As per case facts: Original borrowers defaulted on a loan, and the Bank auctioned a secured property. After the auction was completed, the Bank issued a Sale Certificate to the ...
No Acts & Articles mentioned in this case
2025 INSC 1144
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 12174 OF 2025
[Arising out of Special Leave Petition (Civil) No. 11068 of 2023]
M. RAJENDRAN & ORS. …APPELLANT(S)
VERSUS
M/S KPK OILS AND PROTIENS INDIA PVT. LTD. & ORS. …RESPONDENT(S)
WITH
CIVIL APPEAL NO. 12175 OF 2025
[Special Leave Petition (Civil) No. 14696 of 2023]
J U D G M E N T
Page 1 of 139
J.B. PARDIWALA, J.:
For the convenience of the exposition, this judgment is divided into the
following parts: -
INDEX
I. FACTUAL MATRIX ................................................................................... 3
A. Proceedings before the DRT. .................................................................... 8
II. IMPUGNED ORDER ............................................................................... 10
III. SUBMISSIONS OF THE PARTIES ...................................................... 13
A. Submissions on behalf of the appellants. ............................................ 14
B. Submissions on behalf of the borrowers. ............................................. 14
IV. ISSUE FOR DETERMINATION ........................................................... 15
V. ANALYSIS ................................................................................................. 15
A. Legislative History and Scheme of the SARFAESI Act. .................... 15
i. The impetus behind enactment of the SARFAESI Act. ................................. 16
ii. Relevant Statutory Provisions at Play. ............................................................ 22
B. Section 13(8) of the SARFAESI Act and the Decision of this Court in
Bafna Motors. ............................................................................................. 39
i. Factual Scenario in Bafna Motors. ...................................................................... 44
ii. Ratio of the Decision in Bafna Motors. .............................................................. 47
a. Position of Law prevailing prior to the Amendment of Section 13(8) of
the SARFAESI Act. ........................................................................................ 48
b. The 2016 Amendment to Section 13(8) of the SARFAESI Act and the
Contradictory Views on the subject. .......................................................... 58
c. Effect of the 2016 Amendment on the Right of Redemption under
Section 13(8) of the SARFAESI Act. ............................................................ 77
C. How the decision of this Court in Bafna Motors should be
understood? ....................................................................................................... 81
i. There cannot be any artificial distinction in the right of redemption under
Section 13(8) of the SARFAESI Act for different modes of transfer. ........... 82
a. Scheme for sale of Immovable Secured Asset under Section 13(8) of the
SARFAESI Act read with Rule(s) 8 and 9 of the SARFAESI Rules. ...... 82
Page 2 of 139
ii. There is only a single Notice of Sale required under Rule 8(6) of the
SARFAESI Rules for transfer of secured asset, by lease, assignment or sale.
............................................................................................................................. 101
a. Contradictory Views of the High Court on the subject. .................... 102
b. The Scheme under the SARFAESI Rules envisages one single
composite Notice of Sale of Immovable Secured Asset. .................... 106
iii. What is the import of the expression “before the date of publication” used
in Section 13(8) of the SARFAESI Act. ........................................................... 125
D. Whether, the Amended Section 13(8) of the SARFAESI Act is
retrospective in nature? .......................................................................... 130
VI. FINAL CONCLUSION .......................................................................... 135
Page 3 of 139
1. Leave granted.
2. Since the issues raised in both the captioned appeals are the same
and the challenge is also to the self-same judgment and order passed
by the High Court, those were taken up for hearing analogously and
are being disposed of by this common judgment and order.
3. These appeals arise from the judgment and order passed by the High
Court of Judicature at Madras dated 24.04.2023 in Writ Petition No.
1882 of 2023 with Writ Miscellaneous Petition Nos. 1987-1988 of 2023
respectively by which the High Court allowed the writ petition filed
by the respondent Nos. 1 to 4 respectively herein and thereby the
Sale Certificate issued by the respondent No. 5 in favour of the
appellants (Auction Purchasers) dated 22.03.2021 came to be
quashed and the respondent No. 5 Bank was directed to permit the
respondent Nos. 1 to 4 herein to redeem the mortgage and close the
loan account of the borrowers.
I. FACTUAL MATRIX
4. For the sake of convenience, the appellants herein shall be referred
to as the Auction Purchasers. The respondent Nos. 1 to 4 respectively
Page 4 of 139
hereinafter referred to as the Original Borrowers and the respondent
No. 5 shall hereinafter be referred to as the Bank.
5. The borrowers availed cash credit facilities on 06.01.2016 from the
Bank to the tune of Rs. 5 crore and a term loan of Rs. 30 lakh
respectively. The respondent Nos. 2 and 3 respectively herein stood
as guarantors by creating equitable mortgage over various
immovable properties including the “Subject Property” vide the
Memorandum of Deposit of Title Deeds bearing Document No. 68
of 2016 dated 06.1.2016 with the Sub Registrar Office, Dharapuram
for the purpose of securing the repayment of the credit facilities.
6. The description of the subject property is as under: -
“Vacant dry land to an extent of 1.92 acres in Old S.F. NO. 540,
541 and New S.F. No.476/2, Dharapuram Alangiyam Road,
Chitraravuthanpalayam, Dharapuram Taluk, Triuppur District.
Boundaries:
On the South by : East West in RS No. 535
On the West by: 0.89 acres of land belonging to Nachimuthu
Gounder in RSNo. 476/2
On the North by : Land belonging to Kuppusamy Gounder in RS
No. 476/1.
On the East by: Land belonging to Palanisamy and Vallinayaki
in RSNo. 475/3.”
Page 5 of 139
7. It may not be out of place to state at this stage that the respondent
nos. 3 and 4 respectively herein are the son and daughter in law
respectively of the respondent No. 2 who had executed guarantees
to secure repayment of the credit facilities availed by KPK Oils
Limited i.e., Original Borrowers.
8. On 31.12.2019, the borrower’s auction was classified as a Non-
Performing Asset (NPA) by the Bank due to default in repayment of
the outstanding dues.
9. On 12.02.2020, the Bank issued a notice under Section 13(2) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short, the
“SARFAESI Act”) for the outstanding dues of INR 3,96,15,672
payable as on 31.12.2019.
10. It is not in dispute that the respondent Nos. 1 to 4 respectively had
not preferred any representation under Section 13(3A) of the
SARFAESI Act.
Page 6 of 139
11. On 28.10.2020, the Bank issued notice under Section 13(4) of the
SARFAESI Act seeking to take over the possession of the secured
asset for the debt amount of INR 4,39,82,862.20 due and payable as
on 30.09.2020.
12. On 31.10.2020, the Bank published Possession Notice in two
newspapers, namely, “New Indian Express” in English and
“Dinamani” in vernacular language.
13. On 28.12.2020, the MD and Partner of the Borrower i.e., the
respondent No. 4 herein filed S.A. No. 5 and 7 of 2020 respectively
under Section 17 of the SARFAESI Act challenging the Possession
Notice dated 28.10.2020 before the DRT, Coimbatore.
14. On 22.01.2021, the Bank issued an Auction Sale Notice accordance
with Rule 8 read with Rule 9 of the Security Interest (Enforcement)
Rules, 2002, (for short, the “SARFAESI Rules”) for sale of the
secured subject property for recovery of INR 4,55,64,590.20 due and
payable as on 31.12.2020.
Page 7 of 139
15. On 24.01.2021, the aforesaid Auction Sale Notice of the subject
immovable property was also published in the “New Indian
Express” and “Dinamani” newspapers respectively.
16. Sometime in February 2021, the borrowers along with Shri
Palanisami filed S.A. No. 160 of 2021 under Section 17 of the
SARFAESI Act challenging the aforesaid Auction Sale Notice before
the DRT, Coimbatore.
17. On 26.02.2021, the appellants herein participated and successfully
bid in Auction Sale for sale consideration of Rs. 1,25,60,000/-. On
20.03.2021, the appellants herein deposited the entire sale
consideration of INR 1,25,60,000 with the Bank.
18. On 22.03.2021, upon payment of the entire sale consideration the
Bank issued a Sale Certificate in favour of the appellants.
19. The sale consideration received by the Bank was appropriated
towards the outstanding loan amount. In March 2021, after the sale
came to be confirmed the borrowers paid a sum of Rs. 2,88,00,000
Page 8 of 139
towards the outstanding dues under the loan. It is pertinent to note
that at the relevant point of time an amount of INR 61,91,000 was
still outstanding towards the loan amount.
A. Proceedings before the DRT.
20. After the completion of sale and issuance of the Sale Certificate, the
DRT passed an order of status quo dated 26.03.2021. Since the
appellants herein were not made party to the proceedings before the
DRT, the DRT vide order dated 26.03.2021 proceeded to pass an
order of status quo despite the fact that the appellants herein were
not made party in the said proceedings. Later an application for
impleadment was filed by the appellants in the proceedings before
the DRT.
21. On 07.05.2021, the borrowers paid an amount of INR 62,74,123.74
towards the outstanding dues for releasing the other properties.
Page 9 of 139
22. On 07.05.2021, the Bank closed the loan account of the borrowers
after appropriating a sum of INR 1,25,60,000 received by it out of the
sale consideration on auction of the secured assets as aforesaid.
23. On 14.07.2021, the application for impleadment filed by the
appellant came to be allowed.
24. On 07.12.2021, 14.03.2021, 01.06.2022, 24.06.2022 and 11.07.2022
respectively, adjournments were sought in S.A. No. 160 of 2021 by
the borrowers. Once again on 06.05.2022, 01.06.2022, 24.06.2022, and
11.07.2022 respectively, adjournments were sought in S.A. No. 517
of 2020.
25. On 19.01.2023, the DRT, Coimbatore dismissed the SA No. 517 of
2020 wherein the Possession Notice under Section 13(4) of the
SARFAESI Act was under challenge. On the very same day and date
the DRT by a separate judgment dismissed the S.A. No. 160 of 2021
wherein the Sale Notice dated 22.01.2021 was under challenge.
Page 10 of 139
II. IMPUGNED ORDER
26. The borrowers without availing the alternative statutory remedy of
preferring statutory appeal before the Appellate Tribunal went to
the High Court and preferred Writ Petition No. 1882 of 2023, seeking
to challenge the Sale Certificate dated 22.03.2021 for the first time.
27. The High Court vide order dated 24.01.2023 issued notice and
directed that status quo be maintained as the borrowers were ready
and willing to clear the outstanding dues by paying INR 50,00,000
by 25.01.2023 and the balance amount within a period of next seven
working days.
28. On 24.01.2023, the borrowers deposited INR 50,00,000 with the
Bank. Another demand draft of INR 92,01,158 dated 31.01.2023 was
deposited by them with the Bank.
29. The High Court allowed the writ petition holding that the issue as
regards the right to redemption under Section 13(8) of the
SARFAESI Act was no long res integra in view of the decision of this
Page 11 of 139
Court in Mathew Varghese v. Amritha Kumar and Ors. reported in
(2014) 5 SCC 610.
30. The High Court while allowing the writ petition filed by the
borrowers held as under:
“10. Thus, in spite of the authoritative pronouncement of the
Hon’ble Supreme Court of India, the DRT has been time and
again holding that the right of redemption is lost on the fall of the
hammer as per Section 13(8) which is legally unsustainable and
therefore only in the extraordinary circumstances, as the
question of law has to be made clear this writ petition is
entertained by this Court and therefore, the objection on the
ground of alternative remedy, though is a valid objection and is
also followed by this Court generally in relegating the parties
only to the DRT, in view of the above peculiar and extraordinary
circumstance, and because the contention of the borrower /
guarantors was not on air, but by paying the entire sum
outstanding to the bank, as an exceptional case this writ petition
is entertained by this Court and accordingly we over rule the said
objection raised on behalf of the respondents.
11. It is the objection of the respondent bank that initially when
the petitioners paid a sum of Rs.2,88,00,000/~ in the month of
March 2021 and thereafter Rs.62,74,123.74/~ on 17.05.2021, by
accepting the sale of the property and by closing the loan account
is concerned, except for the bald averment in Para 5 of the counter
affidavit, no material whatsoever is produced before this Court.
If such is the case, there would have been written
communications to that effect on either side. Besides, it could be
seen that even in the interim order dated 26.03.2021 was passed
by the DRT, the following has been stated;
Learned counsel for the Respondent Bank submitted that the
property is sold on the scheduled date of auction and the Sale
Certificate is also issued. However, the Sale Certificate is not
Page 12 of 139
registered as of now. The Applicant also paid substantial amount
of dues of about 50% of the amount claimed.
The Applicant having paid a substantial amount of about 50% of
the claim amount, this Tribunal is of the view that a status-quo
order is required to be passed in the interest of justice. Hence,
there shall be an order of status quo as of today. Meanwhile, the
Applicant directed to initiate steps to implead the auction
purchaser in this case.
12. Therefore, had the petitioner agreed for the same and remitted
Rs.2,88,00,000/- in the month of March 2021, the same would
have been brought to the notice of the DRT also and an order of
status quo not to register the sale certificate would not have been
granted. Therefore when the borrower, for some reasons, did not
repay the loan promptly, but however manages to pay the entire
amount as claimed by the respondent bank even at the last
minute, the same cannot be rejected on technical reasons, as the
very purpose of the law of mortgage is to create security for the
loan and not to result in the ownership of the property being
transferred.
13. While we overrule the objections on behalf of the respondents,
we hold that the auction purchasers will be entitled for the return
of the entire sum of Rs.1,25,60,000/- paid by them and they will
also be entitled to interest at the rate of 9% per annum from the
date of remitting the amounts till the date of repayment. It goes
without saying that it is only the writ petitioners / borrowers who
have to make good the said interest amount.”
31. The High Court ultimately issued the following directions in para
14 which reads thus:
“14. In the result,
(a) The writ petition is allowed and the impugned sale certificate
dated 22.03.2021 issued by the first respondent in favour of the
respondents 3 to 11 stands quashed.
Page 13 of 139
(b)The first respondent is directed to close the Loan A/c
No.136700150950167 as the entire due amount is already paid;
(c)The first respondent shall also issue due receipt for the
discharge of mortgage and the same shall be presented before the
appropriate Sub Registrar;
(d)The first respondent bank is directed to refund the entire sum
of Rs.1,25,60,000/~ to the respondents 3 to 11 within one week
from the date of receipt of a copy of this order;
(e)The first respondent bank shall also calculate the interest at the
rate of 9% per annum on the said amount paid by the auction
purchasers from the date of the respective remittance of the
amount till the date of repayment and intimate the same by
writing to the petitioners within one week thereafter.
(f)Upon receipt of the written communication from the first
respondent bank, the entire interest amount shall be remitted to
the first respondent bank within one week therefrom by the writ
petitioners and the first respondent bank shall pay out the same
to the respondents 3 to 11;
(g)It is made clear that if the writ petitioners default in the
payment of interest as aforesaid within the aforesaid time the writ
petition shall stand dismissed automatically without any further
reference to this Court.”
32. In such circumstances referred to above, the auction purchasers are
here before this Court with the present appeal.
III. SUBMISSIONS OF THE PARTIES
Page 14 of 139
A. Submissions on behalf of the appellants.
33. Ms. Praveena Gautam, the learned counsel appearing for the
Auction Purchasers vehemently submitted that the High Court
committed an egregious error in entertaining the writ petition and
passing the impugned judgment and order. She would submit that
the issues involved in the present appeal are now covered by a
decision of this Court in Celir LLP v. Bafna Motors (Mumbai)
Private Ltd. reported in (2024) 2 SCC 1.
34. In such circumstances referred to above, the learned counsel would
submit that there being merit in his appeal the same may be allowed
and the impugned judgment and order be quashed.
B. Submissions on behalf of the borrowers.
35. Mr. Huzefa Ahmedi, the learned counsel appearing for the
borrowers while opposing this appeal vehemently submitted
that the ratio or rather the principles enunciated in Bafna
Motors (supra) are not applicable in the facts and circumstances
of the present case. He would submit that in the case in hand the
Page 15 of 139
loan was obtained on 06.01.2016 whereas Section 13(8) came to
be amended with effect from 01.09.2016. He would submit that
the amended Section 13(8) of the SARFAESI Act would not have
retrospective operation. He would submit that no error not to
speak of any error of law could be said to have been committed
by the High Court in passing the impugned order.
36. In such circumstances referred to above, the learned counsel
would submit that there being no merit in this appeal the same
may be dismissed.
IV. ISSUE FOR DETERMINATION
37. Having heard the learned counsel appearing for the parties and
having gone through the materials on record the only question that
falls for our consideration is whether the High Court committed any
error in passing the impugned judgment and order?
V. ANALYSIS
A. Legislative History and Scheme of the SARFAESI Act.
Page 16 of 139
i. The impetus behind enactment of the SARFAESI Act.
38. Till early 1990s, the civil suits were being filed for recovery of the
dues of banks and financial institutions under the Act 1882 and the
Code of Civil Procedure, 1908 (“CPC”). Due to various difficulties
the banks and financial institutions had to face in recovering loans
and enforcement of securities, the Parliament enacted the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993 (for short,
the “RDBFI Act”).
39. On account of lack of infrastructure and manpower, the regular civil
courts were not in a position to cope up with the speed in the
adjudication of recovery cases. In the light of recommendations of
the Tiwari Committee the special tribunals came to be set up under
the provisions of the RDBFI Act referred to above for the recovery of
huge accumulated NPA of the Bank loans.
40. On the continuing rise in number of Non-Performing Assets (NPA)
at banks and other financial institutions in India; a poor rate of loan
recovery and the failure of the existing legislation in redressing the
difficulties of recovery by banks; the Narasimham Committee I & II
Page 17 of 139
and Andyarujina Committee were constituted by the Government
for examining and suggesting banking reforms in India. These
Committees in their reports observed that one out of every five
borrower was a defaulter, and that due to the long and tedious
process of existing frame work of law and the overburdening of
existing forums including the specialised tribunals under the 1993
Act, any attempt of recovery with the assistance of court/tribunal
often rendered the secured asset nearly worthless due to the long
delays. In this background the Committees thus, proposed new laws
for securitisation in order to permit banks and financial institutions
to hold securities and sell them in a timely manner without the
involvement of the courts.
41. On the recommendations of the Narasimham Committee and
Andyarujina Committee, the SARFAESI Act was enacted to
empower the banks and financial institutions to take possession of
the securities and to sell them without intervention of the court.
42. The statement of objects and reasons for which the Act has been
enacted reads as under: -
Page 18 of 139
“STATEMENT OF OBJECTS AND REASONS
The financial sector has been one of the key drivers in India's
efforts to achieve success in rapidly developing its economy.
While the banking industry in India is progressively complying
with the international prudential norms and accounting
practices there are certain areas in which the banking and
financial sector do not have a level playing field as compared to
other participants in the financial markets in the world. There is
no legal provision for facilitating securitisation of financial assets
of banks and financial institutions. Further, unlike international
banks, the banks and financial institutions in India do not have
power to take possession of securities and sell them. Our existing
legal framework relating to commercial transactions has not kept
pace with the changing commercial practices and financial sector
reforms. This has resulted in slow pace of recovery of defaulting
loans and mounting levels of non-performing assets of banks and
financial institutions. Narasimham Committee I and II and
Andhyarujina Committee constituted by the Central
Government for the purpose of examining banking sector reforms
have considered the need for changes in the legal system in
respect of these areas. These Committees, inter alia, have
suggested enactment of a new legislation for securitisation and
empowering banks and financial institutions to take possession
of the securities and to sell them without the intervention of the
court. Acting on these suggestions, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Ordinance, 2002 was promulgated on the 21st June,
2002 to regulate securitisation and reconstruction of financial
assets and enforcement of security interest and for matters
connected therewith or incidental thereto. The provisions of the
Ordinance would enable banks and financial institutions to
realise long-term assets, manage problem of liquidity, asset
liability mismatches and improve recovery by exercising powers
to take possession of securities, sell them and reduce
nonperforming assets by adopting measures for recovery or
reconstruction."
Page 19 of 139
43. This Court in Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.
reported in (2004) 4 SCC 311, examined the history and legislative
backdrop that ultimately led to the enactment of the SARFAESI Act
as under: -
“34. Some facts which need to be taken note of are that the banks
and the financial institutions have heavily financed the
petitioners and other industries. It is also a fact that a large sum
of amount remains unrecovered. Normal process of recovery of
debts through courts is lengthy and time taken is not suited for
recovery of such dues. For financial assistance rendered to the
industries by the financial institutions, financial liquidity is
essential failing which there is a blockade of large sums of
amounts creating circumstances which retard the economic
progress followed by a large number of other consequential ill
effects. Considering all these circumstances, the Recovery of
Debts Due to Banks and Financial Institutions Act was enacted
in 1993 but as the figures show it also did not bring the desired
results. Though it is submitted on behalf of the petitioners that it
so happened due to inaction on the part of the Governments in
creating Debts Recovery Tribunals and appointing presiding
officers, for a long time. Even after leaving that margin, it is to
be noted that things in the spheres concerned are desired to move
faster. In the present-day global economy it may be difficult to
stick to old and conventional methods of financing and recovery
of dues. Hence, in our view, it cannot be said that a step taken
towards securitisation of the debts and to evolve means for faster
recovery of NPAs was not called for or that it was
superimposition of undesired law since one legislation was
already operating in the field, namely, the Recovery of Debts Due
to Banks and Financial Institutions Act. It is also to be noted that
the idea has not erupted abruptly to resort to such a legislation.
