SARFAESI - Fresh 30 Days Notice Not Needed If Failure To Conduct Sale As Per First Notice Was Due To Borrower's Actions : Supreme Court

If the sale of a mortgaged property as per the SARFAESI Rules was interrupted during the 30 days notice period due to the actions of the borrower, a fresh notice of 30 days is not necessary for the sale process to resume after the interruptions are over, held the Supreme Court in a recent judgment.

In the case S. Karthik v. N Subhash Chand Jain, the Court stated that a fresh notice is necessary only if the sale got stopped due to reasons which are not attributable to the borrower.

A bench comprising Justices L Nageswara Rao, BR Gavai and BV Nagarathna dismissed the special leave petition filed by the borrower, after making critical observations against the litigant for instituting various proceedings to stall the SARFAESI proceedings.

The judgement authored by Justice B.R.Gavai has observed that a litigant, by taking recourse to a series of proceedings one after the other, cannot be allowed to block the enforcement of a security interest created in favour of a secured creditor and thereby defeat the very purpose for which the SARFAESI Act was enacted

Factual Background

In this case, the appellants were guarantors for a loan taken by borrower from Respondent-Bank. Upon failure of the borrower to replay, the Respondent-Bank issued a sale notice in respect of mortgaged properties. The first sale notice was stayed by an order of DRT Chennai and subsequently the Respondent-Bank issued another sale notice and sold the mortgaged property to the Auction Purchaser. The guarantors contended that the sale notice issued was not in compliance with Rule 8 and Rule 9 of the SARFAESI Rules and thus the sale was void and liable to be set aside, as the second sale notice gave only 10 days as opposed to 30 days. The Madras High Court dismissed the challenge.

Assailing this judgement and order, the appellants before the Apex Court contended that the second sale notice gave a notice period of only 10 days and thus in blatant breach of Rule 8(6) and Rule 9(1) of the SARFAESI Rules, 2002 which mandate that there must be a 30 days' time gap between the date of notice and date of sale of immovable assets. Relying on Mathew Varghese v Amritha Kumar and others (2014) 5 SCC 610, Senior Counsel KV Vishwanathan argued that if the sale does not take place pursuant to a notice issued under Rules 8 and 9 of the said Rules, then the procedure prescribed by the said Rules will have to be followed afresh, and a fresh notice of 30 days' period will have to be given.

The defendants, represented by Senior Counsel Anitha Shenoy contended that, the second sale notice cannot be construed as a fresh notice but a continuation of the first sale notice. Further, it was argued that DRT, Chennai, the DRAT, Chennai, and the High Court had granted several opportunities to the appellants to make the payments, they have defaulted to do.

The bench referred to the observations made in the Court's judgement in Mathew Varghese v M.Amritha Kumar regarding the import of the Rules 8 and 9 of the SARFAESI Rules as follows :

"Rule 9(1) of the said Rules prescribed that no sale of immovable property under the said Rules would take place before the expiry of 30 days from the date on which the public notice of sale was published in the newspapers or notice of sale has been served to the borrower" (Para 16)

"Under Rule 9(1), it is prescribed that no sale of an immovable property under the Rules should take place before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers as referred to in the proviso to sub­rule (6) of Rule 8 or notice of sale has been served to the borrower. Sub­rule (6) of Rule 8 again states that the authorised officer should serve to the borrower a notice of 30 days for the sale of the immovable secured assets. Reading sub­rule (6) of Rule 8 and sub­rule (1) of Rule 9 together, the service of individual notice to the borrower, specifying clear 30 days' time­gap for effecting any sale of immovable secured asset is a statutory mandate. It is also stipulated that no sale should be affected before the expiry of 30 days from the date on which the public notice of sale is published in the newspapers. Therefore, the requirement under Rule 8(6) and Rule 9(1) contemplates a clear 30 days' individual notice to the borrower and also a public notice by way of publication in the newspapers. (Paragraph 16)

The bench pointed out that the observations of the Court in Mathew Varghese most relevant for the present matter were that:

"In the event of any such sale properly notified after giving 30 days' clear notice to the borrower did not take place as scheduled for reasons which cannot be solely attributable to the borrower, the secured creditor cannot effect the sale or transfer of the secured asset on any subsequent date by relying upon the notification issued earlier. In other words, once the sale does not take place pursuant to a notice issued under Rules 8 and 9, read along with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed above will have to be followed afresh, as the notice issued earlier would lapse."

