Brief facts:

The present judgment arises out of an appeal before the Supreme Court against the order passed by the High Court of Punjab and Haryana. The matter concerns the rights of the borrower to redeem the mortgaged property under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (“SARFAESI Act”) in the absence of the registration of the sale certificate issued in favour of the auction purchaser.

The property was initially mortgaged to the bank i.e., Respondent No. 1; the appellant is an auction purchaser in the proceedings being carried out against the borrowers i.e., Respondent Nos. 2 and 3 under the SARFAESI Act. The appellant purchased the mortgaged property in the auction proceedings and deposited the money due. The sale for the property was confirmed on April 02, 2010 and the sale certificate was issued on April 08, 2010, however it was not registered and the possession of the property was not handed over. Subsequently, the borrower paid the outstanding amounts on May 5, 2010, while applying for the redemption of the mortgaged property. The issue over the ownership and claim of the land was contended before the Debt Recovery Appellate Tribunal, which upheld the rights of redemption of the mortgaged property of the borrower and observed that the redemption was carried out in a lawful manner. This was challenged before the High Court of Punjab and Haryana through a writ petition, which the High Court dismissed. The said order of dismissal is being challenged in the present matter.

Issue and Analysis:

Whether the borrower has the right of redemption of the mortgaged property as provided under the unamended Section 13(8) of the SARFAESI Act in the absence of the registration of the sale certificate in favour of the auction purchaser.

Section 13(8) of the SARFAESI Act enables the borrower with a right of redemption of the secured property, while maintaining the right of the creditor to dispose of the secured property. The said section enables the rights conflicting in nature, to nullify that effect, the timeline prescribed by law has to be traced.

The Security Interest (Enforcement) Rules, 2002 (“2002 Rules”), through Rule 8 prescribes the timeline, and states that a secured creditor is required to give a 30 days’ notice to the borrower prior to the sale of the secured property, and in case of a public auction, a public notice has to be provided in 2 newspapers. Rule 9 states that no sale of the secured immovable property can take place without a prior 30 days’ notice being issued to the public. Both the rules mention the issuance of different notices, one to be issued specifically for the borrower and the other to be issued to provide the information to the general public.

An amendment was made to the said Section 13(8) through the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (“2016 Amendment”). Prior to the 2016 Amendment, the borrower had the right of redemption till the date fixed for the sale or transfer. The Apex Court in the case titled Mathew Varghese versus M Amritha Kumar^[1], concluded that Section 13(8) states that the debtor or borrower has the complete right to redeem the property by paying off the debt prior to the property’s sale. The sole restriction is that the auction buyer must abide with the provisions of the SARFAESI Act following the auction bid’s success.

However, post the 2016 Amendment, the borrower’s redemption rights by paying the outstanding dues for secured assets stand terminated on the date of publication of the notice of a public auction or inviting quotations.

Observations of the Supreme Court:

In the instant matter, the Court placed reliance on the judgment of the Hon’ble Supreme Court titled Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors^[2]. In the said judgment, it was ruled that, in accordance with the 2016 Amendment, the borrower’s right to redeem the mortgaged property will be deemed to be waived on the date of publication of the auction notice in the newspaper or inviting quotations, given that the borrower has not provided the secured creditor with the full amount owed prior to the auction notice being published. The Apex Court held that it is imperative to prevent any interpretation of this section that might deter the auction buyer and affect the execution of the law and recovery of public dues.

The Court went on to reiterate that it is the responsibility of the courts to uphold the integrity of the auction and that the courts should abstain from interfering with the public auctions. Therefore, in accordance with the 2016 Amendment, the Court held that, the borrower’s failure to present all the outstanding payments prior to the auction notice’s publication was sufficient to terminate the mortgage’s redemption right.

However, the Court observed that the present case falls under the ambit of the unamended SARFAESI Act and the right of redemption will be interpreted according to the same.

Decision in the present matter:

Based on the aforesaid facts and circumstances, the Hon’ble Supreme Court ruled in favor of the borrower and held that the right of redemption of the mortgaged property will be available to the borrower until the sale certificate is registered and possession is handed over under the unamended provisions of the Section 13(8) of the SARFAESI Act. Keeping in mind the interest of fairness and equity between the parties, in the instant matter, the Supreme Court ordered the banks to repay the whole auction money to the appellant and further ordered the borrowers to repay a reasonable amount to the appellant, in lieu of the redemption of the mortgaged property.

Conclusion:

In the instant matter, the Supreme Court has taken a balanced approach in granting the right of redemption of the mortgaged property till the registration of the sale certificate under the unamended Section 13(8) of the SARFAESI Act, while ensuring the repayment of the auction money to the auction purchaser. The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same.

An analysis of the present judicial precedent further highlights the difference in implementation of the pre and post amendment of Section 13(8) of the SARFAESI Act. The unamended provision allows for the borrower’s right of redemption to be valid until the sale certificate is registered, and possession is handed over, however, the post amendment Section 13(8) clarifies that the right of redemption will expire on the date of publication of the auction notice. The 2016 Amendment is an important step towards assuring prompt and timely recourse to the secured creditors. In addition to preserving the rights of the secured creditors, the 2016 Amendment reinforces and protects the rights of the auction purchasers and upholds integrity of the auction and encourages them to participate in the auction process of a mortgaged property, while maintaining the rights extended to the borrowers.

The authors have been involved in some of the largest and leading foreclosures of mortgages and implementations of the same for banks and other financial institutions and are of the view that an absolute sanctity is must to protect such foreclosures, in the absence of which the banking and financial services sector shall stare a collapse. Watch this space for more updates on the sector …

Endnotes:

[1] (2014) 5 SCC 610

[2] Civil Appeal Nos. 5542 – 5543 Of 2023