right of redemption of mortgage

Supreme Court: In twin appeals challenging the decision of Bombay High Court by an auction purchaser left high and dry by the respondents due to a private arrangement between the bank and the borrowers, the Division Bench of Dr. Dhananjaya Y. Chandrachud, CJI and J.B. Pardiwala, J.* held that as per the amended Section 13(8) of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (‘SARFAESI Act’), the borrower’s right of redemption of mortgage stood extinguished once the auction notice was published. Therefore, the Court directed the bank to return the entire amount paid by the borrowers and issue sale certificate in favour of the auction purchaser.

Factual Matrix

To get the crux of facts, the borrowers availed a credit from the bank and a security was created in the form of a simple mortgage over a land having buildings. The loan account was declared as a Non-Performing Asset (‘NPA’) due to borrower’s default in repayment and the bank issued a demand notice under Section 13(2) of SARFAESI Act for repayment. An aggregate sum of Rs 128.83 Crores was due by borrower as on 30-04-2023. The bank proceeded to take possession of secured asset as per SARFASI Act and attempted 8 failed auctions between April 2022 and June 2023. Meanwhile, the borrowers preferred a Securitization Application before the Debt Recovery Tribunal (‘DRT’) under Section 13(2) of the SARFAESI Act and for quashment of sale notice, which was still pending before DRT. The borrowers informed their willingness to pay amount for settlement of the entire amount.

In 9th auction, the appellant was declared as the highest bidder, a ‘Sale Confirmation Letter’ was sent to the appellant calling upon to deposit 25% of bid amount which was complied with. The borrowers filed an Interim Application for redemption of mortgage against secured asset by payment of total outstanding sum. The appellant deposited the balance sum of the bid amount which was duly accepted by the bank. The same day, redemption application was heard by DRT and orders were reserved to be pronounced on 2-08-2023.

Awaiting DRT’s orders, the borrowers approached the High Court seeking directions to permit redemption of mortgage of secured asset after payment of total sum of Rs 129 Crores. The Bank got lured by the amount exceeding that paid the appellant and expressed its willingness before the High Court to accept the offer of the borrowers. The High Court decided in favour of borrowers and directed the bank to permit the borrowers to redeem mortgage of secured asset, particularly after the auction proceedings attained finality. The appellant has challenged the High Court’s order in the instant appeals.

Court’s Analysis

The Court framed questions on legality of High Court’s order while the borrowers had availed alternate remedy, impact of Section 13(8) of the SARFAESI Act on borrowers’s right to redemption of mortgage, bank’s act, scrutiny of legal position in Concern Readymix v. Corporation Bank, 2018 SCC OnLine Hyd 783 and Amme Srisailam v. Union Bank of India, W.P. No. 11435 of 2021 decided on 17.08.2022.

The Court dug into the legislative history and the scheme of SARFAESI Act regarding difficulties faced by banks and financial institutions while recovering loans, huge accumulated NPAs and enforcement of securities, constitution of Narasimham Committee I & II and Andyarujina Committee leading to the enactment of SARFAESI Act empowering banks and financial institutions in taking possession of securities and selling them without court’s intervention.

The Court particularly confined itself to Section 13(8) of SARFAESI Act enabling the borrower to exercise right to redemption and enabling secured creditor to exercise its power to deal or dispose of the secured asset. It further pointed towards Rules 8 and 9 of Security Interest (Enforcement) Rules, 2002 (‘2002 Rules’) prescribing procedure regarding sale of immovable secured asset as per Section 13 of SARFAESI Act and noted the provision regarding authorised bank official serving 30 days’ notice on borrower for sale of immovable property which may be by way of public auction, setting out terms of sale, which shall not take place before expiry of 30 days’ notice period.

