Section 13(8) SARFAESI Act| Borrower Cannot Redeem Mortgage Upon Publication Of Auction Notice: Supreme Court
The Supreme Court has held that a borrower cannot redeem the mortgage upon publication of the auction notice under amended provisions of Section 13(8) of the SARFAESI Act.
The Bench of Justice J.B. Pardiwala and Justice Manoj Misra observed, “ This Court in the operative portion of the Main Appeals stated in unequivocal terms that the confirmation of the sale by Bank under Rule 9(2) of the SARFAESI Rules had vested the petitioner herein with a right to obtain the certificate of sale of the Secured Asset. It further held categorically that the Borrower herein could not have redeemed the mortgage upon publication of the 9th auction notice. Furthermore, this Court explicitly directed the Bank to not only issue the Sale Certificate to the petitioner herein in accordance with Rule 9(6) of the SARFAESI Rules but also directed the refund of the amount of Rs. 129 crore paid by the Borrower.”
Senior Advocates Mukul Rohatgi, Neeraj Kishan Kaul and Raju Ramachandran represented the Petitioner, while Senior Advocates A.M. Singhvi, Parag Tripathi, Nikhil Nayar, Devadatt Kamat, Kapil Sibal and Chander Uday Singh appeared for the Respondent.
The Original Borrower (Respondent) had availed a credit facility from the Union Bank of India (Bank). Accordingly, the Bank sanctioned a Lease Rental Discounting (LRD) credit facility. Against the aforesaid term loan, a simple mortgage was created over a parcel of land.
However, the Borrower defaulted in repayment of the loan amount and accordingly the Borrower’s LRD Term Loan Account was declared as a Non-Performing Asset (NPA), prompting the Bank to initiate proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.
Aggrieved, the Borrower preferred a Securitization Application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal (DRT).
In the meantime, the Bank decided to put the Secured Asset to auction, with Celir LLP (Petitioner) emerging as the highest bidder. The Borrower realizing that the Secured Asset was likely to be sold off, hurriedly filed an Interlocutory Application seeking to redeem the mortgage created over the asset by paying off the total outstanding amount in lieu of the LRD Term Loan.
The Supreme Court examined the statutory requirements under Rules 8(6) and 9(1) of the SARFAESI Rules, 2002, which provides that the sale notice must be issued at least 30 days before the auction, and that the purchaser must be provided physical possession of the secured asset.
The Court also addressed the Borrower’s conduct, pointing out attempts to frustrate the recovery proceedings by transferring the secured asset despite the pendency of appeals. “When judicial orders are openly flouted or court proceedings are disrespected, it sends a signal that the rule of law is ineffective, leading to a loss of trust in the system. Judicial decisions must remain unimpaired, free from external pressures, manipulation, or circumvention. Acts that attempt to mislead the court, obstruct its functioning or frustrate its decisions distort the process of justice and would amount to contempt,” it remarked.
“It is true that this Court in its decision rendered in the Main Appeals had not issued any specific direction either to the Borrower or the Subsequent Transferee as regards the handing over of physical possession and the original title deed to the Secured Asset, or the proceedings pending before the DRT in S.A. No. 46 of 2022. However, the same would not mean that the decision of this Court in the Main Appeal was bereft of any direction as to the outcome of its findings,” the Bench stated.
The Court referred to its decision in V.S. Palanivel v. P. Sriram wherein the Court reiterated unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, Courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have.
In Celir LLP v. Bafna Motors, the Apex Court had held, “Under the amended provisions of Section 13(8) of the SARFAESI Act the right of the borrower to redeem the secured asset would be available only till the date of publication of the notice under Rule 9(1) of the SARFAESI Rules and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser.”
Consequently, the Court held, “The legality and validity of the 9 th auction proceedings conducted pursuant to the notice of sale dated 12.06.2022 is upheld. The sale of the Secured Asset to the petitioner is hereby confirmed and the title conferred through the Sale Certificate dated 27.09.2023 is declared to be absolute.”
Cause Title: Celir LLP v. Sumati Prasad Bafna & Ors. (Neutral Citation: 2024 INSC 978)
Appearance:
Petitioner: Senior Advocates Mukul Rohatgi, Neeraj Kishan Kaul and Raju Ramachandran; Advocates Shyel Trehan, Gaurav Y., Krushi Barfiwala, Divyanshu Gupta, Shivalika Rudrabatla, Apoorva Singh, Ira Mahajan, Keshav Sehgal and Sachindra Karn; AOR Pranav Sarthi and O. P. Gaggar
Respondent: Senior Advocates A.M. Singhvi, Parag Tripathi, Nikhil Nayar, Devadatt Kamat, Kapil Sibal and Chander Uday Singh; Advocates Avishkar Singhvi, Shreeyash Uday Lalit, Sanam Tripathi, Sugandha Batra, Priyansha Sharma, Arushi Mishra, Shreyash Choudhary, Runjhun Garg, Himanshu Vats, Angad Pahal, Lavam Tyagi, Sumeet Lal, Sidhant Kapoor, Masoom Shah, D. Girish Kumar, Jay Nirupam, Pranav Giri, Ekansh Sisodia, A.M. Harsavardhini, Sumedha Ray Sarkar, Rupali Francesca Samuel and Palak Rawat; AOR Ishaan George and Shubhranshu Padhi