Case Note & Summary
Background: The dispute arose from the sale of a secured asset under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) by a bank. The fourth respondent bank had extended credit facilities to a company, with the first and second respondents standing as guarantors and creating an equitable mortgage over their property. Upon default, the bank initiated SARFAESI proceedings and conducted a tender-cum-auction sale, where the appellant emerged as the highest bidder. The guarantors challenged the sale before the High Court, and the Division Bench allowed their writ appeal, setting aside the sale and directing the bank to permit redemption. The purchaser appealed to the Supreme Court. Facts: The first and second respondents guaranteed a loan of Rs. 30 lakhs given by the bank to Jerry Merry Exports Private Limited. They mortgaged their property to secure the loan. After default, the bank invoked its powers under the SARFAESI Act and sold the property through a public auction. The appellant purchased the property. The guarantors alleged that they were not given proper notice and that they had offered to repay the dues, but the bank proceeded with the sale. The High Court held that the sale was invalid as the right of redemption had not been extinguished because the sale was not completed by registration. Legal Issues: The core question was the interpretation of Section 13(8) of the SARFAESI Act, which grants the borrower the right to redeem the secured asset at any time before the date fixed for sale or transfer. The issue was whether the sale is complete upon acceptance of the bid or only upon registration of the sale deed, and whether the right of redemption subsists until registration. Arguments: The appellant-purchaser argued that the auction sale had been concluded and the right of redemption was lost. The respondents contended that the sale violated statutory procedure, proper notice was not given, and their tender of dues meant the right of redemption survived. Court’s Analysis: The Supreme Court examined Section 13(8) of SARFAESI and Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002. It relied on Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247, which held that under Section 60 of the Transfer of Property Act, the right of redemption is not extinguished by mere contract for sale; it endures until completion of sale by a registered deed following proper notice. The court held that these principles apply fully to SARFAESI proceedings. It noted that Section 13(8) explicitly preserves the borrower’s right to redeem at any time before sale completion, and the secured creditor must not proceed with sale once tender is made. Reference was also made to Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, clarifying that even if a dispute exists over the amount due, the right of redemption cannot be frustrated. The court further cited Ram Kishun v. State of U.P., (2012) 5 SCC 373, emphasizing that the right to property is a constitutional and human right, and strict compliance with statutory procedures is mandatory before deprivation. Decision: The Supreme Court dismissed the appeal, upholding the High Court’s decision that the sale was invalid and the guarantors’ right of redemption remained intact. The court directed that the mortgagor be allowed to redeem the property upon payment of dues, as the sale had not been completed by registration.
Headnote
A) Property Law - Mortgages - Right of Redemption - Transfer of Property Act, 1882, Section 60 - The right of redemption of a mortgagor is not extinguished by mere conferment of power of sale without court intervention; it survives until completion of sale by registered deed after notice requiring payment. Held that mere contract for sale does not extinguish equity of redemption (Paras 35-36). B) Banking Law - SARFAESI - Redemption under Section 13(8) - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(8); Security Interest (Enforcement) Rules, 2002, Rules 8, 9 - The borrower retains full right to redeem secured asset by tendering all dues at any time before the date fixed for sale or transfer, and the secured creditor cannot proceed with sale once tender is made. The principles of Section 60 Transfer of Property Act apply equally to sales under SARFAESI (Paras 36-38). C) Constitutional Law - Right to Property - Article 300A - The right to hold property is a constitutional and human right; deprivation must comply with statutory provisions. Recovery of public dues must follow procedure prescribed by law, and any sale in violation of statutory provisions is liable to be set aside (Para 39).
Issue of Consideration
Interpretation of Section 13(8) of the SARFAESI Act read with Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, regarding the right of redemption of the mortgagor until the sale of the secured asset is completed by registration.
Final Decision
The Supreme Court dismissed the appeal, holding that the right of redemption under Section 13(8) SARFAESI Act survives until the sale is completed by a registered deed, and mere auction does not extinguish it. The High Court's direction to allow redemption was upheld.
Law Points
- Legal points not extracted
- right of redemption survives until registered sale deed
- mere auction does not extinguish right of redemption
- Section 13(8) SARFAESI Act allows redemption at any time before sale
- principles of Section 60 Transfer of Property Act apply to SARFAESI sales
- secured creditor must strictly comply with statutory notice and procedure
- right to property is constitutional right