It appears that a thought was given to the problems and the
Narasimham Committee was constituted which recommended
for such a legislation keeping in view the changing times and
economic situation whereafter yet another Expert Committee was
constituted, then alone the impugned law was enacted. Liquidity
of finances and flow of money is essential for any healthy and
Page 20 of 139
growth-oriented economy. But certainly, what must be kept in
mind is that the law should not be in derogation of the rights
which are guaranteed to the people under the Constitution. The
procedure should also be fair, reasonable and valid, though it may
vary looking to the different situations needed to be tackled and
object sought to be achieved.
xxx xxx xxx
36. In its Second Report, the Narasimham Committee observed
that NPAs in 1992 were uncomfortably high for most of the
public sector banks. In Chapter VIII of the Second Report the
Narasimham Committee deals about legal and legislative
framework and observed:
“8.1. A legal framework that clearly defines the rights
and liabilities of parties to contracts and provides for
speedy resolution of disputes is a sine qua non for
efficient trade and commerce, especially for financial
intermediation. In our system, the evolution of the
legal framework has not kept pace with changing
commercial practice and with the financial sector
reforms. As a result, the economy has not been able to
reap the full benefits of the reforms process. As an
illustration, we could look at the scheme of mortgage in
the Transfer of Property Act, which is critical to the
work of financial intermediaries….”
One of the measures recommended in the circumstances was to
vest the financial institutions through special statutes, the power
of sale of the assets without intervention of the court and for
reconstruction of assets. It is thus to be seen that the question of
non-recoverable or delayed recovery of debts advanced by the
banks or financial institutions has been attracting attention and
the matter was considered in depth by the Committees specially
constituted consisting of the experts in the field. In the prevalent
situation where the amounts of dues are huge and hope of early
recovery is less, it cannot be said that a more effective legislation
for the purpose was uncalled for or that it could not be resorted
to. It is again to be noted that after the Report of the Narasimham
Page 21 of 139
Committee, yet another Committee was constituted headed by
Mr Andhyarujina for bringing about the needed steps within the
legal framework. We are therefore, unable to find much substance
in the submission made on behalf of the petitioners that while the
Recovery of Debts Due to Banks and Financial Institutions Act
was in operation it was uncalled for to have yet another
legislation for the recovery of the mounting dues. Considering
the totality of circumstances and the financial climate world over,
if it was thought as a matter of policy to have yet speedier legal
method to recover the dues, such a policy decision cannot be
faulted with nor is it a matter to be gone into by the courts to test
the legitimacy of such a measure relating to financial policy.”
44. In this regard, reference may also be made to the following
observations of this Court in the case of United Bank of India v.
Satyawati Tondon & Ors. reported in (2010) 8 SCC 110 which laid
emphasis on the need for an expeditious mechanism for recovery of
debts as the impetus for the enactment of the SARFAESI Act. The
relevant observations read as under: -
“1. [...] With a view to give impetus to the industrial
development of the country, the Central and State Governments
encouraged the banks and other financial institutions to
formulate liberal policies for grant of loans and other financial
facilities to those who wanted to set up new industrial units or
expand the existing units. Many hundred thousand took
advantage of easy financing by the banks and other financial
institutions but a large number of them did not repay the amount
of loan, etc. Not only this, they instituted frivolous cases and
succeeded in persuading the civil courts to pass orders of
injunction against the steps taken by banks and financial
institutions to recover their dues. Due to lack of adequate
infrastructure and non-availability of manpower, the regular
courts could not accomplish the task of expeditiously
Page 22 of 139
adjudicating the cases instituted by banks and other financial
institutions for recovery of their dues. As a result, several
hundred crores of public money got blocked in unproductive
ventures.
2. In order to redeem the situation, the Government of India
constituted a committee under the Chairmanship of Shri T.
Tiwari to examine the legal and other difficulties faced by banks
and financial institutions in the recovery of their dues and
suggest remedial measures. The Tiwari Committee noted that the
existing procedure for recovery was very cumbersome and
suggested that special tribunals be set up for recovery of the dues
of banks and financial institutions by following a summary
procedure. The Tiwari Committee also prepared a draft of the
proposed legislation which contained a provision for disposal of
cases in three months and conferment of power upon the
Recovery Officer for expeditious execution of orders made by
adjudicating bodies.”
ii. Relevant Statutory Provisions at Play.
45. Section 13 of the SARFAESI Act contains the provisions relating to
the enforcement of the security interest and the manner in which the
same may be done by the secured creditor without the intervention
of the court or tribunal in accordance with its provisions. The said
provision reads as under: -
“13. Enforcement of security interest.–
(1) Notwithstanding anything contained in section 69 or section
69A of the Transfer of Property Act, 1882 (4 of 1882), any
security interest created in favour of any secured creditor may be
enforced, without the intervention of the court or tribunal, by
such creditor in accordance with the provisions of this Act.
Page 23 of 139
(2) Where any borrower, who is under a liability to a secured
creditor under a security agreement, makes any default in
repayment of secured debt or any instalment thereof, and his
account in respect of such debt is classified by the secured creditor
as non-performing asset, then, the secured creditor may require
the borrower by notice in writing to discharge in full his
liabilities to the secured creditor within sixty days from the date
of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
Provided that –
(i) the requirement of classification of secured debt as
non performing asset under this sub-section shall not
apply to a borrower who has raised funds through issue
of debt securities; and
(ii) in the event of default, the debenture trustee shall
be entitled to enforce security interest in the same
manner as provided under this section with such
modifications as may be necessary and in accordance
with the terms and conditions of security documents
executed in favour of the debenture trustee;
(3) The notice referred to in sub-section (2) shall give details of
the amount payable by the borrower and the secured assets
intended to be enforced by the secured creditor in the event of non
payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the
borrower makes any representation or raises any objection, the
secured creditor shall consider such representation or objection
and if the secured creditor comes to the conclusion that such
representation or objection is not acceptable or tenable, he shall
communicate within fifteen days of receipt of such representation
or objection the reasons for non-acceptance of the representation
or objection to the borrower: Provided that the reasons so
communicated or the likely action of the secured creditor at the
stage of communication of reasons shall not confer any right
upon the borrower to prefer an application to the Debts Recovery
Page 24 of 139
Tribunal under section 17 or the Court of District Judge under
section 17A.
(4) In case the borrower fails to discharge his liability in full
within the period specified in sub-section (2), the secured creditor
may take recourse to one or more of the following measures to
recover his secured debt, namely:—
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease,
assignment or sale for realising the secured asset;
(b) take over the management of the business of the
borrower including the right to transfer by way of
lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of
lease, assignment or sale shall be exercised only where
the substantial part of the business of the borrower is
held as security for the debt:
Provided further that where the management
of whole of the business or part of the business is
severable, the secured creditor shall take over the
management of such business of the borrower which is
relatable to the security for the debt;
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession
of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person
who has acquired any of the secured assets from the
borrower and from whom any money is due or may
become due to the borrower, to pay the secured creditor,
so much of the money as is sufficient to pay the secured
debt.
(5) Any payment made by any person referred to in clause (d) of
sub-section (4) to the secured creditor shall give such person a
valid discharge as if he has made payment to the borrower.
Page 25 of 139
(5A) Where the sale of an immovable property, for which a
reserve price has been specified, has been postponed for want of a
bid of an amount not less than such reserve price, it shall be
lawful for any officer of the secured creditor, if so authorised by
the secured creditor in this behalf, to bid for the immovable
property on behalf of the secured creditor at any subsequent sale.
(5B) Where the secured creditor, referred to in sub-section (5A),
is declared to be the purchaser of the immovable property at any
subsequent sale, the amount of the purchase price shall be
adjusted towards the amount of the claim of the secured creditor
for which the auction of enforcement of security interest is taken
by the secured creditor, under sub-section (4) of section 13.
(5C) The provisions of section 9 of the Banking Regulation Act,
1949 (10 of 1949) shall, as far as may be, apply to the immovable
property acquired by secured creditor under sub-section (5A).
(6) Any transfer of secured asset after taking possession thereof
or take over of management under sub-section (4), by the secured
creditor or by the manager on behalf of the secured creditor shall
vest in the transferee all rights in, or in relation to, the secured
such secured asset.
(7) Where any action has been taken against a borrower under
the provisions of sub-section (4), all costs, charges and expenses
which, in the opinion of the secured creditor, have been properly
incurred by him or any expenses incidental thereto, shall be
recoverable from the borrower and the money which is received
by the secured creditor shall, in the absence of any contract to the
contrary, be held by him in trust, to be applied, firstly, in
payment of such costs, charges and expenses and secondly, in
discharge of the dues of the secured creditor and the residue of the
money so received shall be paid to the person entitled thereto in
accordance with his rights and interests.
(8) Where the amount of dues of the secured creditor together
with all costs, charges and expenses incurred by him is tendered
to the secured creditor at any time before the date of publication
of notice for public auction or inviting quotations or tender from
Page 26 of 139
public or private treaty for transfer by way of lease, assignment
or sale of the secured assets,-
(i) the secured assets shall not be transferred by way of
lease assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment or
sale of the assets before tendering of such amount
under this sub-section, no further step shall be taken
by such secured creditor for transfer by way of lease or
assignment or sale of such secured assets.
(9) Subject to the provisions of the Insolvency and Bankruptcy
Code, 2016, in the case of financing of a financial asset by more
than one secured creditors or joint financing of a financial asset
by secured creditors, no secured creditor shall be entitled to
exercise any or all of the rights conferred on him under or
pursuant to sub-section (4) unless exercise of such right is agreed
upon by the secured creditors representing not less than sixty per
cent. in value of the amount outstanding as on a record date and
such action shall be binding on all the secured creditors:
Provided that in the case of a company in liquidation, the
amount realised from the sale of secured assets shall be
distributed in Act, 1956 (1 of 1956):
Provided further that in the case of a company being
wound up on or after the commencement of this Act, the secured
creditor of such company, who opts to realise his security instead
of relinquishing his security and proving his debt under proviso
to sub-section (1) of section 529 of the Companies Act, 1956 (1 of
1956), may retain the sale proceeds of his secured assets after
depositing the workmen’s dues with the liquidator in accordance
with the provisions of section 529A of that Act:
Provided also that liquidator referred to in the second
proviso shall intimate the secured creditor the workmen’s dues in
accordance with the provisions of section 529A of the Companies
Act, 1956 (1 of 1956) and in case such workmen’s dues cannot
be ascertained, the liquidator shall intimate the estimated amount
of workmen’s dues under that section to the secured creditor and
Page 27 of 139
in such case the secured creditor may retain the sale proceeds of
the secured assets after depositing the amount of such estimate
dues with the liquidator:
Provided also that in case the secured creditor deposits
the estimated amount of workmen’s dues, such creditor shall be
liable to pay the balance of the workmen’s dues or entitled to
receive the excess amount, if any, deposited by the secured
creditor with the liquidator:
Provided also that the secured creditor shall furnish an
undertaking to the liquidator to pay the balance of the workmen’s
dues, if any.
Explanation.— For the purposes of this sub-
section,—
(a) “record date” means the date agreed upon by the
secured creditors representing not less than sixty per
cent. in value of the amount outstanding on such date;
(b) “amount outstanding” shall include principal,
interest and any other dues payable by the borrower to
the secured creditor in respect of secured asset as per
the books of account of the secured creditor.
(10) Where dues of the secured creditor are not fully satisfied
with the sale proceeds of the secured assets, the secured creditor
may file an application in the form and manner as may be
prescribed to the Debts Recovery Tribunal having jurisdiction or
a competent court, as the case may be, for recovery of the balance
amount from the borrower.
(11) Without prejudice to the rights conferred on the secured
creditor under or by this section, secured creditor shall be entitled
to proceed against the guarantors or sell the pledged assets
without first taking any of the measured specifies in clauses (a)
to (d) of sub-section (4) in relation to the secured assets under
this Act.
Page 28 of 139
(12) The rights of a secured creditor under this Act may be
exercised by one or more of his officers authorised in this behalf
in such manner as may be prescribed.
(13) No borrower shall, after receipt of notice referred to in sub
section (2), transfer by way of sale, lease or otherwise (other than
in the ordinary course of his business) any of his secured assets
referred to in the notice, without prior written consent of the
secured creditor.”
46. Rules 8 and 9 respectively of the SARFAESI Rules prescribe the
procedure and formalities to be followed for the sale of immovable
secured asset as per Section 13 of the SARFAESI Act.
47. Rule 8 of the SARFAESI Rules stipulates the manner in which sale of
an immovable secured asset may take place at the behest of the
secured creditor, and reads as under: -
“8. Sale of immovable secured assets.–
(1) Where the secured asset is an immovable property, the
authorised officer shall take or cause to be taken possession, by
delivering a possession notice prepared as nearly as possible in
Appendix IV to these rules, to the borrower and by affixing the
possession notice on the outer door or at such conspicuous place
of the property.
(2) The possession notice as referred to in sub-rule (1) shall also
be published, as soon as possible but in any case not later than
seven days from the date of taking possession, in two leading
newspaper one in vernacular language having sufficient
circulation in that locality, by the authorised officer.
Page 29 of 139
(2A) All notices under these rules may also be served upon the
borrower through electronic mode of service, in addition to the
modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.
(3) In the event of possession of immovable property is actually
taken by the authorised officer, such property shall be kept in his
own custody or in the custody of any person authorised or
appointed by him, who shall take as much care of the property in
his custody as a owner of ordinary prudence would, under the
similar circumstances, take of such property.
(4) The authorised officer shall take steps for preservation and
protection of secured assets and insure them, if necessary, till
they are sold or otherwise disposed of.
(5) Before effecting sale of the immovable property referred to in
sub-rule (1) of rule 9, the authorised officer shall obtain valuation
of the property from an approved valuer and in consultation with
the secured creditor, fix the reserve price of the property and may
sell the whole or any part of such immovable secured asset by any
of the following methods:-
(a) by obtaining quotations from the persons dealing
with similar secured assets or otherwise interested in
buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction including through e-
auction mode; or
(d) by private treaty.
Provided that in case of sale of immovable property in the
State of Jammu and Kashmir, the provision of Jammu and
Kashmir Transfer of Property Act, 1977 shall apply to the person
who acquires such property in the State.
(6) the authorised officer shall serve to the borrower a notice of
thirty days for sale of the immovable secured assets, under sub
rule (5):
Provided that if the sale of such secured asset is being
effected by either inviting tenders from the public or by holding
Page 30 of 139
public auction, the secured creditor shall cause a public notice in
the Form given in Appendix IV-A to be published in two leading
newspapers including one in vernacular language having wide
circulation in the locality.
(7) every notice of sale shall be affixed on the conspicuous part of
the immovable property and the authorised officer shall upload
the detailed terms and conditions of the sale, on the web-site of
the secured creditor, which shall include;
(a) the description of the immovable property to be sold,
including the details of the encumbrances known to the
secured creditor;
(b) the secured debt for recovery of which the property
is to be sold;
(c) reserve price of the immovable secured assets below
which the property may not be sold;
(d) time and place of public auction or the time after
which sale by any other mode shall be completed;
(e) deposit of earnest money as may be stipulated by the
secured creditor; (f) any other terms and conditions,
which the authorised officer considers it necessary for
a purchaser to know the nature and value of the
property.
(8) Sale by any methods other than public auction or public
tender, shall be on such terms as may be settled between the
secured creditors and the proposed purchaser in writing.”
48. On the other hand, Rule 9 of the SARFAESI Rules provides when the
immovable property may be sold by the secured creditor, or put it
simply, the time of sale along with the formalities by which such sale
would be concluded. The said rule reads as under: -
“9. Time of sale, issue of sale certificate and delivery of
possession, etc.–
Page 31 of 139
(1) No sale of immovable property under these rules, in first
instance shall take place before the expiry of thirty days from the
date on which the public notice of sale is published in newspapers
as referred to in the proviso to sub-rule (6) of rule 8 or notice of
sale has been served to the borrower:
Provided further that if sale of immovable property by
any one of the methods specified by sub-rule (5) of rule 8 fails and
sale is required to be conducted again, the authorised officer shall
serve, affix and publish notice of sale of not less than fifteen days
to the borrower, for any subsequent sale.
(2) The sale shall be confirmed in favour of the purchaser who has
offered the highest sale price in his bid or tender or quotation or
offer to the authorised officer and shall be subject to confirmation
by the secured creditor:
Provided that no sale under this rule shall be confirmed,
if the amount offered by sale price is less than the reserve price,
specified under sub-rule (5) of rule 8:
Provided further that if the authorised officer fails to
obtain a price higher than the reserve price, he may, with the
consent of the borrower and the secured creditor effect the sale at
such price.
(3) On every sale of immovable property, the purchaser shall
immediately, i.e. on the same day or not later than next working
day, as the case may be, pay a deposit of twenty five per cent. of
the amount of the sale price, which is inclusive of earnest money
deposited, if any, to the authorised officer conducting the sale and
in default of such deposit, the property shall be sold again; by the
purchaser to the authorised officer on or before the fifteenth day
of confirmation of sale of the immovable property or such
extended period as may be agreed upon in writing between the
purchaser and the secured creditor, in any case not exceeding
three months.
(5) In default of payment within the period mentioned in sub-rule
(4), the deposit shall be forfeited to the secured creditor and the
property shall be resold and the defaulting purchaser shall forfeit
Page 32 of 139
all claim to the property or to any part of the sum for which it
may be subsequently sold.
(6) On confirmation of sale by the secured creditor and if the
terms of payment have been complied with, the authorised officer
exercising the power of sale shall issue a certificate of sale of the
immovable property in favour of the purchaser in the Form given
in Appendix V to these rules.
(7) Where the immovable property sold is subject to any
encumbrances, the authorised officer may, if he thinks fit, allow
the purchaser to deposit with him the money required to
discharge the encumbrances and any interest due thereon
together with such additional amount that may be sufficient to
meet the contingencies or further cost, expenses and interest as
may be determined by him.
Provided that if after meeting the cost of removing
encumbrances and contingencies there is any surplus available
out of money deposited by the purchaser such surplus shall be
paid to the purchaser within fifteen days, from date of finalisation
of the sale.
(8) On such deposit of money for discharge of the encumbrances,
the authorised officer shall issue or cause the purchaser to issue
notices to the persons interested in or entitled to the money
deposited with him and take steps to make, the payment
accordingly. (9) The authorised officer shall deliver the property
to the purchaser free from encumbrances known to the secured
creditor on deposit of money as specified in sub-rule (7) above.
(10) The certificate of sale issued under sub-rule (6) shall
specifically mention that whether the purchaser has purchased
the immovable secured asset free from any encumbrances known
to the secured creditor or not.”
Page 33 of 139
49. Section 35 of the SARFAESI Act contains the overriding clause and
provides that the Act shall override any other law which is
inconsistent with its provisions, and reads as under: -
“35. The provisions of this Act to override other laws.–
The provisions of this Act shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law.”
50. Section 37 of the SARFAESI Act provides that the provisions of the
SARFAESI Act shall be in addition to the Acts mentioned in or and
any other law for the time being in force and further that the other
laws shall also be applicable alongside the SARFAESI Act. The said
provision reads as under: -
“37. Application of other laws not barred.–
The provisions of this Act or the rules made thereunder shall be
in addition to, and not in derogation of, the Companies Act, 1956
(1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42
of 1956), the Securities and Exchange Board of India Act, 1992
(15 of 1992), the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993) or any other law for the time
being in force.”
51. This Court in Madras Petrochem Ltd. & Anr. v. Board for Industrial
and Financial Reconstruction & Ors. reported in (2016) 4 SCC 1,
recapitulated the object behind the enactment of the SARFAESI Act
and in that context examined the purpose of Sections 13, 35 and 37
Page 34 of 139
respectively of the SARFAESI Act with the following observations
given as under: -
“16. It is important at this stage to refer to the genesis of these
three legislations. Each of them deals with different aspects of
recovery of debts due to banks and financial institutions. Two of
them refer to creditors' interests and how best to deal with
recovery of outstanding loans and advances made by them on the
one hand, whereas the Sick Industrial Companies (Special
Provisions) Act, 1985, on the other hand, deals with certain
debtors which are sick industrial companies [i.e. companies
running industries named in the Schedule to the Industries
(Development and Regulation) Act, 1951] and whether such
“debtors” having become “sick”, are to be rehabilitated. The
question, therefore, is whether the public interest in recovering
debts due to banks and financial institutions is to give way to the
public interest in rehabilitation of sick industrial companies,
regard being had to the present economic scenario in the country,
as reflected in parliamentary legislation.
xxx xxx xxx
19. While this Act had worked for a period of about 7 years, the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 was brought into force, pursuant to various committee
reports. [...]
