TaxTMI 
TaxTMI 
2025 (12) TMI 824
X X X X Extracts X X X X
X X X X Extracts X X X X
........................ 10 D] Submissions of Respondent No. 2.......................................... 11 - 12 E] Submissions of Respondent No. 3.......................................... 12 F] Submissions of the Amicus Curiae.......................................... 13 - 15 G] Analysis of SARFAESI Act & SARFAESI Rules........................ 15 - 20 H] Transfer of ownership of secured asset - when complete? ............ 20 - 26 I] Decision in Indian Overseas Bank (supra) .............................. 26 - 30 J] Effect of interim-moratorium............................................. 30 - 34 K] Decision in Celir LLP (supra) ............................................. 34 - 37 L] Findings........................................................................ 37 - 39 M] Operative Order............................................................... 39 1. The issue before this Court relates to an interplay between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and Insolvency and Bankruptcy Code, 2016 (IBC). On ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovided by Respondent No. 1/Bank to Vandana Chaudhari and Ravindra Chaudhari (Borrowers). The Borrowers are the owners of the secured asset which was mortgaged by them, as security for the said facility availed from Respondent No. 1/Bank. 4(b) On 16th April 2023, on account of defaults stated to have been committed by the Borrowers, their accounts were classified as a non-performing asset by Respondent No. 1/Bank. 4(c) On 24th April 2023, Respondent No. 1/Bank issued a notice of demand under Section 13(2) of the SARFAESI Act inter alia calling upon the Borrowers to make payment of a sum of Rs. 49,33,11,763.61/-. 4(d) On 1st September 2023, Respondent No. 1/Bank obtained symbolic possession of the secured asset under Section 13(4) of the SARFAESI Act. 4(e) On 11th November 2024, an order came to be passed by the Chief Judicial Magistrate, Thane, inter alia allowing the application filed Respondent No. 1/Bank under Section 14 of the SARFAESI Act and providing assistance to Respondent No. 1 in taking physical possession of the secured asset. 4(f) On 9th May 2025, Respondent No. 1/Bank issued a auction sale notice (sale notice) as per Appendi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion has been filed. B] SUBMISSIONS OF THE PETITIONER 5. Mr. Hegde, learned Senior Advocate appearing on behalf of the Petitioner contends that the Borrowers have ceased to be the owners of the secured asset and it is the Petitioner who is now the owner of the secured asset. He argues that the Borrowers' right, title and interest in the secured asset was extinguished on the day on which the auction notice was issued and at any rate, on the day on which the auction was held and confirmed in favour of the Petitioner. Therefore, he contends that the interim-moratorium which got triggered after the confirmation of the auction sale in favour of the Petitioner does not preclude Respondent No. 1/Bank from handing over possession of the secured asset to his client. He further asserts that having obtained the sale certificate from Respondent No. 1/Bank, the Petitioner has a vested right in the secured asset. 6. Mr. Hegde seeks to make out a distinction between a moratorium under Section 14 vis-à-vis an interim-moratorium under Section 96 of the IBC by contending that whilst any action under the SARFAESI Act would be covered under the former, it would stand excluded under the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spondent No. 1/Bank supports the submissions made by Mr. Hegde in support of the reliefs sought in the present Writ Petition. She contends that the steps taken by her client under the SARFAESI Act are required to be protected and enforced by this Court. She states that the Bank is a secured creditor and is entitled to enforce its security to realise the outstanding amounts due and payable by the Borrowers, who she asserts, are not entitled to the benefit of the interim-moratorium under the IBC. She is at pains to point out the timing of the Personal Insolvency Application filed by (one of) the Borrowers and she submits that this was dishonestly done only to frustrate the claims of the Respondent No. 1/Bank and upon realisation of the fact that possession of the secured asset was about to be taken by the Bank and handed over to the successful auction purchaser. She therefore submits that this Court ought not to permit such injustice to be done to the Bank, especially when there is public money at stake. D] SUBMISSIONS OF RESPONDENT NO. 2 10. Mr. Shrirang Katneshwarkar, learned Counsel appears on behalf of Respondent No. 2 viz. Resolution Professional (RP) representing Vandana ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 3 viz. Ravindra Chaudhari and reiterates the submissions made by the RP and opposes the reliefs sought in the present Writ Petition. F] SUBMISSIONS OF THE AMICUS CURIAE 13. We have also heard Mr. Naushad Engineer, learned Senior Advocate (Amicus Curiae). He has meticulously taken us through the events that have transpired between the parties leading to the passing of the order dated 30th July 2025 by the DRT. He has aptly summarised the issue as thus - If the Borrowers have lost their ownership rights in the secured asset upon issuance of the sale notice dated 9th May 2025, under Rule 8(6) of the SARFAESI Rules, the interim-moratorium which followed on 9th June 2025 on the filing of the Personal Insolvency Application would be inconsequential insofar as the secured asset is concerned. However, in the event that this Court