The Court referred to its observations regarding Section 13 of SARFAESI Act in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, overriding clause in Section 35, 37, recapitulation of object behind SARFAESI Act in Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1. It further analysed Section 60 of Transfer of Property Act, 1882 regarding redemption of mortgage and observations in Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247 and L.K. Trust v. EDC Ltd., (2011) 6 SCC 780. Provision for redemption of mortgage under Section 13(8) of SARFAESI Act was considered in Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610, further elucidated in Dwarika Prasad v. State of U.P., (2018) 5 SCC 491. It pointed out that prior to amendment of Section 13(8) of SARFAESI Act, the Court consistently held that borrower shall continue to have the right to redemption of mortgage till execution of conveyance of secured asset through registration. However, the enactment of Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Act, 2016 (‘2016 amendment’) amended Section 13(8) of SARFAESI Act which was looked into in Sri. Sai Annadhatha Polymers v. Canara Bank, 2018 SCC OnLine Hyd 178 and K.V.V. Prasad Rao Gupta v. State Bank of India, 2021 SCC OnLine TS 328 to clarify that the amended provision extinguished the borrower’s right to redeem secured asset.

The Court clarified that Concern Readymix (supra) held that Section 13(8) of SARFAESI Act only restricts the secured creditor’s right and not the borrower’s right of redemption, which continued to exist till execution, which was challenged through a Special Leave Petition and dismissed in limine. The said decision was relied upon in Amme Srisailam (supra).

Considering the effect of amendment to Section 13(8) of SARFAESI Act, the Court referred to Embassy Hotels (P) Ltd. v. Gajaraj & Co., (2015) 14 SCC 316 wherein it was held that the act of parties in proviso to Section 60 included failure of parties to settle the dispute and by their act allowing mortgaged property to be sold in auction. The Court viewed the borrower’s failure in tendering the entire dues before the publication of auction notice as per Section 13(8) of SARFAESI Act sufficiently constituted extinguishment of right of redemption of mortgage as per the proviso to Section 60 of the Act 1882. In addition, there was no claim for right of redemption by the borrower either before or after the publication of auction notice, and that the borrowers entered into the fray only after knowing about confirmation of auction. The Court expressed that once the stage under Section 13(8) was over and auction concluded, it could be said that there was an intentional relinquishment of right of redemption under Section 13(8), whereby the bank declared the appellant as the successful auction purchaser having offered the highest bid in accordance with the terms of auction notice.

The Court explained that “The SARFAESI Act is a special law containing an overriding clause in comparison to any other law in force. Section 60 of the 1882 Act, is a general law vis-a-vis the amended Section 13(8) of the SARFAESI Act which is special law. The right of redemption is clearly restricted till the date of publication of the sale notice under the SARFAESI Act, whereas the said right continues under Section 60 of the Act 1882 till the execution of conveyance of the mortgaged property….. The SARFAESI Act is a special law of recovery with a paradigm shift that permits expeditious recovery for the banks and the financial institutions without intervention of Courts. Similarly, Section 13(8) of the SARFAESI Act is a departure from the general right of redemption under the general law i.e. the 1882 Act.”

It further highlighted the inconsistency between Section 13(8)of SARFAESI Act and Section 60 of 1882 Act, wherein, the former special enactment overrode the general enactment in light of Section 35 of SARFAESI Act. Thus, the right to redemption was available to the borrower under SARFAESI Act until publication of auction notice and not thereafter due to amendment to Section 13(8).

To explain why the Telangana High Court’s decision in Amme Srisailam (supra) was not a good law, the Court broke down the foundation of the decision in four parts and stated that each one of the foundations were incorrect and reliance on Concern Readymix (supra) as well as Section 37 of SARFAESI Act was misplaced and the observations made in Shakeena v. Bank of India, (2021) 12 SCC 761 were not applied by the High Court. It further pointed out that in S. Karthik v. N. Subhash Chand Jain, (2022) 10 SCC 641, no reference was made on whether it was considering the unamended or the amended Section 13(8), or to the 2016 amendment, thus, the said decision cannot be said to have considered the amended provision of Section 13(8).

The Court was cautious regarding interpretation of the provision that “To read it otherwise in a strict manner as to only stipulating a restriction upon the secured creditor and not on the borrower’s right of redemption would lead to a very chilling effect, where no auction conducted under the SARFAESI Act would have any form of sanctity, and in such a situation no person would be willing to come forward and participate in any auction due to the fear and apprehension that despite being declared a successful bidder, the borrower could still at any time come and redeem the mortgage and thereby thwart the very auction process.” As stated by the Court, such a scenario would be more worrisome since the general public participating n such auctions are neither aware nor informed regarding importance of issuance of sale certificate as against the borrower’s right of redemption.

