Case Note & Summary
The appeals before the Supreme Court arose from a judgment and order dated 24.04.2023 passed by the High Court of Judicature at Madras in Writ Petition No. 1882 of 2023. The High Court allowed the writ petition filed by respondent Nos. 1 to 4 (original borrowers) and quashed the sale certificate dated 22.03.2021 issued by respondent No.5 bank in favour of the appellants (auction purchasers), directing the bank to permit the borrowers to redeem the mortgage and close the loan account. The borrowers had availed cash credit facilities of Rs.5 crore and a term loan of Rs.30 lakh on 06.01.2016 from the bank, secured by equitable mortgage over various immovable properties including the subject property. The loan account was classified as a non-performing asset on 31.12.2019 due to default. The bank issued a demand notice under Section 13(2) of the SARFAESI Act on 12.02.2020 for dues of Rs.3,96,15,672. The borrowers did not submit any representation under Section 13(3A). On 28.10.2020, the bank issued a possession notice under Section 13(4) for dues of Rs.4,39,82,862.20 and published it in newspapers on 31.10.2020. The borrowers challenged the possession notice before the Debt Recovery Tribunal, Coimbatore in S.A. No. 5 and 7 of 2020. On 22.01.2021, the bank issued an auction sale notice under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 for recovery of Rs.4,55,64,590.20. The auction sale notice was published on 24.01.2021. The borrowers filed S.A. No. 160 of 2021 challenging the auction sale notice. On 26.02.2021, the appellants participated in the auction and were successful bidders for Rs.1,25,60,000, which they deposited by 20.03.2021. On 22.03.2021, the bank issued a sale certificate in favour of the appellants. In March 2021, after the sale was confirmed, the borrowers paid Rs.2,88,00,000 towards outstanding dues, leaving Rs.61,91,000 outstanding. Later, on 07.05.2021, the borrowers paid Rs.62,74,123.74 to release other properties, and the bank closed the loan account. The Debt Recovery Tribunal passed a status quo order dated 26.03.2021, and later on 19.01.2023 dismissed both S.A. No. 517 of 2020 and S.A. No. 160 of 2021. The borrowers then filed a writ petition before the High Court challenging the sale certificate for the first time. The High Court by interim order dated 24.01.2023 directed status quo and the borrowers deposited Rs.50,00,000 on 24.01.2023 and a demand draft of Rs.92,01,158 on 31.01.2023. The High Court allowed the writ petition, holding that the right to redemption under Section 13(8) of the SARFAESI Act was no longer res integra in view of Mathew Varghese v. Amritha Kumar. The High Court observed that the DRT had been time and again holding that the right of redemption is lost on the fall of the hammer, which was legally unsustainable, and therefore entertained the writ petition despite alternative remedy because a question of law had to be clarified and the borrowers had paid the entire sum outstanding. The Supreme Court granted leave and heard the appeals analogously. The court's final conclusion was not included in the provided excerpt; the analysis was to cover the legislative history and scheme of the SARFAESI Act, the decision in Bafna Motors, the effect of the 2016 amendment to Section 13(8), whether there is an artificial distinction in right of redemption for different modes of transfer, the requirement of a single notice of sale under Rule 8(6), the import of the expression 'before the date of publication', and whether the amended Section 13(8) is retrospective.
Headnote
A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Right of Redemption - Section 13(8) - The right of redemption under Section 13(8) of the SARFAESI Act is not lost upon the fall of the hammer at an auction sale; it continues until the sale is completed in accordance with law - Following Mathew Varghese v. Amritha Kumar, the High Court held that the Debt Recovery Tribunal's consistent view that the right of redemption is lost on the fall of the hammer was legally unsustainable - Held that borrowers who were ready and willing to clear outstanding dues could redeem the mortgage despite issuance of sale certificate (Paras 29-30). B) Constitutional Law - Writ Jurisdiction - Alternative Remedy - Constitution of India, Article 226 - The High Court entertained a writ petition against a sale certificate despite availability of statutory appeal under the SARFAESI Act because a pure question of law regarding right of redemption arose and the borrowers had deposited substantial sums with the bank - The High Court overruled the objection regarding alternative remedy, noting that extraordinary circumstances justified entertainment of the writ petition - Held that when a substantial question of law is involved and the party has acted bona fide by paying dues, the High Court may exercise writ jurisdiction (Paras 26-30). C) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Debt Recovery Tribunal Proceedings - Section 17 of the Act - The Debt Recovery Tribunal, Coimbatore dismissed applications challenging possession notice and auction sale notice, leading to the High Court's intervention - The High Court noted that the Tribunal had repeatedly held that right of redemption is lost on fall of hammer, which was legally incorrect - Held that the High Court quashed the sale certificate dated 22.03.2021 and directed the bank to permit redemption of mortgage by borrowers (Paras 25-30).
Issue of Consideration
Whether the High Court was justified in quashing the sale certificate issued under the SARFAESI Act and directing the bank to permit redemption of mortgage by the borrowers; whether the right of redemption under Section 13(8) of the SARFAESI Act survives after auction sale and issuance of sale certificate; whether the amended Section 13(8) is retrospective and its interplay with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002
Law Points
- Right of redemption under Section 13(8) of SARFAESI Act is not extinguished on fall of hammer
- sale certificate issued to auction purchaser
- High Court's writ jurisdiction despite alternative remedy
- Mathew Varghese v. Amritha Kumar
- Bafna Motors
- Section 17 SARFAESI Act proceedings
- non-performing asset recovery
