LI Network
Published on: October 20, 2023 at 16:10 IST
In a significant ruling, the Supreme Court of India has provided crucial clarity on the right of a borrower to redeem a mortgaged property under the unamended Section 13(8) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act).
The bench, consisting of Justices Vikram Nath and Rajesh Bindal, delivered a decisive judgment, stating that under the unamended Section 13(8) of the SARFAESI Act, the borrower retains the right to redeem the mortgaged property until the sale certificate is registered and possession is handed over.
In the case at hand, the property in question was mortgaged to the bank (Respondent No. 1) by the borrowers (Respondent Nos. 2 and 3). The appellant acquired the mortgaged property through auction proceedings under the SARFAESI Act and deposited the required funds. However, before the sale certificate was issued, the borrowers settled the entire outstanding amount with the bank.
Subsequently, when the Debt Recovery Appellate Tribunal ruled in favor of the borrowers, permitting the redemption of the mortgaged property, the appellant pursued the matter by filing a writ petition with the High Court of Punjab and Haryana. Unfortunately, the High Court dismissed the petition, leading the appellant to seek redress from the Supreme Court.
Case Background:
The appellant became the auction purchaser under the SARFAESI Act of the mortgaged property belonging to the borrowers (Respondent Nos. 2 and 3), which was secured with the bank (Respondent No. 1).
It is essential to note that the appellant had deposited the entire auction amount of Rs. 70,05,000 on March 31, 2010. Subsequently, the sale was confirmed on April 2, 2010, and the sale certificate was issued on April 8, 2010. However, during this period, on May 5, 2010, the borrowers (Respondent Nos. 2 and 3) paid the entire outstanding amount to the bank (Respondent No. 1) and applied for redemption.
Furthermore, the sale certificate issued was not registered, and possession of the auctioned property was not handed over to the appellant. Instead, it remained with the borrowers (Respondent Nos. 2 and 3), and the bank had already issued a No Objection Certificate to them concerning the loan account.
Contentions of the Parties:
The bank’s counsel informed the bench that the auction money remained with the bank.
In response, the Court noted that the bank (Respondent No. 1), having received the entire outstanding loan amount from the borrowers, did not have any legitimate claim over the auction money deposited by the appellant, along with accrued interest.
Both parties relied on the case of Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors. The appellant referred to para 105(ii), while the borrowers relied on the subsequent paragraph. The relevant excerpts are as follows:
“(ii) the confirmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invest the successful auction purchaser with a vested right to obtain a certificate of sale of the immovable property in a form given in appendix (V) to the Rules i.e., in accordance with Rule 9(6) of the SARFAESI.”
“(iii) In accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. In other words, the borrower’s right of redemption did not stand terminated alive till the transfer was completed in favor of the auction purchaser, by registration of the sale certificate and delivery of possession of the secured asset.
However, the amended provisions of Section 13(8) of the SARFAESI Act make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules of 2002. In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9(1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favor of the auction purchaser.”
In light of these facts and legal arguments, the Court ruled in favor of the borrowers. It explicitly held that the right of the borrower, under the unamended provision of Section 13(8) of the SARFAESI Act, to redeem the mortgaged property remains available until the sale certificate is registered and possession is handed over.
However, to ensure fairness between the parties, the Court directed the borrowers to make a reasonable payment to the appellant. Additionally, the bank (Respondent No. 1) was instructed to pay the entire auction money, along with accrued interest up to the current date, within two weeks of the order, without any deductions, except for TDS.
Case Title: SURINDER PAL SINGH V. VIJAYA BANK & ORS
Also Read: Maintainability of Injunction suits in Sarfaesi Act