determines and holds that the mere issuance of the said sale notice does not extinguish the ownership right of the Borrowers in the secured asset, the interim-moratorium would preclude Respondent No. 1/Bank from taking any steps in furtherance of enforcement of its security interest under the SARFAESI Act in respect of the secured asset, including inter al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in Sanjay Dhingra v. IDBI Bank Ltd. 2024 SCC OnLine Del 4521 to corroborate his said conclusion. G] ANALYSIS OF SARFAESI ACT & SARFAESI RULES 17. We have heard all the parties and with their able assistance, perused the record. In order to properly appreciate and then adjudicate the issues that are subject matter of the present Writ Petition, it would be beneficial to consider the relevant provisions of the SARFAESI Act and the SARFAESI Rules and the statutory framework provided for enforcement of security interest thereunder which is summarised below: 17.1 Under Section 13(1), a secured creditor is entitled to enforce its security interest sans any intervention of a court / tribunal, in accordance with the provisions of the SARFAESI Act; 17.2 Under Section 13(2), upon a Borrower defaulting in its repayment obligations and its account being declared as non-performing asset (NPA), a secured creditor issues a notice of demand calling upon the Borrower to discharge its liabilities within a period of 60 days; 17.3 Under Section 13(3-A), a secured creditor is mandatorily required to consider any representation or objection raised by a Borrower. In the ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice is also required to be published in two newspapers, with one being in the vernacular language, having sufficient circulation in the locality of the secured asset; 17.7 Under Rule 8(3), in the event actual possession of the secured asset is taken by a secured creditor, then the secured creditor is required to take as much care of the property as an owner of ordinary prudence would; 17.8 Under Rule 8(5), prior to effecting sale of the secured asset, a secured creditor is required to obtain valuation of the secured asset from an approved valuer; 17.9 Under Rule 8(6), the authorised officer of a secured creditor is required to serve a notice of 30 days for sale of the secured asset upon the Borrower; 17.10 Under Rule 9(1), no sale of the secured asset can take place before the expiry of 30 days from the date on which the public notice of sale is published. The proviso to Rule 9(1) states that if the sale of the secured asset fails and is required to be conducted again, then a secured creditor is once again required to publish a notice of sale of not less than 15 days for any subsequent sale; 17.11 Under Rule 9(3), on the sale of a secu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pellant Bank that the sale was complete upon receipt of the part-payment." (emphasis supplied) 19. Upon careful consideration of the relevant provisions, we find that the 2016 Amendment to Section 13(8) of the SARFAESI does not alter this regime since a plain reading thereof would reveal that its effect is only to extinguish the right of redemption of the Borrower, upon the publication of the sale notice and not the entire ownership right of the Borrower in the secured asset. During the unamended Section 13(8) regime, the loss of the right of redemption was coterminous with the loss of ownership (this position was aligned with Section 60 of the Transfer of Property Act, 1882). However, post the amendment to Section 13(8), the extinguishment of the right of redemption has been advanced to the stage when the secured creditor publishes the notice for sale. Therefore, the amendment has only altered the date on which the right of redemption is lost/extinguished and it does not alter the position that the sale is only completed upon issuance of sale certificate, in accordance with Rule 9(6) of the SARFAESI Rules. 20. Our said finding is fortified by the fact that the equit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....preme Court held that: "28. [I]t is settled by decisions of this Court that the words 'as if' in fact show the distinction between two things and such words are used for a limited purpose. They further show that a legal fiction must be limited to the purpose for which it was created". Therefore, the use of the words "as if" indicates a deeming fiction and the transfer is not by the secured creditor as owner but as if it is the owner of the secured asset. 21.3 In Hindon Forge (supra), the Supreme Court held that the secured creditor, after taking possession of the secured asset, does not become the owner of the secured asset. The Hon'ble Supreme Court held thus: "39. [S]ection 13(6) of the SARFAESI Act makes it clear that a different intention is so expressed by the Act, as any transfer of a secured asset after taking possession thereof, shall vest in the transferee all rights in the secured asset so transferred as if the transfer had been made by the owner of such secured asset. It is clear, therefore, that statutorily, under Section 13(6), though only the lesser right of taking possession, constructive or physical, has taken place, yet the secured credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., then, what follows is that, the sale certificate cannot be issued by the secured creditor. Consequently, the sale does not stand completed in favour of the successful purchaser. I] DECISION IN INDIAN OVERSEAS BANK (SUPRA) 23. In this regard, the decision of the Supreme Court in Indian Overseas Bank (supra) is extremely instructive. In that case, the Apex Court was dealing with an issue