20. The Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 took away the jurisdiction of the courts
and vested this jurisdiction in tribunals established by the Act so
as to ensure speedy recovery of debts due to the banks and
financial institutions mentioned therein. This Act also included
one appeal to the Appellate Tribunal, and transfer of all suits or
other proceedings pending before any court to tribunals set up
under the Act. The Act contained a non obstante clause in
Section 34 stating that its provisions will have effect
notwithstanding anything inconsistent contained in any other
law for the time being in force or in any instrument having effect
by virtue of any other law. In the year 2000, this Act was
amended so as to incorporate a new sub-section (2) in Section 34
Page 35 of 139
together with a saving provision in sub-section (1). It is of some
interest to note that this Act was to be in addition to and not in
derogation of various Financial Corporation Acts and the Sick
Industrial Companies (Special Provisions) Act, 1985. Clearly,
therefore, the object of the 2000 Amendment to the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 was to
make the Sick Industrial Companies (Special Provisions) Act,
1985 prevail over it.
21. Regard being had to the poor working of the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993, the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 was brought into
force in the year 2002. [...]
22. This 2002 Act was brought into force as a result of two
committee reports which opined that recovery of debts due to
banks and financial institutions was not moving as speedily as
expected, and that, therefore, certain other measures would have
to be put in place in order that these banks and financial
institutions would better be able to recover debts owing to them.
xxx xxx xxx
24. The “pivotal” provision, namely, Section 13 of the said Act
makes it clear that banks and financial institutions would now
no longer have to wait for a tribunal judgment under the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 to be able to recover debts owing to them. They could, by
following the procedure laid down in Section 13, take direct
action against the debtors by taking possession of secured assets
and selling them; they could also take over the management of the
business of the borrower. They could also appoint any person to
manage the secured assets possession of which has been taken
over by them, and could require, at any time by notice in writing
to any person who has acquired any of the secured assets from the
borrower and from whom any money is due or may become due
from the borrower, to pay the secured creditor so much of the
money as is sufficient to pay the secured debt.
Page 36 of 139
25. In order to further the objects of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, the Act contains a non obstante clause in
Section 35 and also contains various Acts in Section 37 which
are to be in addition to and not in derogation of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002. Three of these Acts, namely, the
Companies Act, 1956, the Securities Contracts (Regulation) Act,
1956 and the Securities and Exchange Board of India Act, 1992,
relate to securities generally, whereas the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 relates to recovery
of debts due to banks and financial institutions. Significantly,
under Section 41 of this Act, three Acts are, by the Schedule to
this Act, amended. We are concerned with the third of such Acts,
namely, the Sick Industrial Companies (Special Provisions) Act,
1985, in Section 15(1) of which two provisos have been added. It
is the correct interpretation of the second of these provisos on
which the fate of these appeals ultimately hangs.”
(Emphasis supplied)
52. Furthermore, Madras Petrochem (supra) made one another
pertinent observation that Section(s) 35 and 37 respectively of the
SARFAESI Act form a unique scheme of overriding provisions,
however the scope and ambit of Section 37 is restricted only to the
securities law. The relevant portion is reproduced as under: -
“39. This is what then brings us to the doctrine of harmonious
construction, which is one of the paramount doctrines that is
applied in interpreting all statutes. Since neither Section 35 nor
Section 37 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 is subject
to the other, we think it is necessary to interpret the expression
“or any other law for the time being in force” in Section 37. If a
literal meaning is given to the said expression, Section 35 will
Page 37 of 139
become completely otiose as all other laws will then be in addition
to and not in derogation of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002. Obviously this could not have been the parliamentary
intendment, after providing in Section 35 that the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 will prevail over all other laws that
are inconsistent therewith. A middle ground has, therefore,
necessarily to be taken. According to us, the two apparently
conflicting sections can best be harmonised by giving meaning to
both. This can only be done by limiting the scope of the expression
“or any other law for the time being in force” contained in
Section 37. This expression will, therefore, have to be held to
mean other laws having relation to the securities market only, as
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 is the only other special law, apart from the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, dealing with
recovery of debts due to banks and financial institutions. On this
interpretation also, the Sick Industrial Companies (Special
Provisions) Act, 1985 will not be included for the obvious reason
that its primary objective is to rehabilitate sick industrial
companies and not to deal with the securities market.”
(Emphasis supplied)
53. In interpreting the various provisions of the SARFAESI Act and the
SARFAESI Rules framed thereunder, one must be mindful of the
observations made by this Court in Mardia Chemical (supra), which
are significant. This Court in Mardia Chemical (supra) observed that
the provisions of the SARFAESI Act & SARFAESI Rules must be
interpreted keeping in mind the economic object which is sought to
Page 38 of 139
be achieved by the legislature, the relevant observations read as
under: -
“34. Some facts which need to be taken note of are that the banks
and the financial institutions have heavily financed the
petitioners and other industries. It is also a fact that a large sum
of amount remains unrecovered. Normal process of recovery of
debts through courts is lengthy and time taken is not suited for
recovery of such dues. For financial assistance rendered to the
industries by the financial institutions, financial liquidity is
essential failing which there is a blockade of large sums of
amounts creating circumstances which retard the economic
progress followed by a large number of other consequential ill
effects. Considering all these circumstances, the Recovery of
Debts Due to Banks and Financial Institutions Act was enacted
in 1993 but as the figures show it also did not bring the desired
results. Though it is submitted on behalf of the petitioners that it
so happened due to inaction on the part of the Governments in
creating Debts Recovery Tribunals and appointing presiding
officers, for a long time. Even after leaving that margin, it is to
be noted that things in the spheres concerned are desired to move
faster. In the present day global economy it may be difficult to
stick to old and conventional methods of financing and recovery
of dues. Hence, in our view, it cannot be said that a step taken
towards securitisation of the debts and to evolve means for faster
recovery of NPAs was not called for or that it was
superimposition of undesired law since one legislation was
already operating in the field, namely, the Recovery of Debts Due
to Banks and Financial Institutions Act. It is also to be noted that
the idea has not erupted abruptly to resort to such a legislation.
It appears that a thought was given to the problems and the
Narasimham Committee was constituted which recommended
for such a legislation keeping in view the changing times and
economic situation whereafter yet another Expert Committee was
constituted, then alone the impugned law was enacted. Liquidity
of finances and flow of money is essential for any healthy and
growth-oriented economy. But certainly, what must be kept in
mind is that the law should not be in derogation of the rights
which are guaranteed to the people under the Constitution. The
procedure should also be fair, reasonable and valid, though it may
Page 39 of 139
vary looking to the different situations needed to be tackled and
object sought to be achieved.”
(Emphasis supplied)
B. Section 13(8) of the SARFAESI Act and the Decision of this
Court in Bafna Motors.
54. In the present lis, we are concerned with sub-section 8 of Section 13
of the SARFAESI Act referred to above. At the cost of repetition, the
relevant portion of the said provision is reproduced below for
convenience: -
“13. Enforcement of security interest.–
(8) Where the amount of dues of the secured creditor together
with all costs, charges and expenses incurred by him is tendered
to the secured creditor at any time before the date of publication
of notice for public auction or inviting quotations or tender from
public or private treaty for transfer by way of lease, assignment
or sale of the secured assets,-
(i) the secured assets shall not be transferred by way of
lease assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment or
sale of the assets before tendering of such amount
under this sub-section, no further step shall be taken
by such secured creditor for transfer by way of lease or
assignment or sale of such secured assets.
(Emphasis supplied)
Page 40 of 139
55. A plaint reading of Section 13 sub-section (8) of the SARFAESI Act
reveals that the said provision is in two parts, being as under: -
(i) First, it enables the borrower to exercise his right of
redemption upto a particular point of time by stipulating the
time limit during which the borrower can tender all the dues
with interest, costs and charges to the secured creditor;
(ii) Secondly, it enables the secured creditor to exercise its power
to deal or dispose of the secured asset, by providing as to when
the secured creditor can proceed to sell, auction, assign or lease
the secured asset.
56. The entire impugned judgment of the High Court is based on the
decision of this Court in Mathew Varghese (supra). Section 13(8) of
the SARFAESI Act, prior to its amendment by Act 44 of 2016 (for
short, the “2016 Amendment”), stipulated that, if the dues of the
secured creditor together with all costs, charges and expenses
incurred by him are tendered to the secured creditor at any time
before the date fixed for sale or transfer, the secured asset shall not
be sold or transferred by the secured creditor, and no further steps
shall be taken by him for transfer or sale of that secured asset.
Page 41 of 139
57. In the said decision of this Court, while construing the scope of the
pre-amended Section 13 sub-section (8) of the SARFAESI Act, it was
observed that any sale or transfer of a secured asset cannot take place
without duly informing the borrower of the time and date of such
sale or transfer, in order to enable the borrower to tender the dues of
the secured creditor with all costs, charges and expenses; the ersthilw
provision of Section 13(8), as it stood prior to the 2016 Amendment,
clearly stipulates that the borrower retains his full right to redeem
the property by tendering all the dues to the secured creditor, at any
time before the date fixed for sale or transfer; and the right of
redemption, conferred under Section 13(8) of the SARFAESI Act, is
to repay the entire debt due to the secured creditor.
58. The words “if the dues of the secured creditor”, used in Section 13(8) of
the SARFAESI Act, would only mean the dues in its entirety, and not
the price fetched on the sale of one of the secured assets in a public
auction. The words “that secured asset” in Section 13(8) is preceded by
the words “transfer or sale”, and even in case one of the secured assets
is brought to sale, the borrower is obligated to repay the entire dues
Page 42 of 139
of the secured creditor together with costs, charges and expenses
before the date fixed for sale or transfer, to prevent the secured
creditor from either selling or transferring, or from taking further
steps for the transfer or sale of, that secured asset.
59. We may look into paragraphs 40 and 41 respectively of the judgment
in Mathew Varghese (supra) which read as under:
“40. Reliance was also placed upon the decision in Mardia
Chemicals Ltd. vs. Union of India. In para 54, while dealing with
the contention raised on behalf of the secured creditor that the
right of redemption would be available to the mortgagor only if
the amount due according to the secured creditor is deposited,
this Court held as under:
“54. …Shri Sibal, however, submits that it is the
amount due according to the secured creditor which
shall have to be deposited to redeem the property. May
be so, some difference regarding the amount due may
be there but it cannot be said that right of redemption
of property is completely lost. In cases where no such
dispute is there, the right can be exercised and in other
cases the question of difference in amount may be kept
open and got decided before sale of property”.
41. Here again we find that even if there was some difference in
the amount tendered by the borrower while exercising his right
of redemption under Section 13(8), the question of difference in
the amount should be kept open and can be decided subsequently,
but on that score the right of redemption of the mortgagor cannot
be frustrated. Elaborating the statement of law made therein, we
wish to state that the endeavour or the role of a secured creditor
in such a situation while resorting to any sale for the realisation
of dues of a mortgaged asset, should be that the mortgagor is
Page 43 of 139
entitled for some lenience, if not more to be shown, to enable the
borrower to tender the amounts due in order to ensure that the
constitutional right to property is preserved, rather than it being
deprived of.”
(Emphasis supplied)
60. The afore referred are the two paragraphs on which strong reliance
has been placed on behalf of the borrowers. According to learned
counsel appearing for the borrowers, the aforesaid paragraphs
indicate that it is open to the borrower to pay the auction amount
and secure release of that particular asset which is brought to sale.
61. All that has been held, in the aforesaid paragraphs of the judgment
in Mathew Varghese (supra), is that, if there is some difference
between the amount tendered by the borrower while exercising his
right to redeem under Section 13(8) of the SARFAESI Act, the
question of difference in the amount must be kept open for a decision
subsequently but, on that score, the right of redemption of the
mortgagor cannot be frustrated. The aforesaid observations of this
Court only means that, if there is a minor dispute regarding the
extent of dues payable to the secured creditor by the borrower, and
if the borrower is ready and willing to redeem the entire amount due
to the secured creditor, and pay the said sum as computed by them,
Page 44 of 139
then the differential amount can be permitted to be paid later under
Section 13(8) of the SARFAESI Act. The law declared by this Court,
in Mathew Varghese (supra), does not permit a borrower, after an
auction is held, to come forward and tender payment of merely the
auction amount for release of the auctioned secured asset.
62. We shall now look into the decision of this Court in Bafna Motors
(supra) authored by one of us, J.B. Pardiwala, J.
63. In Bafna Motors (supra) this Court held that a borrower has a right
to redeem the mortgage only till the publication of the Auction
Notice under Section 13(8) of the SARFAESI Act. This Court the
analysed orders passed by various High Courts in interpreting the
provisions of Section 13(8) of the SARFEASI Act, post the 2016
Amendment and the intent underlying the amendment.
i. Factual Scenario in Bafna Motors.
64. The Union Bank of India had sanctioned credit facility to Bafna
Motors (Mumbai) Private Limited in 2017 for INR 100 crore against
which a security in the form of a simple mortgage was created over
a parcel of land situated in Thane, Maharashtra. The Borrower
Page 45 of 139
defaulted in repayment and accordingly its loan account was
declared as a Non-Performing Asset (NPA). The Bank issued a
Demand Notice under Section 13(2) of the SARFAESI Act for
repayment of the Loan amount, along with the interest, costs, etc, i.e.
INR 123.83 crore. Due to failure to repay of the outstanding amount,
the Bank proceeded to take possession of the Mortgaged Property.
65. The borrower challenged the Demand Notice before the DRT. The
Bank attempted to auction the Mortgaged Property eight times
during 2022-23. On June 14, 2023, the Bank auctioned the Mortgaged
Property for a reserve price of INR 105 crore. Celir LLP participated
in the auction and was declared as the successful bidder, and a sale
confirmation letter was issued to the Purchaser by the Bank. The
Purchaser also deposited 25% of the bid amount, which the Bank
acknowledged.
66. The Borrower at this stage filed an interim application before the
DRT for redemption of mortgage upon repayment of the
Outstanding Amount. The IA was opposed by the Bank and the
Purchaser. The Purchaser had deposited the balance amount
Page 46 of 139
towards the Mortgaged Property, and the Bank was in receipt of the
said amount (total Rs 105 crore). Upon hearing the arguments, the
DRT reserved the IA for orders.
67. Pending the order of the DRT, the Borrower approached the High
Court of Bombay by way of a writ petition under Article 226 of the
Constitution of India Act, 1950, to direct the Bank to permit it
(Borrower) to redeem the Mortgaged Property. The High Court
allowed the borrower to redeem the Mortgaged Property upon
payment of INR 25 crore on the same day and the balance amount
within two weeks. Upon failure of the Borrower to abide by the
directions of the High Court, the Mortgaged Property would be sold
in favour of the Purchaser. The order was challenged by the
Purchaser by way of a special leave petition before this Court.
68. The Purchaser argued that the right of redemption of the mortgagor
stood extinguished upon publication of Auction Notice as per
amended Section 13(8) of the SARFAESI Act. Furthermore, once the
sale is confirmed, the Bank is under a legal obligation to issue a sale
certificate to the Purchaser.
Page 47 of 139
69. Contrary to the above, the Borrower contended that Section 13(8) of
the SARFAESI Act does not deal with the right of redemption of
mortgagor and in such circumstances, Section 60 of the Transfer of
Property Act, 1882 would be applicable. Section 60 of the Transfer of
Property Act has been interpreted to reserve the right of the
mortgagor to redeem the property till the sale deed has been
executed in favour of the third party.
ii. Ratio of the Decision in Bafna Motors.
70. During the course of hearing, our attention was drawn to several
decisions of various High Courts, which, upon a reading of our
judgment in Bafna Motors (supra) appear to not have fully
understood the ratio that has been laid therein. A certain degree of
ambiguity seems to persist as regards the precise point of time when
the borrower’s right of redemption under Section 13 sub-section (8)
of the SARFAESI Act could be said to be extinguished, particularly
in cases where the mode of transfer, sale etc. of the secured asset is
by means other than a public auction.
Page 48 of 139
71. Thus, with a view to obviate any confusion, it is necessary to once
again look into Section 13 sub-section (8) of the SARFAESI Act
threadbare, in order to better understand, what has been conveyed
in so many words by this Court in Bafna Motors (supra).
a. Position of Law prevailing prior to the Amendment of Section
13(8) of the SARFAESI Act.
72. Prior to the amendment to Section 13(8) of SARFAESI Act, in the case
of Mathew Varghese (supra) this Court had applied the principles
pertaining to redemption of mortgage as enshrined in Section 60 of
the Transfer of Property Act, 1882 (for short, the “TP Act”) for
construing the pre-amendment provision of Section 13(8) of the
SARFEASI Act.
73. Section 60 of the TP Act provides the general statutory right of the
mortgagor to redeem the mortgage and reads as below: -
“60. Right of mortgagor to redeem.–
At any time after the principal money has become due, the
mortgagor has a right, on payment or tender, at a proper time
and place, of the mortgage-money, to require the mortgagee (a) to
Page 49 of 139
deliver to the mortgagor the mortgage deed and all documents
relating to the mortgaged property which are in the possession or
power of the mortgage, (b) where the mortgage is in possession of
the mortgaged property, to deliver possession thereof to the
mortgagor, and (c) at the cost of the mortgagor either to re-
transfer the mortgaged property to him or to such third person as
he may direct, or to execute and (where the mortgage has been
effected by a registered instrument) to have registered an
acknowledgment in writing that any right in derogation of his
interest transferred to the mortgage has been extinguished:
Provided that the right conferred by this section has not
been extinguished by act of the parties or by decree of a Court.
The right conferred by this section is called a right to
redeem and a suit to enforce it is called a suit for redemption.
Nothing in this section shall be deemed to render invalid
any provision to the effect that, if the time fixed for payment of
the principal money has been allowed to pass or no such time has
been fixed, the mortgage shall be entitled to reasonable notice
before payment or tender of such money.
Redemption of portion of mortgaged property.—
Nothing in this section shall entitle a person interested in a share
only of the mortgaged property to redeem his own share only, on
payment of a proportionate part of the amount remaining due on
the mortgage, except only where a mortgagee, or, if there are more
mortgages than one, all such mortgages, has or have acquired, in
whole or in part, the share of a mortgagor.”
74. This Court in Narandas Karsondas v. S.A. Kamtam & Anr. reported
in (1997) 3 SCC 247, upon examining Section 60 of the TP Act, held
that the mortgagor’s right to redeem will stand extinguished only
after completion of sale by a registered deed, and made the
following relevant observations reproduced below: -
Page 50 of 139
“28. The Rights and Liabilities of Mortgagor are dealt with in
Section 60 of the Transfer of Property Act. It is that at any time
after the principal money has become due, the mortgagor has a
right, on payment or tender, at a proper time and place, of the
mortgage-money, to require the mortgagee (a) to deliver to the
mortgagor the mortgage-deed and all documents relating to the
mortgaged property which are in the possession or power of the
mortgagee, (b) where the mortgagee is in possession of the
mortgaged property to deliver possession thereof to the
mortgagor, and (c) at the cost of the mortgagor either to re-
transfer the mortgaged property to him or to such third person as
he may direct, or to execute and to have registered an
acknowledgment in writing that any right in derogation of his
interest transferred to the mortgagee has been extinguished.
There is a proviso that the right conferred by this section has not
been extinguished by the act of the parties or by decree of a Court.
The right conferred by Section 60 of the Transfer of Property Act
is called a right to redeem. Therefore, the said Section 60 provides
for a right of redemption provided that the right has not been
extinguished by the act of parties.
xxx xxx xxx
33. In India, the word “transfer” is defined with reference to the
word “convey”. The word “transfer” in English law in its
narrower and more usual sense refers to the transfer of an estate
in land. Section 205 of the Law of Property Act in England
defines: “Conveyance” includes a mortgage, charge, lease, assent,
vesting declaration, vesting instrument. The word “conveys” in
Section 5 of the Transfer of Property Act is used in the wider
sense of conveying ownership.
