Under SARFAESI Act, Borrower Has Right To Redeem Mortgaged Property Till Sale Is Registered And Possession Taken: Supreme Court

Under SARFAESI Act, Borrower Has Right To Redeem Mortgaged Property Till Sale Is Registered And Possession Taken: Supreme Court

Rules that on receiving the entire outstanding loan amount from the borrowers, the bank had no claim over the auction money deposited by the appellant

The Supreme Court has held that the right of the borrower (to redeem the mortgaged property) would be available until the sale certificate was registered and the possession was handed over.

The bench comprising Justice Vikram Nath and Justice Rajesh Bindal ruled in favor of the borrowers citing the unamended Section 13 (8) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.

The case related to the property, which was mortgaged to the bank/respondent No.1 by the borrowers/respondent Nos.2&3.

The appellant purchased the mortgaged property in the auction proceedings under the SARFAESI Act and deposited the money. Before the issuance of the sale certificate, the borrowers paid the entire outstanding amount to the bank.

Since the Debt Recovery Appellate Tribunal ruled in favor of the borrowers and permitted redemption of the mortgaged property, the appellant approached the Punjab & Haryana High Court by filing a writ petition. On the petition being dismissed, the appellant approached the Supreme Court.

The appellant contended that it deposited the entire auction money of Rs.70,05,000 on 31.03.2010, whereafter the sale was confirmed on 02.04.2010 and the sale certificate was issued on 08.04.2010. Meanwhile, on 05.05.2010, the borrower/respondent Nos.2&3 deposited the entire amount outstanding with the bank/respondent No.1 and thereafter applied for redemption.

Importantly, the sale certificate issued was not registered and the possession of the auction property was not handed over to the appellant. It remained with the borrowers/respondent Nos.2&3 and the bank issued a No-Objection Certificate to them against the loan account.

Appearing for the bank, the counsel contended that the auction money remained with the bank.

The Court observed that on receiving the entire outstanding loan amount from the borrowers, the bank had no claim over the auction money deposited by the appellant along with the accrued interest.

While arguing, both entities cited the judgment in the Celir LLP vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors case. As the appellant relied upon para 105(ii), the borrowers relied upon the subsequent paragraph:

The appellant cited, “The confirmation of sale by the bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right to obtain a certificate of sale of the immovable property in the form given in the appendix (V) to the Rules i.e., in accordance with Rule 9(6) of the SARFAESI Act.”

The borrower cited, “With the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset. In other words, the borrower's right of redemption did not stand terminated alive till the transfer was completed in favor of the auction purchaser, by registration of the sale certificate and delivery of possession of the secured asset.

However, the amended provisions of Section 13(8) of the SARFAESI Act state that the right of the borrower to redeem the secured asset stands extinguished thereunder on the 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 statutory regime was 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 favor of the auction purchaser.

Based on the facts, the judges of the Top Court ruled in favor of the borrowers. However, for equality between the parties, they directed the borrowers to pay a reasonable amount to the appellant. The bank/respondent No.1 was also directed to pay the entire amount of the auction money, along with accrued interest, within two weeks from the date of the order, without making any deductions, except the Tax Deducted at Source (TDS).