concerning the interplay between the provisions of the SARFAESI Act and the IBC with key facts that are near identical to the case at hand. For the sake of convenience and ready reference, they are set out below: 23(a) On 13th June 2016, the corporate debtor's account was declared as NPA by the secured creditor. Thereafter, a demand notice under Section 13(2) of the SARFAESI Act came to be issued by the secured creditor, who then proceeded to take symbolic possession of the secured asset under Section 13(4) of the SARFAESI Act; 23(b) On 27th September 2018, the 1st E-Auction Sale Notice came to be issued by the secured creditor. Subsequently, on 22nd October 2018, an application under Section 10 of the IBC came to be filed by the corporate debtor for initiation of corporate ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssued in favour of Respondent 3 did not require registration and that the sale process was complete on issuance of the sale certificate. The same has been followed by this Court in S. Karthik. 34. Undisputedly, in the present case, the balance amount has been accepted by the appellant Bank on 8-3-2019. The sale under the statutory scheme as contemplated under Rules 8 and 9 of the said Rules would stand completed only on 8-3-2019. Admittedly, this date falls much after 3-1-2019 i.e. on which date CIRP commenced and moratorium was ordered. As such, we are unable to accept the argument on behalf of the appellant Bank that the sale was complete upon receipt of the part-payment." (emphasis supplied) 25. Thus, it is clear that only if the entire payment is made to the secured creditor, can the sale certificate be issued and if the sale certificate is not issued, prior to the coming into force of the moratorium, the sale is not complete. In the present case, barring the first two tranches of payment, the entire balance payment of six tranches of payment from sr. nos. (iii) to (viii) as set out in paragraph 4(h) above, were made by the Petitioner and received by Respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The object of the moratorium is to insulate the corporate debtor from the institution of legal actions or the continuation of legal actions or proceedings in respect of the debt." (emphasis supplied) 27. Similarly, the Delhi High Court, in Sanjay Dhingra (supra), relied on Indian Overseas Bank (supra) and Dilip B. Jiwrajka (supra) and held that the words "in relation to all the debts" used in Section 96 of the IBC would apply to all debts of the guarantor, including the mortgaged property in question, which was the subject matter of proceedings under the SARFAESI Act; and the secured creditor could not have continued with the proceedings under the SARFAESI Act and could not have accepted the balance payment after the commencement of the interim-moratorium under Section 96 of the IBC. For ease of reference, the relevant paragraphs of Sanjay Dhingra (supra) are reproduced hereunder: "14. Section 96(1) provides that when an application is filed under Section 95, interim moratorium shall commence on the date of the application in relation to all the debts. Section 96(1) (b) provides that during the interim moratorium period, any legal action or proceedings pendin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AESI Act and could not have accepted the balance payment after the commencement of the moratorium. Therefore, even in a case where the bank had already commenced the sale process, prior to the commencement of the proceedings under the IBC, 2016, the Supreme Court categorically held that in the absence of completion of sale prior to the moratorium, the bank could not have continued any further proceedings under the terms of the SARFAESI Act." (emphasis supplied) 28. Therefore, applying the test in Indian Overseas Bank (supra), once the interim-moratorium under Section 96 of the SARFAESI Act is in force, a secured creditor cannot receive balance payment from the successful purchaser. Thus, if the interim-moratorium kicks in post confirmation of the sale but before the balance payment is made, the only outcome is that there is no transfer of ownership of the secured asset in favour of the successful purchaser. That being the case, if there is any legal embargo in completing the sale, the successful purchaser cannot claim any ownership rights. Moreover, the interim-moratorium under Section 96 of the SARFAESI Act is much wider than that under Section 14 thereof, which positi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be deposited by 31st August 2023). 31. In was in such a factual backdrop that the Supreme Court held that the amended provisions of Section 13(8) of the SARFAESI Act brought about a radical change, since the right of the borrower to redeem the secured asset stood extinguished on the very date of publication of the notice for sale. For ease of reference, the relevant paragraphs of Celir LLP (supra) are reproduced hereunder: "110.2. The confirmation of sale by the Bank under Rule 9(2) of the 2002 Rules invests the successful auction-purchaser with a vested right to obtain a certificate of sale of the immovable property in the form given in Appendix V to the Rules i.e. in accordance with Rule 9(6) of the Security Interest (Enforcement) Rules, 2002. 110.3. In accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the Borrower to redeem the secured asset was available till the sale or transfer of such secured asset. In other words, the Borrower's right of redemption did not stand terminated on the date of the auction-sale of the secured asset itself and remained alive till the transfer was completed in favour of the auction-purchaser, by ....