34. The right of redemption which is embodied in Section 60 of
the Transfer of Property Act is available to the mortgagor unless
it has been extinguished by the act of parties. The combined effect
of Section 54 of the Transfer of Property Act and Section 17 of
the Indian Registration Act is that a contract for sale in respect
of immovable property of the value of more than one hundred
rupees without registration cannot extinguish the equity of
redemption. In India it is only on execution of the conveyance
and registration of transfer of the mortgagor's interest by
Page 51 of 139
registered instrument that the mortgagor's right of redemption
will be extinguished. The conferment of power to sell without
intervention of the Court in a Mortgage Deed by itself will not
deprive the mortgagor of his right to redemption. The extinction
of the right of redemption has to be subsequent to the deed
conferring such power. The right of redemption is not
extinguished at the expiry of the period. The equity of redemption
is not extinguished by mere contract for sale.
35. The mortgagor's right to redeem will survive until there has
been completion of sale by the mortgagee by a registered deed. In
England a sale of property takes place by agreement but it is not
so in our country. The power to sell shall not be exercised unless
and until notice in writing requiring payment of the principal
money has been served on the mortgagor. Further Section 69(3)
of the Transfer of Property Act shows that when a sale has been
made in professed exercise of such a power, the title of the
purchaser shall not be impeachable on the ground that no case
had arisen to authorise the sale. Therefore, until the sale is
complete by registration the mortgagor does not lose right of
redemption.
xxx xxx xxx
37. In view of the fact that only on execution of conveyance,
ownership passes from one party to another it cannot be held that
the mortgagor lost the right of redemption just because the
property was put to auction. The mortgagor has a right to redeem
unless the sale of the property was complete by registration in
accordance with the provisions of the Registration Act.”
(Emphasis supplied)
75. A similar view was taken by this Court in L.K. Trust v. EDC Limited
& Ors. reported in (2011) 6 SCC 780 wherein it was held that in India
it is only on execution of the conveyance and registration of transfer
of the mortgagor's interest by a registered instrument that the
Page 52 of 139
mortgagor's right of redemption embodied in Section 60 of the TP
Act will get extinguished. It further observed that the conferment of
power to sell the mortgaged property without intervention of the
Court, in a mortgage deed, in itself, will not deprive the mortgagor
of his right of redemption under the said provision. The relevant
observations read as under: -
“53. On analysis of arguments advanced at the Bar, this Court
finds that the proposition that in India it is only on execution of
conveyance and the registration of transfer of the mortgagor's
interest by registered instrument that the mortgagor's right of
redemption stands extinguished is well settled. Further it is not
the case of the appellant that a registered Sale Deed had been
executed between the appellant-trust and the respondent No. 1
pursuant to the Resolution passed by the respondent No. 1 and,
therefore, in terms of Section 54 of the Transfer of Property Act
1882 no title relating to the disputed property had passed to the
appellant at all.
54. What is ruled in Narandas Karsandas (Supra) is that in
India, there is no equity or right in property created in favour of
the purchaser by the contract between the mortgagee and the
proposed purchaser and in view of the fact that only on execution
of conveyance, ownership passes from one party to another, it
cannot be held that the mortgagor lost the right of redemption
just because the property was put to auction. In this case, the
respondent Housing Society, the mortgagor, had taken loan from
the co-respondent Finance Society and mortgaged the property to
it under an English mortgage. On default, the mortgagee
exercised its right under the mortgage to sell the property
without intervention of Court and after notice, put the property
to sale by public auction. The appellant auction purchaser paid
the sums due. Before the sale was completed by registration etc.
the mortgagor sought to exercise his right of redemption by
tendering the amount due. The appellant had based his case on
Page 53 of 139
the plea that in such a situation the mortgagee acts as agent of
the mortgagor and hence binds him.
55. Rejecting the appeal, this Court has held that the right of
redemption which is embodied in Section 60 of the Transfer of
Property Act is available to the mortgagor unless it has been
extinguished by the act of parties or by decree of a court. What is
held by this Court is that, in India it is 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 but the conferment of power to
sell the mortgaged property without intervention of the Court, in
a mortgage deed, in itself, will not deprive the mortgagor of his
right of redemption. This Court in the said case further explained
that the extinction of the right of redemption has to be subsequent
to the deed conferring such power and the right to redemption is
not extinguished at the expiry of the period. This Court
emphasized in the said decision that the equity of redemption is
not extinguished by mere contract for sale.”
(Emphasis supplied)
76. The erstwhile provision of Section 13 sub-section (8) of the
SARFAESI Act, as originally enacted, read as under: -
“13. Enforcement of security interest.–
(8) If the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the secured
creditor at any time before the date fixed for sale or transfer, the
secured asset shall not be sold or transferred by the secured
creditor, and no further step shall be taken by him for transfer or
sale of that secured asset.”
Page 54 of 139
77. This Court examined the right of redemption of mortgage under the
TP Act vis-à-vis the SARFAESI Act for the first time in Mathew
Varghese (supra).
78. As already discussed in the foregoing paragraphs of this judgment,
this Court in Mathew Varghese (supra), placing reliance on
Narandas Karsondas (supra) found no occasion for drawing any
distinction between the principles enshrined in Section 60 of the TP
Act in respect of the sale of secured assets created by way of a
secured interest in favour of the secured creditor under the
provisions of the SARFAESI Act, read along with the relevant Rules.
It observed that since Section 13 of the SARFAESI Act is nothing but
a conferment of power upon the secured creditor to sell the security
interest without the intervention of the court, the principles
underlying Section 60 of the TP Act would be attracted, since the
provision of Section 60 applies with full rigour even in respect of sale
of mortgage property without the intervention of court. The relevant
observations read as under: -
“38. [...] a mere conferment of power to sell without intervention
of the court in the mortgage deed by itself will not deprive the
mortgagor of his right to redemption, that the extinction of the
right of redemption has to be subsequent to the deed conferring
Page 55 of 139
such power, that the right of redemption is not extinguished at
the expiry of the period, that the equity of redemption is not
extinguished by mere contract for sale and that the mortgagor's
right to redeem will survive until there has been completion of
sale by the mortgagee by a registered deed. The ratio is also to the
effect that the power to sell should not be exercised unless and
until notice in writing requiring payment of the principal money
has been served on the mortgagor. The above proposition of law
of course was laid down by this Court in Narandas Karsondas
[Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247] while
construing Section 60 of the TP Act. But as rightly contended by
Mr Shyam Divan, we fail to note any distinction to be drawn
while applying the abovesaid principles, even in respect of the sale
of secured assets created by way of a secured interest in favour of
the secured creditor under the provisions of the SARFAESI Act,
read along with the relevant Rules. We say so, inasmuch as, we
find that even while setting out the principles in respect of the
redemption of a mortgage by applying Section 60 of the TP Act,
this Court has envisaged the situation where such mortgage deed
providing for resorting to the sale of the mortgage property
without the intervention of the Court. Keeping the said situation
in mind, it was held that the right of redemption will not get
extinguished merely at the expiry of the period mentioned in the
mortgage deed. It was also stated that the equity of redemption is
not extinguished by mere contract for sale and the most
important and vital principle stated was that the mortgagor's
right to redeem will survive until there has been completion of
sale by the mortgagee by a registered deed. The completion of sale,
it is stated, can be held to be so unless and until notice in writing
requiring payment of the principal money has been served on the
mortgagor. Therefore, it was held that until the sale is complete
by registration of sale, the mortgagor does not lose the right of
redemption. It was also made clear that it was erroneous to
suggest that the mortgagee would be acting as the agent of the
mortgagor in selling the property.
39. When we apply the above principles stated with reference to
Section 60 of the TP Act in respect of a secured interest in a
secured asset in favour of the secured creditor under the
provisions of the SARFAESI Act and the relevant Rules
Page 56 of 139
applicable, under Section 13(1), a free hand is given to a secured
creditor to resort to a sale without the intervention of the court
or tribunal. However, under Section 13(8), it is clearly stipulated
that the mortgagor i.e. the borrower, who is otherwise called as a
debtor, retains his full right to redeem the property by tendering
all the dues to the secured creditor at any time before the date
fixed for sale or transfer. Under sub-section (8) of Section 13, as
noted earlier, the secured asset should not be sold or transferred
by the secured creditor when such tender is made by the borrower
at the last moment before the sale or transfer. The said sub-section
also states that no further step should be taken by the secured
creditor for transfer or sale of that secured asset. We find no
reason to state that the principles laid down with reference to
Section 60 of the TP Act, which is general in nature in respect of
all mortgages, can have no application in respect of a secured
interest in a secured asset created in favour of a secured creditor,
as all the abovestated principles apply on all fours in respect of a
transaction as between the debtor and secured creditor under the
provisions of the SARFAESI Act.
41. [...] even if there was some difference in the amount tendered
by the borrower while exercising his right of redemption under
Section 13(8), the question of difference in the amount should be
kept open and can be decided subsequently, but on that score the
right of redemption of the mortgagor cannot be frustrated.
Elaborating the statement of law made therein, we wish to state
that the endeavour or the role of a secured creditor in such a
situation while resorting to any sale for the realisation of dues of
a mortgaged asset, should be that the mortgagor is entitled for
some lenience, if not more to be shown, to enable the borrower to
tender the amounts due in order to ensure that the constitutional
right to property is preserved, rather than it being deprived of.”
(Emphasis supplied)
79. In Dwarika Prasad v. State of Uttar Pradesh reported in (2018) 5
SCC 491, this Court considered the unamended Section 13(8) of the
Page 57 of 139
SARFAESI Act, keeping in mind the decision in the case of Mathew
Varghese (supra) and held that the right of redemption of mortgage
is not lost until there is a transfer by a registered instrument. The
relevant observations read as under: -
“8. [...] These provisions have fallen for interpretation before this
Court in Mathew Varghese. Dwelling on Section 60 of the
Transfer of the Property Act, 1882 this Court held that the right
of redemption is available to a mortgagor unless it stands
extinguished by an act of parties. The right of the mortgagor to
redeem the property survives until there has been a transfer of the
mortgagor's interest by a registered instrument of sale. [...]”
80. In, yet one another decision of this Court in Allokam Peddabbayya
& Anr. v. Allahabad Bank & Ors. reported in (2017) 8 SCC 272, a
similar view was taken, that the right of redemption is lost once the
property is put to auction and a sale certificate is issued in lieu
thereof. The relevant observations made therein are as under: -
“23. The aforesaid discussion leads to the conclusion that the
plaintiffs lost the right to sue for redemption of the mortgaged
property by virtue of the proviso to Section 60 of the Act, no
sooner that the mortgaged property was put to auction-sale in a
suit for foreclosure and sale certificate was issued in favour of
Defendant 2. There remained no property mortgaged to be
redeemed. The right to redemption could not be claimed in the
abstract.”
81. Prior to the amendment to Section 13 sub-section (8) of the
SARFAESI Act, the position of law that prevailed, as per the decision
Page 58 of 139
of Mathew Varghese (supra), was that the principle underlying
Section 60 of the TP Act was extended and applied to Section 13(8)
of the SARFAESI Act to hold that the borrower has absolute right to
redeem the property by repaying the debt before the sale of such
property.
82. Thus, prior to the amendment of Section 13(8) of the SARFAESI Act,
this Court consistently held, that the borrower shall continue to have
a right of redemption of mortgage until the execution of the
conveyance of the secured asset by way of a registered instrument.
83. The reason which impelled this Court in Mathew Varghese (supra),
in holding so, was because it found no inconsistency between the
unamended Section 13(8) of the SARFAESI Act and the general right
of redemption under Section 60 of the Transfer of Property Act.
b. The 2016 Amendment to Section 13(8) of the SARFAESI Act and the
Contradictory Views on the subject.
84. On 1st September, 2016, the Enforcement of Security Interest and
Recovery of Debt Laws and Miscellaneous Provisions (Amendment)
Page 59 of 139
Act, 2016 was enacted, which inter-alia amended sub-section 8 of
Section 13 of the SARFAESI Act, and substituted the words “any time
before the date fixed for sale or transfer” of the original provision with “at
any time before the date of publication of notice for public auction or
inviting quotations or tender from public or private treaty for transfer by
way of lease, assignment or sale of the secured assets”. The amended
provision of Section 13 sub-section (8) of the SARFAESI Act, now
reads as under: -
“13. Enforcement of security interest.–
(8) Where the amount of dues of the secured creditor together
with all costs, charges and expenses incurred by him is tendered
to the secured creditor at any time before the date of publication
of notice for public auction or inviting quotations or tender from
public or private treaty for transfer by way of lease, assignment
or sale of the secured assets,—
(i) the secured assets shall not be transferred by way of
lease, assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment or
sale of the assets before tendering of such amount
under this sub-section, no further step shall be taken
by such secured creditor for transfer by way of lease or
assignment or sale of such secured assets.”
85. Over a period of time, many orders of different courts, inconsistent
with each other had accumulated on the interpretation of the
Page 60 of 139
amended Section 13 sub-section (8) of the SARFAESI Act, that had
made it very difficult to apply the correct principles of law as
regards the right of redemption by the borrower under the
SARFAESI Act.
86. The High Court of Andhra Pradesh in Sri. Sai Annadhatha
Polymers & Anr. v. Canara Bank rep. by its Branch Manager,
Mandanapalle reported in 2018 SCC OnLine Hyd 178 took the view
that as per Mathew Varghese (supra), under 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. The court went on to say that the amended provisions of
Section 13(8) of the SARFAESI Act, however brought in a radical
change inasmuch as the right of the borrower to redeem the secured
asset would now stand extinguished thereunder on the very date of
publication of the notice for public auction under Rule 9(1) of the
SARFAESI Rules. The relevant observations made by the High
Court are reproduced hereinbelow: -
“6. In terms of the amended provisions of Section 13(8) of the
SARFAESI Act, the right of redemption given to the borrower
would expire upon publication of such a notice. However, Rule
8(6) of the Rules of 2002, as interpreted by the Supreme Court in
Page 61 of 139
Mathew Varghese v. M. Amritha Kumar [(2014) 5 SCC 610],
stipulates that the thirty day notice period mentioned therein is
for the purpose of enabling the borrower to redeem his property.
Significantly, this provision remains unaltered. Therefore, this
statutory notice period of thirty days is sacrosanct and deviation
therefrom would curtail the statutory right of redemption
available to the borrower. However, in terms of the amended
Section 13(8) of the SARFAESI Act, once the notice under Rule
9 of the Rules of 2002 is published, the said right stands
extinguished.
xxx xxx xxx
20. In the light of the aforestated changes in the statutory scheme,
certain crucial aspects may be noted. As per 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. Case law consistently held to the effect that a
sale or transfer is not completed until all the formalities are
completed and there is an effective transfer of the asset sold. In
consequence, the borrower's right of redemption did not stand
terminated on the date of the auction sale of the secured asset
itself and remained 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. The recent judgment
of the Supreme Court in ITC LIMITED v. BLUE COAST
HOTELS LIMITED also affirmed this legal position.
21. However, the amended provisions of Section 13(8) of the
SARFAESI Act bring in a radical change, inasmuch as 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 stands 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 completion of the sale or
transfer of the secured asset in favour of the auction purchaser.
[...]
xxx xxx xxx
Page 62 of 139
23. Therefore, even after the amendment of Section 13(8) of the
SARFAESI Act, a secured creditor is bound to afford to the
borrower a clear thirty day notice period under Rule 8(6) to
enable him to exercise his right of redemption. In consequence, a
notice under Rule 9(1) of the Rules of 2002 cannot be published
prior to expiry of this thirty day period in the new scenario, post
amendment of Section 13(8) of the SARFAESI Act, as such right
of redemption would stand terminated immediately upon
publication of the sale notice under Rule 9(1) of the Rules of 2002.
The judgment of the Supreme Court in CANARA BANK v. M.
AMARENDER REDDY, which was rendered in the context of
the unamended provisions, would therefore have no application
to the post-amendment scenario in the light of the change brought
about in Section 13(8). To sum up, the post-amendment scenario
inevitably requires a clear thirty day notice period being
maintained between issuance of the sale notice under Rule 8(6)
of the Rules of 2002 and the publication of the sale notice under
Rule 9(1) thereof, as the right of redemption available to the
borrower in terms of Rule 8(6) of the Rules of 2002, as pointed
out in MATHEW VARGHESE, stands extinguished upon
publication of the sale notice under Rule 9(1).”
(Emphasis supplied)
87. The amended Section 13(8) of the SARFAESI Act was also looked
into by the High Court of Telangana in the case of K.V.V. Prasad
Rao Gupta v. State Bank of India reported in 2021 SCC OnLine TS
328 and relying on the aforesaid decision of the Andhra Pradesh
High Court in the case of Sri. Sai Annadhatha Polymers (supra), the
court held that the right of the borrower to redeem the property
stands extinguished upon publication of sale notice after the expiry
Page 63 of 139
of thirty-days period of notice to the borrower. The relevant
observations read as under: -
“21. Thus from the above judgments it is clear that under Rule
8(6) of the Rules of 2002, the petitioners are entitled for a thirty
day notice period enabling them to clear the loan and to redeem
the property as envisaged under Section 13(8) of the SARFAESI
Act, and that if they fail to repay the amount within the
stipulated period, after expiry of said period of 30 days, the
secured creditor is entitled to issue publication of sale notice
under Rule 9(1), and that on publication of such notice, the right
of the borrower to redeem the property stands extinguished.”
(Emphasis supplied)
88. However, in a conflicting judgement, one another Bench of the
Telangana High Court in Concern Readymix v. Corporation Bank
reported in 2018 SCC OnLine Hyd 783 relied upon Section 60 of the
TP Act to hold that the borrower’s right of redemption would
continue to exist until the execution of the conveyance. It observed
that the amended Section 13(8) of the SARFAESI Act merely restricts
the right of the secured creditor to proceed further with the transfer
or sale of the secured asset, but not the right of redemption enjoyed
by the borrower. The relevant observations read as under: -
“10. The first distinction between the unamended and amended
sub-section (8) of Section 13 is that before amendment, the
facility of repayment of the entire dues along with the costs,
charges and expenses, was available to the debtor at any time
before the date fixed for the sale or transfer. But after the
amendment, the facility is available upto the time before the date
Page 64 of 139
of publication of notice for public auction or inviting quotations
or tender from public or private treaty. The second distinction is
that the unamended sub-section (8) did not provide for the
contingency when the dues are tendered by the borrower before
the date of completion of the sale or lease but after the issue of
notice. But the amended sub-section (8) takes care of the
contingency where steps have already been taken by the secured
creditor for the transfer of the secured asset, before the payment
was made. Except these two distinctions, there is no other
distinction.
xxx xxx xxx
13. What is important to note both from the amended and
unamended provisions of Section 13(8) and Rule 9(1) is that both
of them do not speak in express terms, about the equity of
redemption available to the mortgagor. The amended Section
13(8) merely prohibits the secured creditor from proceeding
further with the transfer of the secured assets by way of lease,
assignment or sale. A restriction on the right of the mortgagee to
deal with the property is not exactly the same as the equity of
redemption available to the mortgagor. The payment of the
amounts mentioned in Section 13(8) ties the hands of the
mortgagee (secured creditor) from exercising any of the powers
conferred under the Securitisation Act, 2002. Redemption comes
later. But unfortunately, some Courts, on a wrong reading of the
decision of the Supreme Court in Mathew Varghese v. M.
Amritha Kumar [(2014) 5 SCC 610], have come to the conclusion
as though Section 13(8) speaks about the right of redemption. The
danger of interpreting Section 13(8) as though it relates to the
right of redemption, is that if payments are not made as per
Section 13(8), the right of redemption may get lost even before
the sale is complete in all respects. But in law it is not. It may be
seen from paragraphs-34 to 36 of the decision of the Supreme
Court in Mathew Varghese that the Supreme Court took note of
Section 60 of the Transfer of Property Act and the combined effect
of Section 54 of the Transfer of Property Act and Section 17 of
the Registration Act to come to the conclusion that the extinction
of the right of redemption comes much later than the sale notice.
Therefore, we should first understand that the right of
Page 65 of 139
redemption is not lost immediately upon the highest bid made by
a purchaser in an auction being accepted.
14. Perhaps the Courts were tempted to think that Section 13(8)
speaks about redemption, only on account of what is found in
Rule 3(5) of the Security Interest (Enforcement) Rules, 2002.
Rule 3(5) inserted by way of amendment with effect from 04-11
2016 states that the demand notice issued under Section 13(2)
should invite the attention of the borrower to the provisions of
Section 13(8), in respect of the time available to the borrower to
redeem the secured assets. Today, it may be convenient for one
borrower to contend that the right of redemption will be lost
immediately upon the issue of notice under Rule 9(1). But if it is
held so, the same would tantamount to annulling the relevant
provisions of the Transfer of Property Act, which do not stand
expressly excluded, insofar as the question of redemption is
concerned.”
(Emphasis supplied)
89. The aforesaid decision of Concern Readymix (supra) was carried
upto and challenged before this Court by way of Special Leave
Petition (C) No. 20500 of 2019, which came to be dismissed by this
Court in limine, being as follows: -
“ORDER
Delay condoned.
