SARFAESI Act | As per Unamended S.13(8), Borrower Has Right To Redeem Available Till Sale Certificate Is Registered & Possession Is Handed Over : Supreme Court

The Supreme Court, while deciding an appeal, settled the issue of right of redemption of a mortgaged property by a borrower 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 comprising of Justices Vikram Nath and Rajesh Bindal clearly held that as per the unamended Section 13 (8) of the SARFAESI Act, the right of borrower to redeem the mortgaged property would be available until the sale certificate is registered and the possession is handed over.

“The net result is that the right of the Borrower to redeem would be available till the sale certificate is registered and the possession is handed over after which the Borrower will not have a right for redemption under the unamended provision of Section 13 (8) of the SARFAESI Act.”

In the present case, the concerned property was mortgaged to the Bank/ Respondent no. 1 by the Borrowers/Respondent Nos. 2 and 3. However, the appellant purchased the mortgaged property in the auction proceedings under the SARFAESI Act and deposited the money. Nevertheless, before the issuance of the sale certificate, the entire outstanding amount was paid to the bank by the borrowers.

Since Debt Recovery Appellate Tribunal ruled in the favour of the borrowers and permitted redemption of mortgage property, appellant approached the High Court of Punjab and Haryana by filing a writ petition. However, the same was dismissed. Aggrieved by the same, appellant approached the Supreme Court.

Case Background

The appellant was the auction purchaser in proceedings, under the SARFAESI Act, of the mortgaged property belonging to Borrowers/Respondent Nos. 2 and 3, which was secured with the Bank/Respondent No.1.

At this point, it must be noted that the appellant had deposited the entire auction money of Rs.70,05,000/- on 31.03.2010, whereafter the sale was confirmed on 02.04.2010 and the sale certificate was issued on 08.04.2010. However, in the meantime on 05.05.2010, the Borrowers/Respondent Nos.2 and 3 deposited the entire amount outstanding with the Bank/Respondent No.1 and thereafter applied for redemption.

Furthermore, the sale certificate issued was not registered and possession of the auction property was not handed over to the appellant and the same remained with the Borrowers/Respondent Nos. 2 and 3 and the Bank has already issued a No Objection Certificate to the Borrowers/Respondent Nos. 2 and 3 against the loan account.

Contentions of the Parties

The Counsel, appearing for the bank, apprised the Bench that the auction money remained with the Bank.

To this, the Court observed that the Bank/Respondent No.1 having received the entire outstanding loan amount from the borrowers would not have any claim over the auction money deposited by the appellant along with the accrued interest.

Pertinently, both the parties placed their reliance upon Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors. While the appellant relied upon para 105(ii), the borrowers relied upon the subsequent paragraph. They 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 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 favour 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 favour of the auction purchaser."

Based on these facts and circumstances, the Court ruled in favour of the borrowers and categorically held that right of the Borrower, under the unamended provision of Section 13 (8) of the SARFAESI Act., to redeem would be available till the sale certificate is registered and the possession is handed over.

However, in the interest of justice and to do equity between the parties, the Court directed the borrowers to pay a reasonable amount to the appellant. Further, the Bank/Respondent No.1 was also directed to pay the entire amount of the auction money, along with accrued interest upto date, within two weeks from the date of order, without making any deductions therefrom except TDS.

It may be noted that Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors was a case concerning Section 13(8) as amended in 2016.

Case Title: SURINDER PAL SINGH V. VIJAYA BANK & ORS.

Citation : 2023 LiveLaw (SC) 913

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