2021 (9) TMI 1532 - SC - Indian Laws

Borrowers retain redemption rights until sale completion under SARFAESI Act, 30-day notice mandatory before auction

S. Karthik and Ors. Versus N. Subhash Chand Jain and Ors.

SC dismissed appeals challenging SARFAESI Act enforcement proceedings. Court reaffirmed that borrowers retain redemption rights until sale completion and ... Blocking the enforcement of a security interest, created in favour of a secured creditor - purpose for which the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act) was enacted, is defeated - HELD THAT:- This Court observed that the equity of redemption is not extinguished by mere contract for sale and that the mortgagor's right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. This Court further observed that applying the principles stated with reference to Section 60 of the Transfer of Property Act in respect of a secured interest in a secured asset in favour of the secured creditor under the provisions of the SARFAESI Act and the relevant Rules applicable, a free hand is given to a secured creditor to resort to a sale without the intervention of the court or tribunal. It has, however, been held that Under Section 13(8), it is clearly stipulated that the mortgagor, i.e., the borrower, who is otherwise called as a debtor, retains his full right to redeem the property by tendering all the dues to the secured creditor at any time before the date fixed for sale or transfer. This Court further held that if the tender is made by the borrower at the last moment before the sale or transfer, the secured asset should not be sold or transferred by the secured creditor. This Court held that there was no reason as to why the general principle laid down by this Court in the case of Narandas Karsondas [1976 (12) TMI 186 - SUPREME COURT] with reference to Section 60 of the Transfer of Property Act could not have application in respect of a secured interest in a secured asset created in favour of a secured creditor. It has been held that the said principles will apply on all fours in respect of a transaction as between the debtor and secured creditor under the provisions of the SARFAESI Act. This Court, in unequivocal terms, held that unless and until a clear 30 days' notice is given to the borrower, no sale or transfer can be resorted to by a secured creditor. It further held that in the event of any such sale properly notified after giving a 30 days' clear notice to the borrower did not take place as scheduled for reasons, which cannot be solely attributable to the borrower, the secured creditor cannot effect the sale or transfer of the secured asset on any subsequent date by relying upon the notification issued earlier - This Court held that once the sale does not take place pursuant to a notice issued Under Rules 8 and 9, read with Section 13(8) for which the entire blame cannot be thrown on the borrower, it is imperative that for effecting the sale, the procedure prescribed will have to be followed afresh. The SARFAESI Act was enacted with the purpose for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court - looking in the present case, it would show that, every attempt has been made to frustrate the purpose of the SARFAESI Act. The Respondent-Bank was required to indulge in three rounds of litigations, out of which, the two have reached upto this Court. Though the auction purchaser emerged as the successful bidder, in the bids held on 20.7.2012, and though the sale was confirmed on 21.7.2012, and though the sale has been registered in his favour on 14.9.2012, for a period of last 9 years, he could not enjoy the fruits of the said sale. Not only that, but the Appellants continued to enjoy the rent of the properties, the ownership of which vests in the auction purchaser - there are no merit insofar as the challenge to the notice dated 9.7.2012 is concerned. It is also submitted that the amount received by the Respondent-Bank was on account of sale of all the four properties mentioned in the First Sale Notice dated 21.1.2012, and as such, the direction to pay an amount of Rs. 4.48 crore with interest only to Respondent No. 3 is not sustainable - there are no merit in this submission. The property at Item 'B' of the Schedule of Properties in First Sale Notice dated 21.1.2012 was sold through a private treaty during the pendency of the first round of litigation. The properties at Item 'A' and Item 'D' of the Schedule of Properties in First Sale Notice dated 21.1.2012 came to be sold in pursuance of the sale taken place on 20.7.2012, which was in pursuance of the Second Sale Notice dated 9.7.2012. As such, the only property left was the property at Item 'C' belonging to the Respondent No. 3 in respect of which a third notice dated 27.9.2012 came to be issued. It is only in pursuance of the said notice dated 27.9.2012, that the property at Item 'C' was sold by a private treaty to M/s. Redbrick Realtors Private Limited. As such, the excess amount, which remained with the Respondent-Bank, has rightly been directed to be paid to Respondent No. 3 by the DRT, Chennai, which has been concurrently upheld by the DRAT, Chennai, as well as the High Court. The appeals are therefore found to be without merit, and as such, are dismissed with costs. Issues Involved:1. Legality of the Second Sale Notice dated 9.7.2012.2. Compliance with Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.3. Entitlement to the excess amount of Rs. 4.48 crore lying with the Respondent-Bank.4. Right of redemption and extinguishment of the mortgagor’s rights.5. Conduct of the parties and the impact on the SARFAESI Act’s objectives.Issue-wise Detailed Analysis:1. Legality of the Second Sale Notice dated 9.7.2012:The core contention was whether the Second Sale Notice dated 9.7.2012, which provided a period of only 10 days, was valid. The appellants argued that it violated Rule 9(1) of the Security Interest (Enforcement) Rules, 2002, which mandates a 30-day notice period. The court examined the procedural history and found that the First Sale Notice dated 21.1.2012, which provided a clear 30-day notice, was stayed due to the appellants' representations. The Second Sale Notice was issued after the dismissal of the initial Securitisation Application (S.A. No. 69 of 2012) on 2.7.2012, and it was deemed a continuation of the first notice. The court distinguished the facts from the case of Mathew Varghese, noting that the delay in the sale was solely attributable to the appellants' actions. Therefore, the Second Sale Notice was held valid.2. Compliance with Rule 9(1) of the Security Interest (Enforcement) Rules, 2002:The court reiterated the requirement of a clear 30-day notice under Rule 9(1) and emphasized the twin objectives: providing the borrower an opportunity to redeem the property and ensuring maximum price realization. However, it concluded that since the initial sale could not proceed due to the appellants' litigation, the subsequent notice did not require another 30-day period. The court found that the appellants had ample opportunities for redemption but failed to utilize them.3. Entitlement to the excess amount of Rs. 4.48 crore lying with the Respondent-Bank:The appellants challenged the direction to refund Rs. 4.48 crore to Respondent No. 3, arguing that the amount was from the sale of all four properties. The court clarified that the excess amount was specifically from the sale of the property at Item 'C' in the First Sale Notice dated 21.1.2012, which belonged to Respondent No. 3. The direction to refund the excess amount with interest was upheld as it was rightly attributable to the sale of Respondent No. 3's property.4. Right of redemption and extinguishment of the mortgagor’s rights:The court referred to the principles laid down in Mathew Varghese and Narandas Karsondas, affirming that the right of redemption is extinguished upon the registration of the sale. The court noted that the sale was registered on 14.9.2012 following the DRT's liberty to proceed with the sale. Thus, the mortgagor's right of redemption was extinguished, and the appellants' challenge to the sale was not sustainable.5. Conduct of the parties and the impact on the SARFAESI Act’s objectives:The court criticized the appellants for their dilatory tactics, which frustrated the SARFAESI Act's purpose of enabling swift recovery of defaulting loans. Despite multiple opportunities, the appellants failed to redeem the mortgage, leading to prolonged litigation. The court emphasized that the SARFAESI Act aims to empower banks to recover dues without court intervention and found that the appellants' conduct was contrary to this objective.Conclusion:The appeals were dismissed with costs, and the court directed the appellants to hand over possession of the properties to the auction purchaser and pay the rent received since 2012. The court invoked its powers under Article 142 of the Constitution to ensure justice, highlighting the prolonged deprivation of the auction purchaser's rights despite the confirmed and registered sale.