The Special Leave Petition is dismissed”
90. Additionally, this Court in Shakeena & Anr. v. Bank of India & Ors.
reported in (2021) 12 SCC 761 while dealing with the unamended
provision of Section 13(8) of the SARFAESI Act stated that as a result
of the amended provision, a more stringent condition has been
Page 66 of 139
stipulated whereby the borrower, in order to redeem the mortgage,
is now required to tender all dues to the secured creditor before the
date of publication of notice for auction. The relevant observations
read as under: -
“15. Be it noted that on 1-9-2016 amendment to Section 13(8) of
the 2002 Act came into force as a result of which the dues of the
secured creditor together with all costs, charges and expenses
incurred by him are required to be tendered to the secured
creditor at any time before the date of publication of notice for
public auction or inviting quotations or tender from public or
private treaty for transfer by way of lease, assignment or sale of
the secured assets.
xxx xxx xxx
30. A fortiorari, it must follow that the appellants have failed to
exercise their right of redemption in the manner known to law,
much less until the registration of the sale certificate on 18-9
2007. In that view of the matter no relief can be granted to the
appellants, assuming that the appellants are right in contending
that as per the applicable provision at the relevant time
[unamended Section 13(8) of the 2002 Act], they could have
exercised their right of redemption until the registration of the
sale certificate — which, indisputably, has already happened on
18-9 2007. Therefore, it is not possible to countenance the plea of
the appellants to reopen the entire auction process. This is more
so because, the narrative of the appellants that they had made a
valid tender towards the subject loan accounts before registration
of the sale certificate, has been found to be tenuous. Thus
understood, their right of redemption in any case stood
obliterated on 18-9 2007. Further, the amended Section 13(8) of
the 2002 Act which has come into force w.e.f. 1-9-2016, will now
stare at the face of the appellants. As per the amended provision,
stringent condition has been stipulated that the tender of dues to
the secured creditor together with all costs, charges and expenses
incurred by him shall be at any time before the "date of
publication of notice" for public auction or inviting quotations
Page 67 of 139
or tender from public or private deed for transfer by way of lease
assessment or sale of the secured assets. [...]”
(Emphasis supplied)
91. However, in S. Karthik and Ors. v. N. Subhash Chand Jain and Ors.
reported in (2022) 10 SCC 641 a three-Judge Bench of this Court
placing reliance on Mathew Varghese (supra) once again noted that
under Section 13 sub-section (8) of the SARFAESI Act, the
mortgagor, i.e. the borrower, retains full right to redeem the
property by tendering all the dues to the secured creditor at any time
before the date fixed for sale or transfer. The relevant observations
read as under: -
“53. It could thus be seen that this Court in Mathew Varghese
[Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610 :
(2014) 3 SCC (Civ) 254] observed that the equity of redemption
is not extinguished by mere contract for sale and that the
mortgagor's right to redeem will survive until there has been
completion of sale by the mortgagee by a registered deed. This
Court further observed that applying the principles stated with
reference to Section 60 of the Transfer of Property Act in respect
of a secured interest in a secured asset in favour of the secured
creditor under the provisions of the SARFAESI Act and the
relevant Rules applicable, a free hand is given to a secured
creditor to resort to a sale without the intervention of the court
or tribunal. It has, however, been held that under Section 13(8),
it is clearly stipulated that the mortgagor i.e. the borrower, who
is otherwise called as a debtor, retains his full right to redeem the
property by tendering all the dues to the secured creditor at any
time before the date fixed for sale or transfer.
Page 68 of 139
54. This Court in Mathew Varghese [Mathew Varghese v. M.
Amritha Kumar, (2014) 5 SCC 610 : (2014) 3 SCC (Civ) 254]
further held that if the tender is made by the borrower at the last
moment before the sale or transfer, the secured asset should not
be sold or transferred by the secured creditor. This Court held
that there was no reason as to why the general principle laid
down by this Court in Narandas Karsondas [Narandas
Karsondas v. S.A. Kamtam, (1977) 3 SCC 247] with reference to
Section 60 of the Transfer of Property Act could not have
application in respect of a secured interest in a secured asset
created in favour of a secured creditor. It has been held that the
said principles will apply on all fours in respect of a transaction
as between the debtor and secured creditor under the provisions
of the SARFAESI Act.
xxx xxx xxx
115. Even if viewed from another angle, the claim of the
appellants is not sustainable. The two-Judge Bench of this Court
in Mathew Varghese [Mathew Varghese v. M. Amritha Kumar,
(2014) 5 SCC 610 : (2014) 3 SCC (Civ) 254], has heavily relied
on the judgment of the three-Judge Bench of this Court in
Narandas Karsondas . It has been held by this Court in Narandas
Karsondas [Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC
247], that the right of redemption, which is embodied in Section
60 of the Transfer of Property Act, is available to the mortgagor
unless it has been extinguished by the act of parties. 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.
xxx xxx xxx
118. It is further relevant to note that this Court in Dwarika
Prasad [Dwarika Prasad v. State of U.P., (2018) 5 SCC 491] and
in Shakeena [Shakeena v. Bank of India, (2021) 12 SCC 761] held
that the right to redemption stands extinguished on the sale
certificate getting registered.”
(Emphasis supplied)
Page 69 of 139
92. A similar view as Concern Readymix (supra) was taken by the
Punjab & Haryana High Court in Pal Alloys and Metal India
Private Limited & Ors. v. Allahabad Bank & Ors. reported in 2021
SCC OnLine P&H 2733. The court therein looked into the Report of
the Joint Committee on the 2016 Amendment to arrive at the
conclusion that under the amended Section 13(8) of the SARFAESI
Act, the right of redemption of mortgage would continue till the
execution of conveyance or issuance of sale certificate. It further
observed that the decision in Shakeena (supra) was not applicable
inasmuch as it did not examine the provision of Section 13(8) of the
SARFAESI Act through the lens of Section 60 under the TP Act. The
relevant observations read as under: -
“78. It is interesting to note that para 24 of the Report of the Joint
Committee referred to above deals with the proposed amendment
to Section 13(8) of the SARFAESI Act and gives a heading
“Provisions to stop secure creditor to lease or assignment or sale
in the prescribed conditions-Amendment to Section 13(8) of the
SARFAESI Act.
79. Thus the amendment was proposed w.r.t. when to stop the
secured creditor from selling/transferring the secured asset. The
words ‘when to stop the exercise of right of redemption by the
borrower/mortgagor’ were not used.
80. In the said Report, at pg.12, Clause 11(ii) of the Bill which
proposed to amend Section 13(8) of the SARFAESI Act is noted.
After extracting the existing Section 13(8) of the Act which
stands as under: —
Page 70 of 139
“If the dues of the secured creditor together with all
costs, charges and expenses incurred by him are
tendered to the secured creditor at any time before the
date fixed for sale or transfer, the secured asset shall
not be sold or transferred by the secured creditor, and
no further step shall be taken by him for transfer or sale
of that secured asset.”
81. The proposed modification to Section 13(8) is set out also at
pg.12 as under:—
“(8) Where the amount of dues of the secured creditor
together with all costs, charges and expenses incurred
by him are tendered to the secured creditor at any time
before the date fixed for lease, assignment or sale of the
secured assets,-
(i) the secured assets shall not be leased, assigned or
sold by the secured creditor; and
(ii) in case, any step has been taken by the secured
creditor for lease or assignment or sale of the assets
before tendering of such amount under this sub-
section, no further step shall be taken by such secured
creditor for lease or assignment or sale of such secured
assets.”
82. Strangely, on the next page at page 13, the following is
stated:-
“The Committee after examining the proposed
amendment and the existing Rules in this regard
decide to modify proposed Clause 11(ii) [section 13(8)
of the principal Act] as under: “
(8) Where the amount of dues of the secured
creditor together with all costs, charges and
expenses incurred by him is tendered to the
secured creditor at any time before the date
of publication of notice for public auction or
Page 71 of 139
inviting quotations or tender from public or
private treaty for transfer by way of lease,
assignment or sale of the secured assets,-
(i) the secured assets shall not be transferred
by way of lease, assignment or sale by the
secured creditor; and
(ii) in case, any step has been taken by the
secured creditor for transfer by way of lease
or assignment or sale of the assets before
tendering of such amount under this sub-
section, no further step shall be taken by such
secured creditor for transfer by way of lease
or assignment or sale of such secured
assets.”
83. Nothing is mentioned as to why the proposal indicated in
Page 12 was changed on page-13 differently.
84. Admittedly, what is stated in page-13 was passed in the Lok
Sabha and the Rajya Sabha and then it became the Act 44 of 2016
and came into effect on 01.09.2016.
85. But the important thing to note is that this Report does not
indicate that the Committee had even considered Section 60 of the
Transfer of Property Act, 1882, which provides the general law
of right to redeem a mortgaged asset of a mortgager vis-a-vis the
provisions of the SARFAESI Act.
86. It no where says that there was an intention to bring about a
change with regard to the time before which a mortgagor can
exercise his right to redeem the mortgage.
87. Even the heading of Para 24 of the Report which says
“Provisions to stop secure creditor to lease or assignment or sale
in the prescribed conditions - Amendment to Section 13(8) of the
SARFAESI Act” seems to suggest that the focus of the
Committee was on the date when the secured creditor's right to
lease or assignment or sale would stop.
Page 72 of 139
88. In our considered opinion, it is clear that the legislature did
not have any intention to deal with the right of mortgagor to
redeem the mortgage when they amended Sec.13(8) or to modify
it in any manner; and amendment cannot be said to have
intended to modify the existing law which continued even when
the un amended Section 13(8) of the SARFAESI Act was in force.
The amended Sec.13(8) was intended to only deal with the date
when the secured creditor's right to transfer the secured asset
should stop and nothing more.
xxx xxx xxx
93. The view taken by the High Court for the State of Telangana
and Andhra Pradesh in M/s. Concern Ready Mix [(2019) 3 ALD
384 : Law Finder Doc Id # 1380151] commends itself to us and
we accept and approve the same.
94. We shall now consider the judgment of Supreme Court in
Shakeena [(2019) 5 RCR (Civil) 689 (SC)]cited by the counsel
for 1st respondent. In that case, sale certificate had been issued in
favour of the auction purchasers on 06.01.2006 and a Writ
Petition was filed on 19.01.2006 challenging the auction and it
was registered on 18.9.2007. The Court held that the appellants
had failed to make a valid tender of amounts due or exercise their
right of redemption in a manner known to law until the
registration of the sale certificate on 18.09.2007 and that the right
of redemption stood obliterated on 18.09.2007. The statement
therein in para 29 that as per the amended provision stringent
conditions have been stipulated that the tender of dues to the
secured creditor shall be at any time before the date of publication
of notice for public auction does not, in our opinion, lead to an
expression of opinion by the Supreme Court that the law of
redemption as per Section 60 of the Transfer of Property Act
would not apply in view of amendment to Section 13(8). We do
not find any discussion in the decision in Shakeena [(2019) 5
RCR (Civil) 689 (SC)] about the decisions of the apex court
dealing with the right of redemption under Sec.60 of the Transfer
of Property Act, 1872. So reliance on the said decision does not
help the 1st respondent.
xxx xxx xxx
Page 73 of 139
96. Keeping in mind (i) the Report of the Joint Committee on the
Enforcement of Security Interest and Recovery of Debts Laws
and Miscellaneous Provisions (Amendment) Bill, 2016 discussed
above, (ii) the law laid down by the Supreme Court in Mathew
Varghese [(2014) 5 SCC 610] and (iii) the decision in M/s.
Concern Readymix [(2019) 3 ALD 384 : Law Finder Doc Id #
1380151] of the Telangana and Andhra Pradesh High Court,
with which we respectfully agree, we hold that the amended
Section 13(8) of the SARFAESI Act merely prohibits a secured
creditor from proceeding further with the transfer of the secured
asset by way of lease, assignment or sale; a restriction on the right
of the mortgagee to deal with the property is not exactly the same
as the equity of redemption available to the mortgagor; the
payment of the amount mentioned in Section 13(8) of the
SARFAESI Act ties the hands of the mortgagee (secured creditor)
from exercising any of the powers conferred under the Act; that
redemption comes later; extinction of the right of redemption
comes much later than the sale notice; and the right of redemption
is not lost immediately upon the highest bid made by a purchaser
in an auction being accepted. We also hold that such a right
would continue till the execution of a conveyance i.e. issuance of
sale certificate in favour of the mortgagee. [...]
97. It would, therefore, certainly be available to the petitioners
herein before the issuance of sale certificate in favour of
respondents No. 2 and 3. Point (a) is answered accordingly in
favor of the petitioners and against the respondents.”
93. The decision in the case of Concern Readymix (supra) was referred
to and relied upon later by the Andhra Pradesh High Court in Amme
Srisailam v. Union Bank of India, Regional Office, Guntur, rep. by
its Region Head & Deputy General Manager, Andhra Pradesh &
Ors. reported in 2022 SCC OnLine AP 3484. In the said decision it
was held that a conjoint reading of Section(s) 35 and 37 of the
Page 74 of 139
SARFAESI does not appear to exclude the applicability of Section 60
of the TP Act. It further noted, that although this Court in Shakeena
(supra) had taken a contrary view, more particularly that the
borrower’s right of redemption stands curtailed by the 2016
Amendment, yet in the subsequent larger bench decision of this
Court in S. Karthik (supra) it was held that such right of redemption
would extinguish only on the sale certificate getting registered and
not upon publication of the notice of auction. Consequently, it held
that the right of redemption available to the borrower under Section
60 of the TP would not stand restricted only by virtue of the
amended Section 13(8) of the SARFAESI Act. The relevant
observations read as under: -
“38. After referring to the amendments brought to the Security
Interest (Enforcement) Rules, 2002, this Court took the view that
amended Section 13(8) merely prohibits the secured creditor from
proceeding further with the transfer of the secured assets by way
of lease, assignment or sale if the dues are paid before issuance of
notice for public auction. Thereafter it has been held that a
restriction on the right of the mortgagee to deal with the property
is not exactly the same as the equity of redemption available to
the mortgagor. Payment of the amounts mentioned in Section
13(8) ties the hands of the mortgagee (secured creditor) from
exercising any of the powers conferred under the SARFAESI
Act. Redemption comes later. It has been held as follows:
The danger of interpreting Section 13(8) as though it
relates to the right of redemption, is that if payments
Page 75 of 139
are not made as per Section 13(8), the right of
redemption may get lost even before the sale is complete
in all respects. But in law it is not.
39. Thus this Court emphasised that the right of redemption is
not lost immediately upon the highest bid made by the purchaser
in an auction is accepted.
40. A three-Judge Bench of the Supreme Court in S.Karthik
(supra) held that the right of redemption which is embodied in
Section 60 of the Transfer of Property Act, 1882 is available to
the mortgagor unless it has been extinguished by the act of the
parties. Only on execution of the conveyance and registration of
transfer of mortgagor’s interest by registered instrument that the
mortgagor’s right of redemption will be extinguished. Referring
to the previous decisions of the Supreme Court, it has been held
that the right to redemption stands extinguished only on the sale
certificate getting registered.
41. This position has been explained by the Punjab & Haryana
High Court in Pal Alloys & Metal India Private Limited (supra),
wherein it has been clarified that the amended Section 13(8) of
the SARFAESI Act merely prohibits the secured creditor from
proceeding further with the transfer of the secured asset by way
of lease, assignment or sale if the dues are paid before issuance of
sale notice for public auction. A restriction on the right of the
mortgagee to deal with the property is not exactly the same as the
equity of redemption available to the mortgagor.
42. Let us now examine the decision of the Supreme Court in
Shakeena (supra) relied upon by the petitioner. As opposed to
S.Karthik (supra) which was rendered by a three-Judge Bench,
Shakeena (supra) was delivered by a two-Judge Bench of the
Supreme Court. That was a case which dealt with Section 13(8)
of the SARFAESI Act prior to amendment. In this case, the
appellants failed to exercise their right of redemption until
registration of the sale certificate; therefore, relief was declined.
Page 76 of 139
While coming to the above conclusion, the Division Bench of the
Supreme Court adverted to the amended Section 13(8) of the
SARFAESI Act observing by way of obiter that tender of dues to
the secured creditor with all costs, charges and expenses incurred
by him shall be at any time before the date of publication of notice
for public auction etc.
43. The decision in Shakeena (supra) was rendered by a two-
Judge Bench of the Supreme Court on 20.08.2019. On the other
hand, the decision in S.Karthik (supra) was rendered by a three-
Judge Bench of the Supreme Court much later i.e., on 23.09.2021.
The decision in S.Karthik (supra) being a later judgment and by
a larger bench therefore will be binding on us and this decision
says that the right of redemption stands extinguished only on the
sale certificate getting registered.
44. Before we revert back to the facts of the present case, we may
also refer to Sections 35 and 37 of the SARFAESI Act. While
Section 35 says that the provisions of the SARFAESI Act shall
have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force, Section 37
clarifies that provisions of the SARFAESI Act or the rules made
thereunder shall be in addition to and not in derogation of any
other law for the time being in force.
45. This brings us to Section 60 of the Transfer of Property Act,
1882. Section 60 says that at any time after the principal amount
has become due, the mortgagor has a right, on payment or tender,
of the mortgage money, to require the mortgagee (a) to deliver to
the mortgagor the mortgage deed and all documents relating to
the mortgaged property which are in possession or power of the
mortgagee, (b) where the mortgagee is in possession of the
mortgaged property, to deliver possession thereof back to the
mortgagor, and (c) at the cost of the mortgagor either to re
transfer the mortgaged property to him or to such third person as
he may direct, or to execute and to have registered an
acknowledgement in writing that any right in derogation of his
interest transferred to the mortgagee has been extinguished. As
Page 77 of 139
per the proviso, the right conferred under the aforesaid provision
shall not be extinguished by any act of the parties or by decree of
a Court.
46. Therefore, on a careful application of Sections 35 and 37 of
the SARFAESI Act, it is evident that the situation contemplated
under Section 13(8) of the SARFAESI Act does not exclude
application of Section 60 of the Transfer of Property Act, 1882.
As explained by this Court in Concern Readymix (supra), a
restriction on the right of the mortgagee to deal with the property
post issuance of notice for public auction is not the same as the
right of redemption available to the mortgagor.”
(Emphasis supplied)
c. Effect of the 2016 Amendment on the Right of Redemption under
Section 13(8) of the SARFAESI Act.
94. This Court in Bafna Motors (supra) considered the conflicting
orders passed by various High Courts in interpreting the provisions
of Section 13(8) in relation to the right of redemption by the
borrower.
95. In the final analysis, this Court noted that under the pre-amended
Section 13(8) of the SARFAESI Act, the borrower could repay the
dues, along with the interest and charges at any time “before the date
fixed for sale or transfer”. However, post Amendment, redemption is
available before the date of publication of notice for public auction.
Page 78 of 139
96. However, the amended Section 13(8) of the SARFAESI Act allows
the exercise of right of redemption only till the date of publication of
notice, which is a departure from the general right of redemption
under the general law and therefore is inconsistent with Section 60
of Transfer of Property Act. In such a situation of inconsistency, the
SARFAESI Act being a special one, would override the general law.
This Court also took note of Section 35 and Section 37 respectively
of the SARFEASI Act and held that Section 35 of the SARFEASI Act
will have an overriding effect, notwithstanding anything which is
inconsistent with any other law. Further, this Court held that the
laws that are mentioned in Section 37 of SARFEASI Act i.e., laws
which deal with securities or occupy the same field as the SARFAESI
Act, would be applicable in addition to it and not in derogation to
any other law.
97. The objects and reasons for the Amendment of the SARFEASI Act
was to facilitate expeditious disposal of recovery applications.
Taking the same into consideration, the Court noted that an
interpretation which furthers the said object and reasons should be
Page 79 of 139
preferred and adopted. If the general law is allowed to govern, it
will defeat the very object and purpose of the amended Section 13(8).
98. The Court concluded that the judgement delivered in Sri. Sai
Annadhatha Polymers (supra), as well as in K.V.V. Prasad Rao
Gupta (supra) stipulate the correct position of law and overruled the
judgements of the High Courts in Amme Srisailam (supra), Concern
Readymix (supra), and Pal Alloys (supra).
99. This Court in the last considered the sanctity of public auctions and
noted that reading Section 13(8) in any other manner would lead to
a worrisome situation as the successful bidder would continue to
remain apprehensive till a valid sale certificate is issued.
100. The final conclusion drawn by this Court in Bafna Motors (supra)
reads thus: -
“110. We summarise our final conclusion as under: -
110.1. The High Court was not justified in exercising its writ
jurisdiction under Article 226 of the Constitution more
particularly when the borrowers had already availed the
alternative remedy available to them under Section 17 of
the Sarfaesi Act.
