The Hon’ble Supreme Court in the case of CELIR LL BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS. has in a significant ruling held that consequent to amendment of section 13(8) of SARFAESI Act, 2002 w.e.f. 1-9-2016, the right of redemption of mortgagor stands extinguished upon publication of the auction notice.
The pre amended Section 13(8) of the Act provided that if the dues of the secured creditor together with all costs, charges and expenses incurred by borrower/ mortgager 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. The position of law thus emerged that the mortgager has the right to redeem the mortgaged property anytime till the transfer was completed in favour of the auction purchaser through the process of registration of the sale certificate and delivery of possession of the secured asset. The provision was in consonance with section 60 of the Transfer of Property Act, 1882 which read with section 17 of the Indian Registration Act, 1908 provides a mortgagor the right to redeem the mortgaged property before the execution of the conveyance and registration of transfer of the mortgagor’s interest in the property by registered instrument.
The law was amended in 2016 which now provides that:
“ 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”,
The secured assets shall not be transferred by way of lease assignment or sale by the secured creditor and steps 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.
There has been considerable debate on the implications of the amendment with courts taking divergent views. Some courts holding favorably had ruled that the even after the 2016 amendment, the right of redemption would continue till the execution of a conveyance i.e. issuance of sale certificate in favour of the auction purchaser.
Bringing the differing views to rest, the Apex court has ruled that under the provisions of amended section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset stands extinguished on the very date of publication of the notice for public auction under Rule 9(1) of The Security Interest (Enforcement) Rules, 2002. The right of redemption available to the borrower under the emended law is drastically curtailed and would be available only till the date of publication of the notice and not till the completion of the sale or transfer of the secured asset in favor of the auction purchaser. The court has further observed that once the auction notice is published in accordance with Section 13(8) of the SARFAESI Act, the right of redemption of mortgage is not available to the borrower unless and until the auction is held to be bad and illegal in the facts of the case.
The Apex Court has overruled the position of law laid by the Telangana High Court in the case of Concern Readymix and Amme Srisailam and Punjab and Haryana High Court in the case of Pal Alloys and Metal India Private Limited while affirming the position of law laid by the Andhra Pradesh High Court in Sri Sai Annadhatha Polymers and Telangana High Court in the case of K.V.V. Prasad Rao Gupta.
The law now settled by the Apex Court has far-reaching implications for borrowers/mortgagers who now stand subjected to dispossession of the mortgaged property if not redeemed or settled before the publication of notice for public auction. A timely intervention by the borrowers now becomes imperative to safeguard their interest.
Contributed by Yatin Sharma. Yatin can be reached at yatin.sharma@aureuslaw.com.