Public Auction

Regarding sanctity of public auction, the Court cited Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., (2008) 9 SCC 299 and further cases to expressly bring in the duty of the Courts to zealously protect the sanctity of any auction conducted. It explained that “Any other interpretation of the amended Section 13(8) will lead to a situation where multiple redemption offers would be encouraged by a mischievous borrower, the members of the public would be dissuaded and discouraged from in participating in the auction process and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the SARFAESI Act. Thus, it is in the larger public interest to maintain the sanctity of the auction process under the SARFAESI Act.” Therefore, the Court held that as per amended Section 13(8) of SARFAESI Act, borrower’s failure to tender the amount of dues in entirety to the secured creditor before publication of auction notice would lead to extinguishment/waiver of right of redemption of mortgage on the date of publication of auction notice in the newspaper in accordance with Rule 8 of 2002 Rules.

Jurisdiction of High Court under Article 226 of Constitution in SARFAESI matters

Going into series of events in the instant matter, the Court cited a catena of cases to reiterate the reminder to High Courts that they should not entertain petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person under the provisions of the SARFAESI Act.

The Court also reprimanded the bank for its illegitimate conduct on failure of issuing sale certificate and then ignoring the lapse of borrowers right of redemption, while the entire bid was paid by the auction purchaser. The Court reiterated that banks ought to follow the provisions of law as any other litigant and cannot act in a manner to keep the sword hanging on the auction purchaser’s neck.


The Court held the High Court unjustified in exercising writ jurisdiction under Article 226 of Constitution when borrowers had already availed an alternative remedy under Section 17 of SARFAESI Act. In addition, the Court clarified that the confirmation of sale by the bank under Rule 9(2) of 2002 Rules gave successful auction purchaser the vested right to obtain a sale certificate as per Rule 9(6) of SARFAESI Act, and the right of the borrower to redeem the secured asset stood extinguished on the very date of publication of auction notice. Thus, the bank could not withhold the sale certificate under Rule 9(6) of 2002 Rules and enter into a private arrangement with the borrower. It further clarified that the Telangana High Court’s decisions in Concern Readymix (supra) and Amme Srisailam (supra) did not lay down the correct position of law but was correctly laid in Sri Sai Annadhatha (supra) and K.V.V. Prasad Rao Gupta (supra).

The Court directed the bank to refund the entire amount deposited by the borrowers, I.e., Rs 129 Crores paid in lieu of redemption of mortgage of secured asset. It further directed the appellant to pay an additional amount of Rs 23.95 Crores to the bank in turn, the bank would issue sale certificate as per Rule 9(6) of the Rules of 2002.

[Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd., 2023 SCC OnLine SC 1209, decided on 21-09-2023]

Judgment by: Justice J.B. Pardiwala

Know Thy Judge | Supreme Court of India: Justice J.B. Pardiwala

Advocates who appeared in this case :

For Petitioners: Senior Advocate Mukul Rohatgi, Senior Advocate Neeraj Kishan Kaul, Advocate Mahesh Agarwal, Advocate Rishi Agrawala, Advocate Ankur Saigal, Advocate Anwesha Padhi, Advocate Chirag Nayak, Advocate Robin Fernandes, Advocate Diksha Rai, Advocate Kunal Mehta, Advocate Ira S. Mahajan, Advocate Roopali Lakhotia, Advocate on Record E.C. Agrawala

For Respondents: Senior Advocate Shyam Divan, Senior Advocate Nikhil Nayyar, Advocate Omkar Kanegaonkar, Advocate Shreeyash Uday Lalit, Advocate Devashish Godbole, Advocate Anuj Joglekar, Advocate on Record Ishaan George, Advocate Abhinav Aggarwal, Advocate Krishnagopal Abhay, Advocate Runjhun Garg, Advocate Himanshu Vats

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