Page 80 of 139
110.2. The confirmation of sale by the Bank under Rule 9(2) of
the 2002 Rules invests the successful auction-purchaser with a
vested right to obtain a certificate of sale of the immovable
property in the form given in Appendix V to the Rules i.e. in
accordance with Rule 9(6) of the Security Interest (Enforcement)
Rules, 2002.
110.3. 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 on the date of the auction-sale of the secured asset
itself and remained 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 2002 Rules. 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 2002 Rules and not till the completion of the sale or
transfer of the secured asset in favour of the auction-purchaser.
110.4. The Bank after having confirmed the sale under Rule 9(2)
of the 2002 Rules could not have withheld the sale certificate
under Rule 9(6) of the 2002 Rules, and entered into a private
arrangement with a borrower.
110.5. The High Court under Article 226 of the Constitution
could not have applied equitable considerations to overreach the
outcome contemplated by the statutory auction process
prescribed under the Sarfaesi Act.
110.6. The two decisions of the Telangana High Court
in Concern Readymix [Concern Readymix v. Corporation Bank,
2018 SCC OnLine Hyd 783 : (2019) 3 ALD 384] and Amme
Srisailam [Amme Srisailam v. Union Bank of India, 2022 SCC
OnLine AP 3484] do not lay down the correct position of law. In
the same way, the decision of the Punjab and Haryana High
Page 81 of 139
Court in Pal Alloys [Pal Alloys & Metal India (P)
Ltd. v. Allahabad Bank, 2021 SCC OnLine P&H 2733] also does
not lay down the correction position of law.
110.7. The decision of the Andhra Pradesh High Court in Sri Sai
Annadhatha Polymers [Sri Sai Annadhatha Polymers v. Canara
Bank, 2018 SCC OnLine Hyd 178] and the decision of the
Telangana High Court in K.V.V. Prasad Rao Gupta [K.V.V.
Prasad Rao Gupta v. SBI, 2021 SCC OnLine TS 328] lay down
the correct position of law while interpreting the amended
Section 13(8) of the Sarfaesi Act.”
(Emphasis supplied)
C. How the decision of this Court in Bafna Motors should be
understood?
101. Before we proceed to delineate the true purport and effect of the
amended Section 13 sub-section (8) of the SARFAESI Act, it would
be apposite to first advert to a few decisions which referred to and
applied the decision of this Court in Bafna Motors (supra), so as to
ascertain how the said judgment has been understood for the
purpose of construing Section 13(8).
102. What can be discerned from the conspectus of cases discussed above
is that, predominantly, all the courts and tribunals, on a reading of
the decision of this Court in Bafna Motors (supra), have construed
the amended Section 13 sub-section (8) of the SARFAESI Act to mean
that the right of redemption of the borrower stands extinguished on
Page 82 of 139
the date on which the notice of auction is published by the secured
creditor. In other words, the effect of Section 13(8) has been
understood to mean that the borrower would retain the right to
redeem the mortgage only up to the date of publication of
such auction notice, once such notice is published, the right of
redemption would cease.
i. There cannot be any artificial distinction in the right of
redemption under Section 13(8) of the SARFAESI Act for
different modes of transfer.
a. Scheme for sale of Immovable Secured Asset under Section 13(8)
of the SARFAESI Act read with Rule(s) 8 and 9 of the SARFAESI
Rules.
103. Again, at the cost of repetition, the amended Section 13 sub-section
(8) of the SARFAESI Act is reproduced hereunder: -
“13. Enforcement of security interest.–
(8) Where the amount of dues of the secured creditor together
with all costs, charges and expenses incurred by him is tendered
to the secured creditor at any time before the date of publication
of notice for public auction or inviting quotations or tender from
public or private treaty for transfer by way of lease, assignment
or sale of the secured assets,—
(i) the secured assets shall not be transferred by way of
lease, assignment or sale by the secured creditor; and
Page 83 of 139
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment or
sale of the assets before tendering of such amount
under this sub-section, no further step shall be taken
by such secured creditor for transfer by way of lease or
assignment or sale of such secured assets.”
104. A plain reading of the aforesaid provision indicates that where the
borrower tenders the amount of dues along with all costs, charges
and expenses to the secured creditor “before the date of publication of
notice for public auction or inviting quotations or tender from public or
private treaty for transfer by way of lease, assignment or sale of the secured
assets”, then as per clause (i) the secured asset shall not be transferred
by the secured creditor, and as per clause (ii) where any steps
towards such transfer, by lease, assignment or sale, as the case may
be, was already taken by the secured creditor, then no further steps
shall be taken in this regard.
105. To put it simply, as per sub-section (8) of Section 13 of the SARFAESI
Act, a borrower can tender the amount of dues to the secured
creditor along with all costs, charges and expenses, at any time,
before the date of publication of notice for public auction or inviting
Page 84 of 139
quotations or tender from public or private treaty, as the case may
be.
106. A borrower has no unfettered right to tender such amount of dues,
as stipulated in Section 13(8), after the date of publication of notice
for public auction or inviting quotations or tender from public or
private treaty, as the case may be, because the restriction on the
secured creditor, from transferring the secured asset, envisaged
under clause(s) (i) and (ii) of the said provision, would only be
attracted, if the dues are tendered prior to the publication of notice
for public auction or inviting quotations or tender from public or
private treaty, as the case may be. Where the borrower tenders such
dues after the publication of the notice stipulated in Section 13(8),
the secured creditor is not bound to accept it, and can continue to
proceed with the transfer of the secured asset, by way of lease,
assignment or sale.
107. Section 13 sub-section (8) of the SARFAESI Act must be read along
with Rule(s) 8 and 9 of the SARFAESI Rules.
108. The four modes of transfer of secured asset, as envisaged under
Section 13(8) of the SARFAESI Act, namely, ‘public auction’,
Page 85 of 139
‘inviting quotations’, ‘tender from public’ and ‘private treaty’ have
been set out and detailed in Rule 8(5) of the SARFAESI Rules. The
said rule reads as under: -
“8. Sale of immovable secured assets.-
xxx xxx xxx
(5) Before effecting sale of the immovable property referred to in
sub-rule (1) of rule 9, the authorised officer shall obtain valuation
of the property from an approved valuer and in consultation with
the secured creditor, fix the reserve price of the property and may
sell the whole or any part of such immovable secured asset by any
of the following methods:-
(a) by obtaining quotations from the persons dealing
with similar secured assets or otherwise interested in
buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction including through e-
auction mode; or
(d) by private treaty.
Provided that in case of sale of immovable property in the
State of Jammu and Kashmir, the provision of Jammu and
Kashmir Transfer of Property Act, 1977 shall apply to the person
who acquires such property in the State.”
109. Rule 8 sub-rule (5) of the SARFAESI Rules inter-alia provides the
different modes and manner in which an immovable secured asset
may be transferred by the secured creditor. The said rule provides
Page 86 of 139
that the secured creditor may transfer the whole or any part of such
secured asset by any of the following methods: -
(a) by obtaining quotations from the persons dealing
with similar secured assets or otherwise interested
in buying the such assets; or
(b) by inviting tenders from the public
(c) by holding public auction including through e-
auction mode; or
(d) by private treaty
110. As per Rule 8 sub-rule (6) of the SARFAESI Rules, before the transfer
/ sale of the immovable secured asset by the secured creditor, by
any of the methods enumerated in Rule 8(5), the secured creditor is
required to serve to the borrower a notice of thirty-days of the
intended sale of such secured asset through any one of the methods
specified in Rule 8(5). The Proviso appended to Rule 8(6) further
stipulates that where the proposed sale of the secured asset is either
by ‘inviting tenders from the public’ or by ‘holding a public auction’,
then the secured creditor shall cause a public notice in two leading
newspapers, in the manner and form specified therein. Rule 8 sub-
rule (6) reads as under: -
Page 87 of 139
“8. Sale of immovable secured assets.-
xxx xxx xxx
(6) the authorised officer shall serve to the borrower a notice of
thirty days for sale of the immovable secured assets, under sub-
rule (5)
Provided that if the sale of such secured asset is being effected by
either inviting tenders from the public or by holding public
auction, the secured creditor shall cause a public notice in the
Form given in Appendix IV-A to be published in two leading
newspapers including one in vernacular language having wide
circulation in the locality.”
111. Rule 8(7) of the SARFAESI Rules mandates that every notice of sale
shall be affixed on the conspicuous part of the immovable property,
proposed to be sold in terms of Rule 8(5) and in addition, be
uploaded on the website of the secured creditor, containing or
setting out the detailed terms and conditions of the sale, as specified
thereunder. Rule 8(7) of the SARFAESI Rules reads as under: -
“8. Sale of immovable secured assets.-
xxx xxx xxx
(7) every notice of sale shall be affixed on the conspicuous part of
the immovable property and the authorised officer shall upload
the detailed terms and conditions of the sale, on the website of the
secured creditor, which shall include;
(a) the description of the immovable property to be sold,
including the details of the encumbrances known to the
secured creditor;
Page 88 of 139
(b) the secured debt for recovery of which the property
is to be sold;
(c) reserve price of the immovable secured assets below
which the property may not be sold;
(d) time and place of public auction or the time after
which sale by any other mode shall be completed;
(e) deposit of earnest money as may be stipulated by the
secured creditor;
(f) any other terms and conditions, which the
authorized officer considers it necessary for a
purchaser to know the nature and value of the
property.”
112. The last provision relevant for our discussion is Rule 9(1) of the
SARFAESI Rules. Rule 9(1) provides that no sale of immovable
secured asset under these rules, more particularly Rule 8(5) shall
take place before the expiry of thirty-days from the date on which
the public notice of sale is published as referred to in the Proviso to
Rule 8(6) or notice of sale is served to the borrower. The Proviso to
Rule 9(1) further stipulates that if the sale of the immovable secured
asset under Rule 8(5) fails, then for conducting any subsequent sale,
the secured creditor would be required to serve, affix and publish
the subsequent notice of sale for a period of fifteen-days only. In
other words, for the sale of immovable secured asset in the first
instance, a notice period of thirty-days is required to be observed by
the secured creditor till the date of actual sale / transfer, and if the
Page 89 of 139
first sale fails, then for all subsequent sales, only a notice period
fifteen-days is to be given, as opposed to thirty-days. The said rule
reads as under: -
“9. Time of sale, Issue of Sale Certificate and delivery of
possession, etc.-
xxx xxx xxx
(1) No sale of immovable property under these rules, in first
instance shall take place before the expiry of thirty days from the
date on which the public notice of sale is published in newspapers
as referred to in the proviso to sub-rule (6) of Rule 8 or notice of
sale has been served to the borrower:
Provided further that if sale of immovable property by
any one of the methods specified by sub-rule (5) of Rule 8 fails
and sale is required to be conducted again, the authorised officer
shall serve, affix and publish notice of sale of not less than fifteen
days to the borrower, for any subsequent sale.”
113. A perusal of the bare text of Section 13(8) of the SARFAESI Act
suggests that the borrower can tender the entire dues of the creditor
including all costs, charges and expenses “before the date of publication
of notice for public auction or inviting quotations or tender from public or
private treaty for transfer by way of lease, assignment or sale of the secured
assets”. In other words, the textual reading of the provision appears
to convey that the right of redemption of the borrower would be
extinguished on the date on which the notice is published for
Page 90 of 139
auction, invitation of quotations, tender from public or private
treaty.
114. This has also been the understanding as adopted in Cholamandalam
Investment (supra), M. Raghu (supra), VST Constructions (supra),
P.V. Sitarama Swamy (supra) and a catena of other decisions passed
by the various High Courts and tribunals from a reading of Section
13(8) of the SARFAESI Act and the judgment of Bafna Motors
(supra).
115. We must first try to and understand which notice is the expression
“before the date of publication of notice” in sub-section (8) of Section 13
speaking of and what is meant by the word “publication” used
thereunder.
116. Rule 8(6) of the SARFAESI Rules provides that before the sale of the
immovable secured asset, by way of obtaining quotations, inviting
tenders, holding auction or by private treaty, a notice of sale has to
be served to the borrower. The Proviso to Rule 8(6) provides that
where the proposed sale is by way of either public auction or
Page 91 of 139
inviting tenders from public, the secured creditor shall cause a
public notice in two leading newspapers.
117. Rule 9(1) of the SARFAESI Rules appears to hold significance in
understanding the word “publication” employed in Section 13(8),
and which notice, the said word appears to be referring to. Rule 9(1)
inter-alia states that no sale of immovable secured asset shall take
place before the expiry of thirty-days from the “date on which the
public notice of sale is published in newspapers as referred to in the proviso
to sub-rule (6) of rule 8”.
118. From a conjoint reading of the Proviso to Rule 8(6) and Rule 9(1) of
the SARFAESI Rules, the words “before the date of publication of notice”
used in Section 13(8) of the SARFAESI Act, semantically appear to
mean the publication of the notice of sale in the newspaper, as
specified in Rule 8(6). This is particularly because Rule 9(1) while
referring to the notice of sale of public auction / tender under the
Proviso to Rule 8(6), specifically uses the word “published”, thereby
suggesting that the term “publication” occurring in Section 13(8) is
referring to nothing but the notice envisaged under the Proviso to
Rule 8(6) or to put it simply, the notice of sale in the newspaper.
Page 92 of 139
119. Thus, although it is entirely possible for an inference to be drawn
from the word “published” in Rule 9(1) for construing the expression
“before the date of publication of notice” used in Section 13(8), yet to our
minds, this does not appear to be correct understanding of Section
13(8), for the reasons that we shall assign hereinafter.
120. We must not lose sight of the fact that Section 13(8) of the SARFAESI
Act speaks of all four modes of sale / transfer, delineated under the
SARFAESI Rules, more particularly, Rule 8(5). The provision also
refers to each of the mode of sale uniformly and in the same manner.
Section 13(8) stipulates that the borrower must tender the dues
“before the date of publication of notice” for “public auction or inviting
quotations or tender from public or private treaty” (emphasis).
121. The language couched in the provision of Section 13(8) of the
SARFAESI Act, also makes no distinction between what mode or
manner of sale is adopted by the secured creditor, insofar as the
application of the rigours of the provision is concerned. We say so
because, the expression “before the date of publication of notice of sale”
has not been confined or restricted to only some modes of sale and
not to others.
Page 93 of 139
122. The entire expression reads “before the date of publication of notice for
public auction or inviting quotations or tender from public or private
treaty”. But if the expression “before the date of publication of notice of
sale” is construed to be synonymous to the publication of notice of
sale in the newspaper in terms of the Proviso to Rule 8(6) alone, then
the same would result in an anomaly.
123. Section 13(8), more particularly the expression “before the date of
publication of notice for public auction or inviting quotations or tender
from public or private treaty” would then effectively read to mean that
a borrower can exercise its right of redemption of mortgage till the
date of publication of notice of sale in the newspaper for “auction”
where such notice is required, “or inviting quotations” where no such
notice is required, “or tender from public” where such publication of
notice is required, “or private treaty”, where again, no such notice is
required to be published. The aforesaid may be better illustrated
through the following diagram depicted hereunder: -
“Where the amount of dues of the secured creditor
together with all costs, charges and expenses incurred by
him is tendered to the secured creditor at any time before
the date of publication of notice for public auction or
inviting quotations or tender from public or private
Page 94 of 139
treaty for transfer by way of lease, assignment or sale of
the secured assets,—
(i) the secured assets shall not be transferred by
way of lease, assignment or sale by the secured
creditor; and
(ii) in case, any step has been taken by the secured
creditor for transfer by way of lease or assignment
or sale of the assets before tendering of such
amount under this sub-section, no further step
shall be taken by such secured creditor for
transfer by way of lease or assignment or sale of
such secured assets.”
In the above illustration: -
___ signifies that no notice of sale is required to be published
in newspaper.
___ signifies that notice of sale is required to be published in
newspaper.
124. This inherent contradiction within the provision of Section 13(8) of
the SARFAESI Act was taken notice of by the High Court of
Telangana in M/s Venshiv Pharma Chem (P) Ltd. & Anr. v. State
Bank of India & Ors. reported in 2018 SCC OnLine Hyd 39. In the
said decision the High Court observed that the amended Section
13(8) attaches vital importance to the date of publication of the notice
insofar as the right of redemption is concerned. As such, it held that
Page 95 of 139
where the sale of the secured asset is by public auction or inviting
tender from public, the date of publication of such sale notice under
Rule 9(1) would clinch the right of the borrower to redeem the
mortgage. It further observed that where the sale is by inviting
quotations or private treaty, there the situation would be covered by
clauses (i) and (ii) of the amended Section 13(8) instead. The relevant
observations read as under: -
“52. Sri M. Narender Reddy, learned senior counsel, would
argue that the unamended section 13(8) of the SARFAESI Act
was similar in its wording to the amended version thereof, as
regards the right of redemption being linked to the date fixed for
sale or transfer of the secured asset. However, it may be noted
that the amended version contains a new insertion to the effect
that the tendering of the dues by the borrower to the secured
creditor has to be at any time before the date of publication of
notice for public auction or inviting quotations, or tender from
public or private treaty for transfer. The language of the
unamended version did not contain such a bar and allowed the
right of redemption to operate till the date fixed for "sale or
transfer" of the secured asset.
53. Though Sri M. Narender Reddy, learned senior counsel,
would point out that clause (i) in the amended section 13(8)
would indicate that if the dues are tendered by the borrower to
the secured creditor, the secured assets should not be transferred
by way of lease, assignment or sale by the secured creditor and
under clause (ii), in case any step has already been taken by the
secured creditor for transfer by way of lease or assignment or sale
of the assets, before tendering of such amount under this sub-
section, no further step should be taken by the secured creditor
and therefore, the right of redemption has to be construed
accordingly. However, it may be noticed that the amended section
13(8) attaches vital importance to the date of publication of the
Page 96 of 139
notice. In so far as the date of publication of the notice under rule
9(1) is concerned, be it for a public auction or for inviting tenders
from the public, the secured creditor is bound to wait for 30 days
from the date on which such publication is carried out before
proceeding to the actual sale. Prior to this date, no steps could
possibly be taken by the secured creditor for transfer of the
secured asset. Therefore, it is only in the other two situations,
that is, where the secured creditor resorts to sale of the secured
asset by inviting quotations under rule 8(5)(a) or by private
treaty under rule 8(5)(d) of the Rules of 2002, that the possibility
of a step being taken by the secured creditor for transfer would
arise. The situation covered by clauses (i) and (ii) of amended
section 13(8) therefore would not arise where the sale is through
public auction by publication of a sale notice under rule 9(1).
54. Further, under the new section 13(8), the right of redemption
available to the borrower stands drastically curtailed. Now, such
right is available to the borrower only up to the date of
publication of the notice for public auction or inviting quotations
or tender from public for transfer by way of lease, assignment or
sale of the secured asset. Thus, when the secured creditor resorts
to sale through public auction under rule 8(5) of the Rules of
2002, the date of publication of such sale notice under rule 9(1)
of the Rules of 2002 would effectively clinch the right of the
borrower to redeem the secured asset. However, rule 8(6) of the
Rules of 2002 remained unchanged, despite the amendments in
November, 2016. This rule continues to provide that the
authorized officer should serve upon the borrower a notice of 30
days before sale of the immovable secured asset. Obviously, this
notice is intimation to the borrower of the intention of the secured
creditor to recover its dues by sale of such asset, thereby enabling
him to exercise his right of redemption under section 13(8) of the
SARFAESI Act. Therefore, a clear 30 days would have to be
maintained between the date of service of such notice under rule
8(6) of the Rules of 2002 and the expiry of the right of redemption
under the amended section 13(8) of the SARFAESI Act.”
(Emphasis supplied)
Page 97 of 139
125. What has been conveyed in so many words in Venshiv Pharma
Chem (supra) is that there are two distinct point of time, when the
right of redemption of the borrower would stand extinguished
under the amended Section 13(8) of the SARFAESI Act. In arriving
at the aforesaid conclusion, the High Court appears to have partly
agreed with the argument advanced before it, that the amended
Section 13(8) is similar in its operation to its unamended
counterpart, and the only significant change made is in respect of
the clear restriction on the secured creditor to transfer or sell the
secured asset once the dues are tendered by the borrower, and thus,
there would be no material change in how the right of redemption
is to be exercised. The High Court seems to have accepted the
contention that the right of redemption under the amended Section
13(8) would have to be construed in accordance with the restrictions
engrafted in clauses (i) and (ii), but only in respect of where the sale
is by way of inviting quotations or private treaty, and thereby
proceeds to hold as under: -
(i) First, the High Court proceeds to construe the purport of
Section 13(8) to give to the borrower a definite and sufficient
period of time for redeeming the secured asset, by ensuring
Page 98 of 139
that during this period, the secured creditor does not take any
step towards the sale or transfer of the secured asset.