The bench emphasised that the import of the judgement in Mathew Varghese is that:

"In the event of any such sale properly notified after giving a 30 days' clear notice to the borrower did not take place as scheduled for reasons, which cannot be solely attributable to the borrower, the secured creditor cannot effect the sale or transfer of the secured asset on any subsequent date by relying upon the notification issued earlier." (Paragraph 20)

The bench emphasised that what is of relevance to decide such matters is the question whether the failure to go ahead with sale of duly notified property took place due to reasons solely attributable to the borrowers. It noted:

"In the event of any such sale properly notified after giving a 30 days' clear notice to the borrower did not take place as scheduled for reasons, which cannot be solely attributable to the borrower, the secured creditor cannot effect the sale or transfer of the secured asset on any subsequent date by relying upon the notification issued earlier". (Paragraph 56)

Upon careful perusal of the facts of the case, the bench observed that the sale which was scheduled to take place could not take place on the scheduled date on account of interim orders passed by the DRT which were passed on the representation of the guarantors. It observed:

"...even in view of the law laid down by this Court in the case of Mathew Varghese (supra), since the sale scheduled on 27.2.2012, as per the First Sale Notice dated 21.1.2012, could not be held due to the reasons attributable solely to the guarantors, there was no necessity of again following the same procedure of providing a 30 days' clear notice. (Paragraph 60)

"It could thus be seen that the appellants had more than one opportunity for redemption of the mortgage. However, from their conduct, it appears that they were only interested in protracting the litigation. It is the appellants at whose intervention and on whose incorrect representation, the sale, which was scheduled to be held on 27.2.2012 in pursuance of the notice dated 21.1.2012,could not be held.

Even after the dismissal of S.A. No.69 of 2012 on 2.7.2012, the respondent­ Bank again issued a Second Sale Notice on 9.7.2012 scheduling the sale on 20.7.2012 in which the auction purchaser emerged as a successful bidder. It is thus clear that the appellants had enough time from 21.1.2012 till 2.7.2012 for redemption of their mortgaged properties. However, they did not avail of that opportunity." (Paragraph 68)

Thus, holding that failure to go ahead with duly notified sale of mortgaged property was solely due to reasons attributable to appellant-guarantors, the bench held that the observations in Mathew Varghese did not apply to this matter. Distinguishing the facts in case of Mathew Varghese from the present matters, the Court observed that:

"In the case of Mathew Varghese (supra) after the dismissal of S.A., the respondent­ Bank had surreptitiously accepted the tender of the auction purchaser on the very next day of dismissal of S.A. without issuing a notice to the guarantors/borrowers and also confirmed the sale, and only after the confirmation of sale and receipt of the entire amount, informed the borrowers/guarantors about the sale being confirmed. It is not the case here. In the present case, after the S.A. was dismissed on 2.7.2012, the respondent­ Bank again issued a fresh Notice on 9.7.2012 scheduling the sale on 20.7.2012". (Paragraph 60)

"Clearly, in the present case, there has been compliance with the same, insofar as the first notice is concerned, whereas in the case of Mathew Varghese (supra), there was no 30 days' period between individual notice and the date of sale". (Paragraph 61)

Thus, the bench held that the appellants cannot rely on Mathew Varghese to argue that the sale of mortgaged properties is invalid.

In response to the argument that the mortgagors have a right of redemption which is embodied in S.60 of the Transfer of Property Act, is available to the mortgagor unless it has been extinguished by the act of parties, the Court relying on Narandas Karsondas, observed that:

"It has been held, that only on execution of the conveyance and registration of transfer of the mortgagor's interest by registered instrument, that the mortgagor's right of redemption will be extinguished. In the present case, the DRT,Chennai, vide order dated12.9.2012, had granted liberty to the respondent­ Bank to proceed with the sale. The sale came to be registered in favour of the auction purchaser on 14.9.2012. As such, in any case, the mortgagor's right of redemption stood extinguished on 14.9.2012." (Paragraph 74)

The Bench dismissed the SLP with costs and observed that in matters like these the purpose with which the SARFAESI Act has been enacted has to be taken into consideration.

The Bench observed that:

"The SARFAESI Act was enacted with the purpose for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court." (Paragraph 76)

"If we look at the facts in the present case, it would show that, every attempt has been made to frustrate the purpose of the SARFAESI Act. The Respondent­Bank was required to indulge in three rounds of litigations, out of which, the two have reached upto this Court." (Paragraph 77)

Case: S.Karthik & Ors vs. N.Subhash Chand Jain & Ors.

Citation:LL 2021 SC 496

Coram: Justice L.Nageswara Rao, Justice B.R.Gavai, Justice B.V.Nagarathna

Counsel: Senior Counsel K.V.Vishwanathan for the Appellants and Senior Counsel Anitha Shenoy, Counsel K.K.Mani and Counsel Saju Jakob for the Respondents.

Click here to read/download the judgment