2015 (1) TMI 463 - HC - Companies Law

Borrower's Right to Redeem Property Upheld Pre-Sale Confirmation

The court held that under the Securitization Act, a borrower has the right to redeem the property before its transfer to the auction purchaser by ... Right of redemption under Section 13(8) of the Securitization Act - confirmation of sale by the secured creditor - transfer vests only on confirmation and issuance of sale certificate under Rule 9(6) - acceptance of bid by the authorized officer is not confirmation of sale - jurisdiction of the Debt Recovery Tribunal under Section 17 - literal construction of statutory languageRight of redemption under Section 13(8) of the Securitization Act - transfer vests only on confirmation and issuance of sale certificate under Rule 9(6) - literal construction of statutory language - Whether a borrower may redeem the immovable secured asset after an auction has taken place but before the sale is confirmed by the secured creditor under the Rules - HELD THAT: - The Court held that subsection (8) must be read to protect redemption both before the date fixed for 'sale' and before the date fixed for 'transfer'. The words 'sale or transfer' in subsection (8) are deliberate; redemption is available until transfer is effected. Transfer occurs only on confirmation of sale by the secured creditor and attendant formalities under Rule 9(6). Applying ordinary grammatical construction to the statutory language, the Court concluded that the borrower's right to redeem is not exhausted merely because an auction has been conducted or a bid accepted by the authorized officer; the right continues until the sale is confirmed by the secured creditor and the transfer effected. [Paras 14, 15, 16, 17, 27]Borrower is entitled to redeem the secured asset after an auction but before confirmation of sale by the secured creditor; redemption continues until transfer on confirmation under Rule 9(6).Acceptance of bid by the authorized officer is not confirmation of sale - confirmation of sale by the secured creditor - transfer vests only on confirmation and issuance of sale certificate under Rule 9(6) - Whether acceptance of the highest bid or receipt of bid amount by the authorized officer, in the absence of confirmation by the secured creditor, effects transfer of title in favour of the auction purchaser - HELD THAT: - The Court found that acceptance of bid by the authorized officer is a preliminary act and, where expressly made subject to bank confirmation, does not amount to transfer. Rule 9(2) contemplates sale subject to confirmation by the secured creditor and sub-rule (6) empowers issuance of sale certificate only upon such confirmation and compliance with payment terms. In the present case payments were accepted subject to the outcome of DRT proceedings and no written confirmation by the secured creditor nor sale certificate was issued; hence no transfer of title had taken place in law. [Paras 12, 20, 21, 22, 23]Acceptance of bid or receipt of payment by the authorized officer, absent confirmation by the secured creditor and issuance of the sale certificate under Rule 9(6), does not effect transfer of title to the auction purchaser.Jurisdiction of the Debt Recovery Tribunal under Section 17 - Whether the proceedings before the Debt Recovery Tribunal challenging the sale were within the Tribunal's jurisdiction - HELD THAT: - The Court observed that a borrower aggrieved by sale proceedings under the Securitization Act has the remedy under Section 17 before the DRT. In the facts, the borrower filed S.A. challenging the sale and the Tribunal issued directions permitting redemption within a time-frame; those directions were complied with. Given that the sale had not been confirmed by the secured creditor, the DRT was competent to entertain and dispose of the challenge. [Paras 4, 26]Proceedings before the DRT under Section 17 were within its jurisdiction and the Tribunal was competent to grant the relief it did.Final Conclusion: Appeal dismissed. The High Court held that under Section 13(8) of the Securitization Act a borrower may redeem the secured asset until the property is transferred by confirmation of sale by the secured creditor (and attendant issuance of sale certificate under Rule 9(6)); acceptance of a bid or payment by an authorized officer, without such confirmation, does not vest title in the auction purchaser, and the DRT proceedings were within jurisdiction. Issues Involved:1. Whether a borrower is permitted to redeem the immovable secured asset after the secured asset was sold but before the confirmation of sale by the secured creditor under the Security Interest (Enforcement) Rules, 2002.2. The validity of the auction purchaser's claim for execution of the sale deed and damages due to delay.3. The jurisdiction and authority of the Debt Recovery Tribunal (DRT) in the proceedings.Detailed Analysis:Issue 1: Redemption of Secured Asset Before Confirmation of SaleThe primary question was whether under sub-section (8) of Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitization Act), a borrower can redeem the immovable secured asset after it was sold but before the confirmation of sale by the secured creditor. The court noted that the borrower, M/s Sruthi Builders Private Limited, had become a non-performing asset, leading to the auction of its secured asset. Despite the auction purchaser, M/s India Finlease Securities Ltd., being the highest bidder and paying the bid amount, the borrower sought redemption by paying the dues before the confirmation of sale by the secured creditor.The court emphasized that sub-section (8) of Section 13 allows redemption 'at any time before the date fixed for sale or transfer.' This provision permits two contingencies for redemption: before the date fixed for sale and before the date fixed for transfer. The court concluded that the borrower retains the right to redeem the property until the sale is confirmed by the secured creditor, which involves a formal confirmation and issuance of a sale certificate as per Rule 9(6) of the Security Interest (Enforcement) Rules, 2002.Issue 2: Auction Purchaser's Claim for Execution of Sale Deed and DamagesThe auction purchaser argued that the creditor banks, having received the total bid amount, should not have accepted any payment from the borrower post-auction. The court, however, held that the acceptance of the bid was subject to the outcome of the proceedings before the Debt Recovery Tribunal (DRT). The learned single Judge awarded damages of Rs. 5.00 lakhs to the auction purchaser for the delay caused by the proceedings, to be paid by the creditor banks and the borrower in equal proportion. The court upheld this decision, noting that the auction purchaser's claim for execution of the sale deed was premature as the sale was not confirmed by the secured creditor.Issue 3: Jurisdiction and Authority of the Debt Recovery Tribunal (DRT)The DRT had permitted the borrower to redeem the secured asset by discharging the debt due to the respondent banks. The auction purchaser's request to be impleaded in the DRT proceedings was rejected. The court affirmed the DRT's jurisdiction, stating that the borrower has the right to approach the DRT under Section 17 of the Securitization Act against the sale proceedings initiated by the authorized officer. The DRT's directions allowing the borrower to pay the dues and redeem the property were within its competence.Conclusion:The court held that under the Securitization Act, a borrower has the right to redeem the property under sub-section (8) of Section 13 at any time before the property is transferred to the auction purchaser by confirmation of sale by the secured creditor. The appeal by the auction purchaser was dismissed, affirming the borrower's right to redemption before the sale confirmation and upholding the DRT's jurisdiction in the matter.