(ii) Secondly, in view of the significance attached to the date of
publication of auction notice under the amended Section 13(8),
it rejects the contention that the right of redemption would
have to be construed in accordance with the restrictions
encapsulated under clauses (i) and (ii) of the provision, insofar
as the public auctions or tenders is concerned. According to
the High Court where the sale is either through public auction
or tender, there the right of redemption would extinguish on
the date of publication of the auction notice itself. As before
the publication of such auction notice, there exists no
possibility for the secured creditor to take steps towards the
sale or transfer of the secured asset, in view of the clear
mandate requiring the secured creditor to wait for thirty-days
before it can publish the notice for auction or tender, as the
case may be. Thus, there is no occasion for clauses (i) and (ii)
of Section 13(8) to be attracted, and as such the right of
redemption would have to be construed in accordance with
the substantive part of the provision instead.
Page 99 of 139
(iii) Thirdly, where however, the sale of the secured asset is either
through public auction or tender, there, the possibility of the
secured creditor proceeding with such sale is palpable, in the
absence of any requirement to maintain a clear 30-day gap. It
is for such situations that clauses (i) and (ii) of the amended
Section 13(8) would come into the play, and the right of
redemption would then necessarily have to be construed to
continue to exist till the date of actual transfer, as was the
position under the unamended Section 13(8) as per Mathew
Varghese (supra).
126. The line of reasoning adopted by Venshiv Pharma Chem (supra) to
hold that the right of redemption under the amended Section 13(8)
of the SARFAESI Act would extinguish differently for different
modes of sale, appears to be incorrect. There is nothing in the bare
text of Section 13(8) which would suggest that clause(s) (i) and (ii) of
the said provision are confined in their application to some modes
of sale and not to others. The restrictions on the transfer of the
secured asset by way of lease, assignment or sale, under clause(s) (i)
and (ii) of Section 13(8) are general and omnibus in nature.
Page 100 of 139
127. The different modes or methods for dealing or disposing the secured
asset, as enumerated in the substantive portion of Section 13(8) of
the SARFAESI Act are all for the general purpose of facilitating the
transfer of the secured asset, either by way of lease, assignment or
sale of the secured assets. This is made clear from the general
expression “for transfer by way of lease, assignment or sale of the secured
assets,—" used in the substantive portion of Section 13(8). Had the
intent of the legislature been otherwise, then it would not have used
the same general expression “transferred by way of lease assignment or
sale” or “transfer by way of lease or assignment or sale” in clauses (i) and
(ii), respectively and instead would have specifically alluded to the
specific mode(s) of sale, for which such clauses are intended. We
shall discuss this issue in detail in the later parts of this judgment.
128. From the above it is manifestly clear that the rigours of Section 13(8)
of the SARFAESI Act, including clause(s) (i) and (ii) therein, are
intended to apply equally irrespective of whether the transfer / sale
of the secured asset happens to be by either public auction, or
obtaining quotations or inviting tenders or private treaty, as all of
the said methods are inevitably for the same purpose i.e., for the
Page 101 of 139
transfer of secured asset, by lease, assignment or sale of the secured
asset.
129. However, at the same time, as aforementioned the Proviso to Rule
8(6) read with Rule 9(1) of the SARFAESI Rules, stipulates that the
notice of sale of secured asset has to be published in the newspaper,
only where the mode of sale is by way of either auction or inviting
tenders from the public. For all other remaining modes of sale, i.e,
by obtaining quotations or private treaty, there is no requirement to
publish the notice of sale.
130. Thus, in order to better understand the true import of the expression
“before the date of publication of notice”, it is necessary to understand
the form and manner of notice or notice(s), as the case may be, that
is required under the SARFAESI Rules for the transfer of secured
asset, by lease, assignment or sale of the secured asset.
ii. There is only a single Notice of Sale required under Rule 8(6) of
the SARFAESI Rules for transfer of secured asset, by lease,
assignment or sale.
131. The entire controversy on the interpretation of Section 13(8) of the
SARFAESI Act, revolves around the interpretation of the expression
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“before the date of publication”. The reason why the said expression
has been construed by various High Courts to mean the notice of
auction is due to the prevailing misconception, that two separate
notices are required, where the mode of sale of the secured asset is
either by way of public auction or tender. This misconception has
largely been because of a misreading of the provision of Rule(s) 8
and 9 of the SARFAESI Rules respectively.
a. Contradictory Views of the High Court on the subject.
132. The Telangana High Court in Venshiv Pharma Chem (supra) and
K.V.V. Prasad Rao Gupta (supra) respectively held that the secured
creditor is required to give a total of two notices; a thirty-days’ notice
of sale to the borrower and thereafter, another thirty-days public
notice of auction, under the Proviso to Rule 8(6) and Rule 9(1),
respectively. This according to the Telangana High Court is
necessary, to afford the borrower a reasonable period for exercising
his right to redeem the mortgage, which under the amended Section
13(8) would stand extinguished on the date of publication of the
auction notice, thus, a clear 30-day gap has to be maintained
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between the date of service of notice under Rule 8(6) to the borrower,
and the publication of the auction notice under Rule 9(1).
133. The aforesaid view also found favour with the Andhra Pradesh
High Court in Sri. Sai Annadhatha Polymers (supra) and Amme
Srisailam (supra) respectively by placing reliance on Mathew
Varghese (supra), to hold that although Section 13(8) underwent an
amendment, yet Rule(s) 8(6) and 9(1) remain unchanged, thus, the
ratio of Mathew Varghese (supra) insofar as the requirement of
giving two notices with a thirty-day gap each, under the SARFAESI
Rules, would continue to hold field.
134. Whereas, another bench of the Telangana High Court in Aditya
Industries (supra) and Indian Overseas Bank v. RA Pure Life
Science Ltd. & Ors. reported in 2023 SCC OnLine TS 634 took a
partly contrary view. The High Court appears to have expressed
agreement with the proposition that although Rule(s) 8(6) and 9(1)
of the SARFAESI Rules contemplates two distinct notices being
issued, yet it has disagreed with the views expressed in a Venshiv
Pharma Chem (supra) and K.V.V. Prasad Rao Gupta (supra)
respectively, that there must be a thirty-day gap between the
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issuance of each of the said notices. It held that there is no
requirement for the secured creditor to give the two notices of sale
with a thirty-day gap between each, before it can transfer or sell the
secured asset. It observed that the SARFAESI Rules nowhere
stipulates a thirty-day gap between the service of notice of sale to
the borrower and publication thereof, in the newspaper. According
to it, both the notices can be issued by the secured creditor
simultaneously. All that is required by Rule(s) 8(6) read with 9(1) is
that there should be a thirty-day gap between the issuance of the
aforesaid notice or notice(s), as the case may be, and the actual date
of sale of the secured asset.
135. On the other hand, one another Bench of the Telangana High Court
in Concern Readymix (supra) held that the SARFAESI Rules, more
particularly, Rule(s) 8(6) and 9(1) respectively, contemplate the
issuance of only one notice of sale by the secured creditor. It
observed that Rule 9(1) does not stipulate the requirement of
publishing a separate notice, rather it merely makes a reference to
publish the self-same notice that has to be served to the borrower
under Rule 8(6). According to it, if Rule(s) 8(6) and 9(1) are construed
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to mean that two separate notices are required, then it would result
in the borrower having a period of 60-days, which is repugnant to
the statutory stipulated period of thirty-days’ or fifteen-days’ time,
as the case may be, under the SARFAESI Rules. Thus, it held that
there has to be only one notice under Rule 8(6), and it would be
sufficient for Rule 9(1), if the date of auction falls beyond 30 days
from the date of issuance of such notice, and publication thereof. In
this regard, reliance was placed by the Telangana High Court on the
decision of this Court in Canara Bank v. M. Amarender Reddy
reported in (2017) 4 SCC 735.
136. Thus, there appears to be a divergence of opinion as regards, first,
whether Rule 8(6) read with Rule 9(1) of the SARFAESI Rules
contemplate issuance of two distinct and separate notices of sale;
and secondly, notwithstanding the aforesaid, whether there is a
requirement to maintain a gap of thirty-days each, between the
service of notice or notice(s) of sale to the borrower, and the
publication of such notice or notice(s) in the newspaper in terms of
Rule(s) 8(6) and 9(1), respectively.
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b. The Scheme under the SARFAESI Rules envisages one single
composite Notice of Sale of Immovable Secured Asset.
137. We shall now look into the unique scheme for the transfer of
immovable secured asset, by way of lease, assignment or sale,
formed by Rule(s) 8(6), 8(7) and 9(1) of the SARFAESI Rules.
138. Rule 8 sub-rule (6) of the SARFAESI Rules stipulates that the
authorized officer of the secured creditor shall serve the borrower a
notice of thirty-days for the sale of the immovable property by any
of the modes, enunciated in the preceding Rule 8(5).
139. The Proviso to Rule 8(6) further enjoins a duty upon the secured
creditor, to cause a public notice, in the form and manner specified
therein, where the sale of the immovable property happens to be
either by way of public auction or tender. Unlike Rule 8(6), which
would apply, in respect of all modes of sale of the immovable
secured asset in terms of Rule 8(5), the Proviso thereto, has no
application whatsoever, if the sale of the immovable secured asset,
is not by way of public auction or tender i.e., the said duty cast on
the secured creditor under the Proviso would have no application,
if the sale is by way of obtaining quotations or private treaty.
Page 107 of 139
140. Rule 9(1) of the SARFAESI Rules provides that no sale of the
immovable property, in terms of Rule 8(5), shall take place before
the expiry of thirty-days from the date on which the public notice of
sale is published in newspaper, as required under the Proviso to
Rule 8(6), or notice of sale has been served to the borrower.
141. We must be mindful to not lose sight of Rule 8(7) of the SARFAESI
Act, which is significant to the interpretation of Rule 8(6) and 9(1) of
the SARFAESI Rules. Rule 8(7) of the SARFAESI stipulates an
additional condition upon the secured creditor to affix and upload
every notice of sale, containing the relevant terms and conditions of
the sale, as specified under the said Rule, on the conspicuous part of
the immovable secured asset proposed to be sold and, on its website,
respectively.
142. The foremost reason, why we say that for the transfer of an
immovable secured asset by way of lease, assignment or sale, under
the SARFAESI Rules by the secured creditor only a single composite
notice is required, is in view of the language couched in the
provisions of Rule(s) 8 and 9, respectively.
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143. The marginal note appended to Rule 9 of the SARFAESI Rules reads
“Time of sale, Issue of Sale Certificate an delivery of possession, etc.”. Thus,
it is clear that Rule 9 only provides when the sale of the immovable
secured asset may take place along with the formalities by which
such sale would be concluded. The “public notice” alluded to in Rule
9(1) does not speak of any separate or distinct notice. This is manifest
from the expression “as referred to in the proviso to sub-rule (6) of Rule
8 or notice of sale has been served to the borrower” used in the said Rule.
144. Rule 8(6) is the first instance, in the entire scheme of the SARFAESI
Rules where any reference is made to a notice, insofar as sale of
immovable secured asset is concerned. It provides that the secured
creditor shall serve to the borrower a “notice of [...] for sale” and cause
a “public notice”, if the sale happens to be by way of public auction
or tender. In this regard, Rule 8(7) is particularly of significance,
which requires that every “notice of sale” be affixed on the
conspicuous part of the immovable property to be sold as-well as
uploaded on the website of the secured creditor.
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145. The requirement of notice by the secured creditor for the transfer of
secured asset, by lease, assignment or sale under the SARFAESI
Rules has to be culled out from Rule 8(6).
146. As already stated, Rule 8(6), is the only provision which speak about
‘notice of sale’, all other provisions, thereafter, only relate back to
Rule 8(6) by making a reference to the notice mentioned under the
said rule. Rule 8(7), simpliciter uses the word “every notice of sale”
indicating, that it is not stipulating the requirement of giving any
distinct or sperate notice. Similarly, Rule 9(1) also juxtaposes the
word “public notice” with the expression “as referred to in the proviso
to sub-rule (6) of Rule 8 or notice of sale has been served to the borrower”,
again fortifying that its merely referencing the notice of sale as
required under Rule 8(6) or the Proviso thereunder. The Proviso to
Rule 8(6), is also similar in nature, inasmuch as it uses the expression
“shall cause a public notice” in the form as delineated in Appendix IV-
A to the SARFAESI Rules.
147. The Appendix to the SARFAESI Rules is also instructive in
answering whether the SARFAESI Rules, contemplate giving two
distinct notice(s) or one single composite notice. The Appendix to
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the SARFAESI Rules contains the statutorily prescribed standard
pro-forma format and forms for the various applications, notices,
and communications contemplated under the Rules. Interestingly,
the Appendix to the SARFAESI Rules prescribes a specific form and
format only for the notice as envisaged under the Proviso to Rule
8(6).
148. Significantly, no corresponding form or format has been provided
for the notices ostensibly envisaged under Rule 8(7) or Rule 9(1).
This omission of any prescribed form for notices under Rule 8(7) or
9(1) indicates that it is really Rule 8(6) which is the substantive
provision that stipulates the requirement of issuance of a notice of
sale. The other provisions, particularly Rule 8(7) or 9(1) of the
SARFAESI Rules respectively, do not contemplate issuance of a
distinct notice thereunder, separate and apart from the one under
Rule 8(6). Rather the mentioning of “notice of sale” in Rules 8(7) and
9(1) respectively is nothing but a reference to the self-same notice of
sale under Rule 8(6).
149. We are conscious of the fact, that the Appendix IV-A to the
SARFAESI Rules, specifically mentions that the said prescribed
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format is only for the notice envisaged under the Proviso to Rule
8(6). Since there is no form or format prescribed for the notice of sale
that has to be served to the borrower in terms of the substantive part
of Rule 8(6), it could be said that, the reason why the legislature
thought fit to prescribe a standard format only for the notice
contemplated under the Proviso to Rule 8(6) and not the other Rules,
was because of the public nature of such notice.
150. To obviate the possibility of any ambiguity, mala-fide, deception,
prejudice or unclarity in the sale process of the secured asset being
caused to the public for whom such notices are intended,
advertently or inadvertently by the secured creditor, the legislature
thought fit to prescribe a standard format. In such circumstances, it
could be said that mere omission of any prescribed form or format
in the Appendix for the other rules, namely, Rule 8(7) or 9(1)
respectively cannot be possibly construed to mean that there is no
requirement for two distinct notices of sale.
151. However, a closer look of Appendix IV-A to the SARFAESI Rules
would reveal both Rule 8(6) and the Proviso to Rule 8(6) are
speaking of one single notice. Rule 8(6) and the Proviso thereto, do
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not contemplate issuance of two distinct notices, where the mode of
sale happens to be by way of public auction or tender. We say so,
because, of the words “Notice is hereby given to the public in general and
in particular to the Borrower(s) and Guarantor(s)” used in the
prescribed standard form for notice under the Proviso to Rule 8(6)
provided in the Appendix IV-A. The said prescribed form in
Appendix IV-A is reproduced below: -
“APPENDIX IV-A
[See proviso to Rule 8(6)]
(Sale notice for sale of immovable properties)
E-Auction Sale Notice for Sale of Immovable Assets under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 read with proviso to
Rule 8(6) of the Security Interest (Enforcement) Rules, 2002
Notice is hereby given to the public in general and in
particular to the Borrower (s) and Guarantor (s) that the
below described immovable property mortgaged/charged to the
Secured Creditor, the constructive/physical
…………………(whichever is applicable) possession of which
has been taken by the Authorised Officer of
…………………………… Secured Creditor, will be sold on “As
is where is”, “As is what is”, and “Whatever there is” on
………………………………(mention date of the sale), for
recovery of Rs.…………………………………due to the
…………………………… Secure d Creditor from
…………………………………………………………………
… (mention name of the Borrower (s)) and
…………………………………………………………(mention
name of the Guarantor (s)). The reserve price will be
Rs………………………………………and the earnest money
deposit will be Rs………………………………………. (Give
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short description of the immovable property with known
encumbrances, if any) For detailed terms and conditions of the
sale, please refer to the link provided in
…………………………… Secured Creditor's website i.e. www.
(give details of website)
Date:
Authorised Officer
Place : ]
(Emphasis supplied)
152. The mandatory requirement for stipulation of the words “Notice is
hereby given to the public in general and in particular to the Borrower (s)
and Guarantor (s)” (emphasis) in the prescribed format under the
Appendix IV-A, makes it manifestly clear that the “public notice”
contemplated under the Proviso to Rule 8(6), is to be addressed not
just to the public in general but also to the borrower(s) and the
guarantor(s) to the secured asset. As a natural corollary to the
aforesaid, even though, the Proviso to Rule 8(6) only goes so far as
to say that, in case of public auction or tender, the secured creditor
shall cause a public notice, yet the Appendix IV-A would reveal that
this notice to the public is also a notice to the borrower and the
guarantors to the secured asset, i.e., effectively, a single composite
notice under both Rule 8(6) and the Proviso thereto respectively.
Page 114 of 139
153. It is not difficult to comprehend why, the mentioning or use of the
words “shall cause a public notice” or “every notice of sale” or “public
notice” in Rule(s) 8(6) Proviso, 8(7) and 9(1), respectively. It is only a
reference to the notice of sale required under Rule 8(6) and not a
stipulation for causing or publishing a separate, distinct notice
under each of the aforesaid rules in addition to the notice of sale
required under Rule 8(6).
154. The reason why we say, that Rule 8(6) of the SARFAESI Rules is the
sole constituent provision stipulating the requirement of giving a
notice of sale is because, ordinarily, when the secured asset given as
security to the secured creditor is proposed to be sold off by it, the
primary party that has a vested interest in knowing about such
intention to sell, is the borrower. There can be no sale of a security
interest of the borrower by the secured asset, by the secured creditor,
without first, informing the borrower of its intention to sell the same.
This is why, irrespective of what the mode of sale is in terms of Rule
8(5), be it by obtaining quotations or inviting tenders, or holding
public auction or by private treaty, a notice of the intended sale of
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the secured asset by the secured creditor, by any of the aforesaid
method, has to be mandatorily given to the borrower.
155. All the other provisions pertaining to the notice of sale, namely the
Proviso to Rule 8(6), Rule 8(7) and Rule 9(1) respectively, only
govern the manner in which such notice of sale contemplated under
Rule 8(6), has to be given. The said rules only go so far as to stipulate
certain additional conditions or requirements in effectuating the
notice of sale under Rule 8(6), but do not by any stretch stipulate the
requirement for causing a completely separate and distinct notice, in
addition to the notice of sale under Rule 8(6) of the SARFAESI Rules.
156. In the entire gamut of the scheme formed by Rule(s) 8(6), the Proviso
thereto, 8(7) and 9(1) respectively, all speak of only one single
composite notice of sale, the only difference between these
provisions, is the manner in which such notice of sale is to be
effectuated and given. Rule 8(6) speaks of serving a thirty days’
notice of sale to borrower. On the other hand, where the public is
sought to be involved in the sale process, either by auction or by
inviting tender, then the same notice of sale has to be published in
the newspaper. As per Rule 8(7), apart from serving the notice of
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sale and / or causing it in a newspaper, as the case may be, the self-
same notice of sale has to also be affixed on the conspicuous part of
the immovable secured asset and also uploaded on the website of
the secured creditor.
157. Thus, it can be seen from the above, that Rule 8(6) and the Proviso
appended to it, Rule 8(7) and Rule 9(1) of the SARFAESI Rules
respectively, all speak of only one single notice of sale. The
distinction lies only in the manner in which it is to be given,
inasmuch as under Rule(s) 8(6), Proviso thereto, 8(7) and 9(1)
respectively, the same notice is required to be served to the
borrower, published in the newspaper, affixed on the secured asset
& uploaded on the website, and maintain a 30-day gap from the date
of actual sale, respectively. Despite the variance in the manner in
which the notice of sale is to be given or effectuated under the
aforesaid rules, it nevertheless continues to be one single composite
notice only.
158. The reason which appears to have weighed with the High Courts in
Venshiv Pharma Chem (supra) and K.V.V. Prasad Rao Gupta
(supra) Sri. Sai Annadhatha Polymers (supra) for arriving at the
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finding that two separate notices are required under the SARFAESI
Rules; one under Rule 8(6) and the other under Rule 9(1), was due
to the use of the word “public notice” in Rule 9(1), which the High
Courts understood to mean a separate and distinct notice that has to
be published by the secured creditor, apart from the notice that has
to be served to the borrower under Rule 8(6).
159. The word “public notice” used in 9(1) cannot be singled out and
construed devoid of its context. It has to be understood in
conjunction with the expression “as referred to in the proviso to sub-
rule (6) of Rule 8 or notice of sale has been served to the borrower”.
