issued in favour of the auction purchasers and allowing the borrowers to redeem the mortgage after the auction was confirmed and sale certificate was issued?
š Facts
- Borrowers availed credit facilities from the Bank on 06.01.2016.
- Loan account classified as NPA on 31.12.2019.
- Bank issued Section 13(2) notice on 12.02.2020.
- Section 13(4) possession notice issued on 28.10.2020.
- Auction Sale Notice published on 22.01.2021.
- Appellants (Auction Purchasers) bid successfully on 26.02.2021 for ā¹1,25,60,000.
- Sale Certificate issued on 22.03.2021.
- Borrowers filed Writ Petition before High Court challenging the Sale Certificate.
- High Court quashed the Sale Certificate and allowed redemption.
āļø High Court's Decision
- Allowed the Writ Petition filed by borrowers.
- Quashed the Sale Certificate dated 22.03.2021.
- Directed Bank to close the loan account and refund ā¹1,25,60,000 to auction purchasers with 9% interest.
- Relied on Mathew Varghese v. M. Amritha Kumar (2014) 5 SCC 610.
šļø Supreme Court's Analysis
1. Legislative History of SARFAESI Act
The Court traced the history of the SARFAESI Act, from the Tiwari Committee (1993) to the Narasimham Committee I & II and Andhyarujina Committee, which recommended empowering banks to take possession of securities and sell them without court intervention.
2. Section 13(8) - Pre & Post Amendment
- Pre-2016: "at any time before the date fixed for sale or transfer"
- Post-2016: "at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty"
The 2016 Amendment drastically curtailed the borrower's right of redemption. The right is now available only till the date of publication of notice for public auction, not till the completion of sale or transfer.
3. Reliance on Bafna Motors
The Court relied on Celir LLP v. Bafna Motors (Mumbai) Private Ltd. (2024) 2 SCC 1, which held:
- Under amended Section 13(8), the right of redemption stands extinguished on the date of publication of notice for public auction under Rule 9(1).
- Confirmation of sale under Rule 9(2) invests the auction purchaser with a vested right to obtain a sale certificate.
- The High Court cannot apply equitable considerations to overreach the statutory auction process.
4. Single Composite Notice of Sale
The Court clarified that Rule 8(6) read with Rule 9(1) of the SARFAESI Rules contemplates only one single composite notice of sale, not two separate notices. The distinction lies only in the manner of giving notice (served to borrower, published in newspaper, affixed on property, uploaded on website).
5. Retrospective Application of Amendment
- The loan was obtained on 06.01.2016, before the amendment came into force on 01.09.2016.
- However, the Court held that the amended Section 13(8) would apply as the classification as NPA (31.12.2019) and issuance of auction notice (22.01.2021) were after the amendment.
- The SARFAESI Act is a remedial statute intended to deal with pre-existing loan transactions and applies to pending proceedings.
ā Final Conclusion
- Appeals Allowed - The judgment of the High Court was set aside.
- The right of redemption under Section 13(8) stands extinguished upon publication of the notice for public auction.
- The Auction Purchasers are entitled to possession of the secured asset.
- The High Court erred in entertaining the writ petition when the borrowers had availed the alternative remedy under Section 17 of the SARFAESI Act.
- Any third-party rights created over the secured asset shall be non-est.
š” Practical Implications for Banking Professionals
- For Banks/Secured Creditors: The judgment reinforces that once the auction notice is published, the borrower's right of redemption is extinguished. Banks can proceed with confidence in the auction process.
- For Auction Purchasers: The judgment protects the vested rights of auction purchasers. Once the sale is confirmed and sale certificate is issued, the purchaser has a legal right to the property.
- For Borrowers: The window for redemption is now limited. Borrowers must redeem the mortgage before the publication of auction notice, not after.
- For Legal Practitioners: The judgment clarifies that writ petitions challenging auction sales under SARFAESI should not be entertained when alternative remedies under Section 17 are available.
"It is indeed very sad to note that even after these many years the procedural issues such as the one involved in the case in hand, has continued to plague the legislation."
The Court urged the Ministry of Finance, Union of India, to take a serious look at the provisions and bring about necessary changes.
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