160. That apart, if at all, a mere mentioning of the word “notice” in Rule
9(1) is the basis for construing that two separate notices are required
for the sale of immovable secured asset under the SARFAESI Rules,
then it would amount to overlooking the provision of Rule 8(7). Rule
8(7) also mentions the word “notice of sale”, that has to be affixed on
any conspicuous part of the immovable property to be sold as-well
as uploaded on the website of the secured creditor. If this
proposition of law by the High Courts is accepted, then it would
result in three-separate notices being required under the SARFAESI
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Rules i.e., under Rule 8(6), Proviso to Rule 8(6) read with Rule 9(1)
(where applicable) and Rule 8(7) respectively. While construing a
provision, different standards cannot be adopted for one set of
provisions and conveniently ignored for some other provision,
particularly when all the provisions are substantively the same, at
least in nature.
161. The term “notice of sale” is an umbrella term, which refers to and
includes the giving of notice for sale by the secured creditor in all
the forms and manner that he is obligated to do, under the relevant
SARFAESI Rules, depending upon the mode of sale elected by the
secured creditor. Thus, whenever, the secured creditor gives a notice
for sale in a specific manner either under Rule 8(6), the Proviso
thereto read with Rule 9(1) or Rule 8(7) respectively, he is not said to
be giving different or distinct notices, they all are parts of one single
composite “notice of sale”. Until the secured creditor has given the
“notice of sale” in all forms and manner that he is required to give
under the SARFAESI Rules, including the thirty-day gap between
the date when the notice of sale is served, affixed and published,
whichever is later, as the case may be, till the date of actual sale, the
“notice of sale” for the secured creditor would remain incomplete.
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162. It is only after, the secured creditor has given the “notice of sale” in
all forms and manner that he is required to give under the
SARFAESI Rules, and maintained a period of thirty-days from the
date on which he served, affixed or published the notice of sale,
whichever is later, would such “notice of sale” be considered valid
in the eyes of law.
163. At this stage, we may clarify, with a view to obviate any confusion
that, when this Court in Bafna Motors (supra) upheld and approved
the decisions of the Sri Sai Annadhatha Polymers (supra) and K.V.V.
Prasad Rao Gupta (supra), this Court never held that two separate
notices with a time-gap of thirty-days each were required under the
SARFAESI Rules, more particularly, the Proviso to Rule 8(6) and
Rule 9(1), respectively. What has been conveyed in so many words
by this Court in Bafna Motors (supra) is that the decisions of the Sri
Sai Annadhatha Polymers (supra) and K.V.V. Prasad Rao Gupta
(supra) lay down the correct position of law insofar as the
interpretation of the amended Section 13(8) of the SARFAESI Act is
concerned, more particularly that by virtue of the amendment, the
right of redemption of the borrower now stands significantly
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curtailed. The relevant observations made by this Court in Bafna
Motors (supra) read as under: -
“(vii) The decision of the Andhra Pradesh High Court in Sri Sai
Annadhatha Polymers (supra) and the decision of the Telangana
High Court in the case of K.V.V. Prasad Rao Gupta (supra) lay
down the correct position of law while interpreting the amended
Section 13(8) of the SARFAESI Act.”
(Emphasis supplied)
164. This Court in Bafna Motors (supra) never examined the interplay
between the amended Section 13(8) of the SARFAESI Act with the
SARFAESI Rules, more particularly, Rule 8(6), the Proviso thereto
and Rule 9(1) respectively.
165. Similarly, we fail to understand why there should be a thirty-day
gap maintained between the date of the notice of sale given to the
borrower under Rule 8(6), and the date the notice of sale is published
in the newspaper in terms of the Proviso thereto. The notion, that a
thirty-day gap ought to be maintained between the notice of sale to
the borrower and the eventual publication of such notice in the
newspaper, was due to the decision of this Court in Mathew
Varghese (supra), which had interpreted Rule 9(1), more particularly
the words “or” used in the expression “from the date on which the
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public notice of sale is published in newspapers as referred to in the proviso
to sub-rule (6) of rule 8 or notice of sale has been served to the borrower”
as “and”.
166. We need not dwell much on the understanding that the learned
Judges had in Mathew Varghese (supra), for two good reasons, first,
this interpretation was qua the unamended Section 13(8) of the
SARFAESI Act, where reading the word “or” used in Rule 9(1) as
“and” would have had no catastrophic consequences, and secondly,
due to the subsequent decision of this Court in Amarender Reddy
(supra). With the advent of the amended regime, the right of
redemption of the borrower stands significantly curtailed in contrast
to what was the position prior to the amendment. Before the
amendment, the borrower had the right to redeem the mortgage at
any time before the secured asset was transferred, but with the
amended regime, the legislature has thought fit to curtail such right
prior to the date when the secured asset is transferred, more
particularly, at the time of “publication of notice”. However, since
not all modes of sale envisaged under Rule 8(5), contemplate
issuance of a “public notice of sale” and service of notice of sale to
the borrower is considered sufficient, Rule 9(1) would only have
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effect, if the words “or” is read as it is, such that where no public
notice is required, there the right of redemption would extinguish
and consequently the sale can take place only on the expiry of thirty-
days from the date of service of the notice of sale to the borrower.
167. Lastly, the reason behind the stipulation of time period of 30 days in
Rules 8(6) and 9(1) of the SARFAESI Rules respectively is that in the
former rule, once the notice of sale is served to the borrower by the
secured creditor indicating its intention to sell the secured asset, the
borrower should have sufficient time to try and redeem the secured
asset. It is for this purpose that the period of 30 days has been
stipulated. Whereas, the rationale behind the stipulation of a 30-day
gap between the date of notice of auction and/or notice of sale being
served and the date of actual sale is that whichever may be the mode
of sale involved, a sufficient amount of time is given to the
prospective purchasers, to ensure that the mode of sale fetches the
maximum possible price in the least time. This is to avoid
underbidding, undervaluation, collusion, fraud, inadequate pricing
etc. However, there is no rationale whatsoever as to why the gap is
necessary.
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168. Both the objects that are sought to be achieved by the time period
stipulated in Rules 8(6) and 9(1) would be fulfilled if both the notices
are issued simultaneously as long as the period of 30 days is adhered
to. It is for this reason the decision in Amarender Reddy (supra) held
that there is no rhyme or reason why the time be maintained and
thus, both the notices can be issued simultaneously. These
observations become even more significant in view of the amended
Section 13(8) of the SARFAESI Act as explained above. Any other
view would not only be repugnant to the bare text of the SARFAESI
Rules but rather would also undermine the object of enabling the
expeditious recovery of loan with maximum returns.
169. From the above discussion, we have no hesitation in holding the
following: -
(i) Rule(s) 8(6), the Proviso thereto, Rule 8(7) and Rule 9(1) of the
SARFAESI Rules respectively do not speak of any separate or
distinct notice of sale that is required to be issued by the
secured creditor for the transfer of the secured asset by way of
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lease, assignment or sale in accordance with any of the
methods enumerated in Rule 8(5).
(ii) The different manner in which the notice of sale has to be
served, caused, published, affixed, uploaded as stipulated in
Rule(s) 8(6) and 8(7) of the SARFAESI Rules respectively, do
not constitute separate notices of sale by themselves. They are
part and parcel of one single composite intended “notice of
sale” of the secured asset by the secured creditor, by any of the
mode of sale listed in Rule 8(5). All of the aforesaid rules are
concerned with a single composite “notice of sale”, and the
only distinction between the said rules, is the manner in which
the said “notice of sale” has to be given, on the basis of which
the relevant rule or rules are applicable, as the case may be.
(iii) Similarly, the stipulation under Rule 9(1) of a thirty-day gap
between the date of publication of notice of sale and the date
of actual sale does not impute a distinct characteristic to the
public notice in the newspaper in contrast to the notice of sale
that is served to the borrower. As is evident from Appendix
IV-A to the SARFAESI Rules, the public notice of sale in
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newspaper as-well the notice of sale served to the borrower
are one and the same, for the purpose of Rule 9(1).
(iv) The embargo enshrined under Rule 9(1), that no sale, in the
first instance shall take place before the expiry of thirty-days,
would be reckoned from the date of issuance of the “notice of
sale”, which would include both the public notice of sale in the
newspaper and the service thereof to the borrower, whichever
is later.
(v) The notice of sale both under Rule 8(6) read with Rule 9(1)
respectively can be served as-well as published in the
newspaper, simultaneously on the same date. All that is
required under Rule 9(1) is that a thirty-day gap is maintained
between the date the notice of sale is served, affixed and
published, whichever is later, as the case may be, till the date
of actual sale.
<<
iii. What is the import of the expression “before the date of
publication” used in Section 13(8) of the SARFAESI Act.
170. We turn back to the provision of Section 13(8) of the SARFAESI Act.
The amended provision of Section 13(8) attaches vital importance to
the date of publication of notice for public auction, invitation of
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quotation or tender, or private treat, for the purpose of the right of
redemption of the borrower. As per the plain language of the
provision, the moment the notice for holding auction, obtaining
quotation, inviting tender or conducting private treaty is
“published”, the borrower’s right of redemption would be
extinguished.
171. However, as already discussed, when the sale is undertaken by
obtaining quotation or private treaty, then as per Rules 8 and 9 of
the SARFAESI Act respectively, there is no requirement of
publication of notice for such sale. In such circumstances, the
expression “before the date of publication” used in the amended Section
13(8) is frustrated, insofar as the sale is being through invitation of
quotations or private treaty. The language couched in the provision
of Section 13(8) makes no distinction between what mode or manner
of sale is adopted by the secured creditor, insofar as the application
of the said provision is concerned.
172. In the foregoing part of this judgment, we have explained how for
the transfer of the immovable secured asset by way of lease,
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assignment or transfer, in any mode stipulated in Rule 8(5) a notice
of sale is required. Rule 8(5) prescribes the different modes by which
such secured asset may be transferred / sold by the secured creditor.
173. The subsequent rules, more particularly Rule 8(6), the Proviso
thereto read with Rule 9(1) and Rule 8(7) respectively prescribe the
manner in which the secured creditor is required to give the notice
of sale for each mode of sale, enumerated in Rule 8(5). From a
combined reading of these rules, it is manifest that the form and
manner in which the notice of sale is required to be given would
differ according to the mode of sale that is adopted.
174. We have explained that the mere difference or variation in the
manner in which the notice of sale has to be given under each of the
aforesaid rules, depending upon the mode of sale elected by the
secured creditor, will not by itself constitute the said notices of sale,
as distinct and separate. Although, the provisions under which the
secured creditor is required to give the notice of sale differ, on the
basis of the mode of sale chosen, and even though the manner in
which they are to be given are also at variance with one another, yet
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all these separate modes of effectuating the notice for sale under
Rule 8(6), the Proviso thereto read with Rule 9(1) and Rule 8(7), are
nothing but part and parcel of one single composite intended “notice
of sale”.
175. As already afore-stated, the term “notice of sale” is an umbrella
term, which refers to and includes the giving of notice for sale by the
secured creditor in all forms and manner that he is obliged in law to
do, under the relevant SARFAESI Rules, depending upon the mode
of sale elected by the secured creditor.
176. Similarly, despite the different mode or manner in which the notice
of sale is to be given by the secured creditor in terms of Rule 8(6), the
Proviso thereto read with Rule 9(1), and for that matter even Rule
8(7), are to be construed to refer and mean parts of a single
composite notice of sale, then irrespective of the variation in the
manner in which each rule contemplates the giving of such notice of
sale, the discord in the language of Section 13(8) of the SARFAESI
Act, more particularly, the expression “before the date of publication”
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may be resolved, notwithstanding the absence of any actual
publication of notice of sale in some modes of sale.
177. Thus, for the purpose of the amended Section 13(8) of the SARFAESI
Act, the expression “before the date of publication” used therein, has to
be construed to refer and mean the publication of a valid “notice of
sale” for the secured asset, although such publication may vary
depending upon the mode of sale chosen by the secured creditor.
178. The word “publication” used in Section 13(8) of the SARFAESI Act,
has to be understood to mean and include the service, publication in
newspaper, and the affixation and uploading of the “notice of sale”,
as may be required under the SARFAESI Rules. Wherever, the
chosen mode of sale requires the secured creditor to effectuate the
“notice of sale” in any or all of the aforesaid manner, as the case may
be, the expiry of thirty-days as required under Rule 9(1) from the
day when the secured creditor complies with the requirement of
giving the notice of sale, as per the applicable rules, would be the
date on which the secured creditor is said to have validly published
the “notice of sale” and it would be this date on which the right of
redemption of the borrower would stand extinguished.
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D. Whether, the Amended Section 13(8) of the SARFAESI Act is
retrospective in nature?
179. We now proceed to deal with the principal contention raised on
behalf of the borrowers that the unamended Section 13(8) of the
SARFAESI Act would apply in the present case since the loan was
obtained on 06.01.2016 and that the amendment to the said provision
came into effect on 01.09.2016.
180. We do not find any merit in the principal contention raised on behalf
of the borrowers referred to above. The amended provision
extinguishes the right of redemption of the borrower in the event he
fails to repay his dues and redeem the asset before publication of the Auction
Notice. This unambiguous language used in the amended provision
of Section 13(8) furthers the object and reasons of the SARFAESI Act
for which it was enacted i.e., to ensure that the lender is able to
enforce his security interest at the earliest and with least possible
intervention of the courts.
181. In the case on hand, indisputably, the loan account of the borrowers
came to be classified as NPA on 31.12.2019. The Auction Notice was
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published by the Bank on 22.01.2021 and the secured assets were
successfully auctioned on 26.02.2021.
182. The Auction Sale amount was deposited on 20.03.2021 and the Sale
Certificate was issued by the Bank in favour of the appellants herein
on 22.03.2021.
183. In such circumstances referred to above, the right to redeem the
secured asset stood extinguished on 22.01.2021. The borrowers
could be said to have failed to pay the outstanding debt before the
publication of the auction notice dated 22.01.23021 by which date the
amended Section 13(8) of the SARFAESI Act had already come into
force.
184. In the aforesaid context, we may refer to and rely upon a decision of
this Court in the case of M.D. Frozen Foods (supra) wherein this
Court observed that the SARFAESI Act was brought into force with
the object of providing expeditious procedure for recovery of large
debts in NPAs. It held that the Act applied to all the claims which
were alive when SARFAESI Act was into force. Certain Non-
Banking Financial Companies (NBFCs) were notified at various
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dates between 2002-2016 (when judgement came). The judgement
says for the NBFC it would be similarly applicable.
185. Thus, logically from the above, if the claim is alive on 01.09.16 when
the Section 13(8) is amended and the notice for auction is issued after
01.09.16, then the amended section should apply otherwise an
absurd situation would be created, that the Act which applied
retroactively to "alive claims" prior to the Act coming into force on
2002, but the amendment in it like in Section 13(8) would apply
prospectively. That would create absurd situations.
186. The SARFAESI Act intends to provide a remedy in respect of pre-
existing loans and the interpretation that it would apply only to
future debts would defeat the very purpose of that law, which was
to reduce non-performing assets.
187. It is no more res-integra that the presumption against retrospective
operation does not apply to the legislation merely concerned with
matters of procedure or of evidence ; on the contrary, the provisions
of that nature are to be construed as retrospective unless there is a
clear indication that such was not the intention of Parliament.
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188. We may summarize the principles on retrospective application of
legislations as under: -
(i) Presumption against retrospectivity is not applicable to
enactments which merely affect procedure or change the
forum or are declaratory;
(ii) Retroactive/retrospective operation can be implicit in a
provision construed in the context where it occurs ;
(iii) Given the context, a provision can be held to apply to the
cause of action after such provision comes into force, even
though the claim on which the action may be based may be of
an anterior date; and
(iv) A remedial statute applies to pending proceedings and such
application may not be taken to be retrospective if application
is to be in future with reference to a pending cause of action ;
(v) SARFAESI Act is a remedial statute intended to deal with
problem of pre-existing loan transactions which need speedy
recovery."
189. A legislation, be it a statutory Act or a statutory Rule or a statutory
Notification, may physically consist of words printed on papers but
conceptually, it would be a great deal more than ordinary prose. Of
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the various rules guiding how a legislation should be interpreted,
the one established rule is that unless a contrary intention appears,
a legislation is presumed not to be intended to have retrospective
operation and the idea behind the rule is that a current law should
govern current activities.
190. If legislation confers a benefit on some persons without inflicting a
corresponding detriment on some other person or on the public
generally, and such conferment appears to have been the legislators
object, then the presumption would be that such legislation, giving
it a purposive construction, would warrant a retrospective effect.
191. Even otherwise, as held in Narandas Karsondas (supra) and L.K.
Trust (supra), the right of redemption is not a contractual right, but
rather a statutory right. Such right of redemption is generally
governed by the TP Act, and subject to material modification or
alteration by any overriding special law in this regard. Even under
the SARFAESI Act, the right of redemption has been statutorily
recognized and given effect to in Section 13(8) of the SARFAESI Act,
albeit subject to conditions stipulated thereunder insofar as its
exercise is concerned.
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192. Thus, the contention of the borrowers that their right of redemption
has necessarily to be construed in accordance with the date on which
the loan was obtained is completely misconceived. Any contractual
terms of arrangement in respect of the loan facility obtained will
have no bearing or significance in respect of application of the
statutory provisions of the SARFAESI Act and the rules thereunder.
Since the right of redemption under the SARFAESI Act, is nothing
but a manifestation of the statutory provision.
193. In this regard, reference may be made to the decision of this Court
in Authorized Office, Central Bank of India v. Shanmugavelu
reported in 2024 INSC 80 wherein one of us, J.B. Pardiwala J., held
that where the legislature makes a conscious departure from the
general law or contractual terms by providing for a particular
consequence by way of a statutory provision, then the general law
or contractual terms will have no application.
VI. FINAL CONCLUSION
194. During the course of hearing, it was brought to our notice that third
party rights were being attempted to be created over the secured
asset by the borrower, to the prejudice and detriment of the auction
purchaser herein, in order to bypass the sanctity of the auction
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conducted and in a blatant disregard of the dignity of the
proceedings before this Court.
195. We make it abundantly clear that if any third party rights have been
created over the said secured asset, the same would be non-est in
view of this judgment. If at all we come to learn about any
obstruction or resistance in handing over of the possession of the
secured asset to the auction purchaser herein, either at the behest of
the borrower or anyone else, we will proceed to take the strictest of
actions against such person.
196. Before we close this judgment, we would like to say something as
regards the litigation which has unfolded before us. The RDBFI Act
was the first legislative enactment that came into force in 1993. It was
brough in order to facilitate expeditious recovery of debts by the
bank, in order to ensure adequate liquidity and an overall healthy
growth-oriented economy.
197. However, due to the continuing rise in number of non-performing
assets and a pathetically poor rate of loan recovery, the SARFAESI
Act was enacted. The SARFAESI Act was envisioned as a watershed
legislation and a panacea to the failure of the existing legislation in
addressing the major problems that were being faced by the banks
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and financial institutions in India with respect to the recovery of bad
debts, by introducing enforcement of debt without intervention of
courts through securitisation and asset reconstruction, a need
highlighted by several committees. Various amendments have been
made to the SARFAESI Act over the years to ensure that the Act
continues to be potent in bringing about meaningful change to the
poor credit culture prevailing in the country and put a check on the
debt evasive acts of scrupulous borrowers.
198. It has been almost twenty-three years, since the SARFAESI Act has
been in force. It is indeed very sad to note that even after these many
years the procedural issues such as the one involved in the case in
hand, has continued to plague the legislation.
199. Despite several amendments, the glaring anomaly that we have
discussed in respect of Section 13(8) of the SARAFESI Act and
Rule(s) 8 and 9 of the SARFAESI Rules still persists. The same
renders the very mandate of the provision otiose.
200. We are, however, dismayed to note how the ill-wording of Section
13(8) of the SARFAESI Act has resulted in a glaring inconsistency
between the aforesaid provision and the SARFAESI Rules framed in
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lieu thereof. It is unfortunate that the ambiguities within the
statutory provisions of the SARFAESI Act and Rules thereunder
have left the interests of secured creditors and auction purchasers
high and dry. The interpretative deadlock between the provision
and the rules has single handedly resulted in a huge mess insofar as
the enforcement of security interest is concerned., leading to an
endless pipeline of litigation thereby clogging the specialized
forums of the DRT and DRAT, that are expected to expeditiously
decide matters of recovery of debt.
201. We humbly urge the Ministry of Finance, Union of India to take a
serious look at these provisions and bring about necessary changes,
before it is too late in the day.
202. In the result, both the appeals succeed and are hereby allowed. The
impugned judgment and order passed by the High Court is hereby
set aside. The pending applications if any shall stand disposed of.
203. The Registry shall forward one copy each of this judgment to all the
High Courts across the country and also to the Principal Secretary,
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Ministry of Finance and the Principal Secretary, Ministry of Law &
Justice, Union of India.
....................................... J.
(J.B. Pardiwala)
....................................... J.
(R. Mahadevan)
New Delhi;
22
nd
September, 2025.
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