Supreme Court: While considering this appeal wherein Madras High Court’s decision to quash the Sale Certificates issued in favour of the appellants (Auction Purchasers) was challenged, the Division Bench of J.B. Pardiwala* and R. Mahadevan, JJ., pointed out glaring errors in respect of Section 13(8) of the SARAFESI Act and Rules 8 and 9 of the SARFAESI Rules, expressing disbelief at the ill-wording of Section 13(8) of the SARFAESI Act, which resulted in a glaring inconsistency between the Section and the Rules, the Court pointed out that the ambiguities within the statutory provisions of the SARFAESI Act and Rules thereunder have left the interests of secured creditors and auction purchasers high and dry. “The interpretative deadlock between the provision and the rules has single handedly resulted in a huge mess insofar as enforcement of security interest is concerned., giving birth to an endless pipeline of litigation clogging the specialized forums of the DRT and DRAT, that are expected to expeditiously decide matters of recovery of debt”.
Therefore, the Court urged the Ministry of Finance to take a serious look at the afore-stated provisions and bring about necessary changes, before it is too late in the day.
Background:
The borrowers availed cash credit facilities on 06-01-2016 from the Bank to the tune of Rs. 5 crore and a term loan of Rs 30 lakh respectively. The respondents 2 and 3 respectively herein stood as guarantors by creating equitable mortgage over various immovable properties including the “Subject Property” vide the Memorandum of Deposit of Title Deeds with the Sub Registrar Office, Dharapuram for the purpose of securing the repayment of the credit facilities. On 31-12-2019, the borrower’s auction was classified as a Non- Performing Asset (NPA) by the Bank due to default in repayment of the outstanding dues. On 12-02-2020, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the “SARFAESI Act”) for the outstanding dues of INR 3,96,15,672 payable as on 31-12-2019. Respondents 1 to 4 respectively did not prefer any representation under Section 13(3A) of the SARFAESI Act. On 28-10-2020, the Bank issued notice under Section 13(4) of the SARFAESI Act seeking to take over the possession of the secured asset and Public Notice published in 2 newspapers on 31-10-2020. On 28-12-2020, the MD and Partner of the Borrower i.e., the respondent No. 4 herein filed application under Section 17 of the SARFAESI Act challenging the Possession Notice dated 28-10-2020 before the DRT, Coimbatore. The Borrowers further challenged the Auction Sale Notice under Section 17 of the SARFAESI Act.
The appellants herein participated and successfully bid in Auction Sale for sale consideration of Rs. 1,25,60,000 and deposited the entire sale consideration of Rs. 1,25,60,000 with the Bank. Upon payment of the entire sale consideration the Bank issued a Sale Certificate in favour of the appellants. The sale consideration received by the Bank was appropriated towards the outstanding loan amount. In March 2021, after the sale came to be confirmed the borrowers paid a sum of Rs. 2,88,00,000 towards the outstanding dues under the loan. At the relevant point of time an amount of Rs 61,91,000 was still outstanding towards the loan amount.
After the completion of sale and issuance of the Sale Certificate, the DRT passed an order of status quo dated 26-03-2021. the order of status quo was passed despite the fact that the appellants herein were not made party in the said proceedings. The appellants were subsequently impleaded. The DRT dismissed the challenges filed by the Borrowers against the Possession Notice and Sale Notice.
The borrowers without availing the alternative statutory remedy of preferring statutory appeal before the Appellate Tribunal went to the High Court and preferred Writ Petition. High Court vide order dated 24-01-2023 issued notice and directed that status quo be maintained as the borrowers were ready and willing to clear the outstanding dues by paying INR 50,00,000 and the balance amount within a period of next seven working days. The High Court allowed the writ petition holding that the issue as regards the right to redemption under Section 13(8) of the SARFAESI Act was no long res integra.
Court’s Assessment:
Perusing the facts and legal trajectory of the case, the Court had to consider whether the High Court committed any error in passing the impugned judgment and order?
The firstly delved into the Legislative History and Scheme of the SARFAESI Act and pointed out that the SARFAESI Act was enacted to empower the banks and financial institutions to take possession of the securities and to sell them without intervention of the court.
The Court pointed out that Section 13 of the SARFAESI Act contains the provisions relating to the enforcement of the security interest and the manner in which the same may be done by the secured creditor without the intervention of the court or tribunal in accordance with its provisions. Rules 8 and 9 respectively of the SARFAESI Rules prescribe the procedure and formalities to be followed for the sale of immovable secured asset as per Section 13 of the SARFAESI Act. Rule 8 of the SARFAESI Rules stipulates the manner in which sale of an immovable secured asset may take place at the behest of the secured creditor. Rule 9 of the SARFAESI Rules provides when the immovable property may be sold by the secured creditor, or put it simply, the time of sale along with the formalities by which such sale would be concluded. While Section 35 of the SARFAESI Act contains the overriding clause, Section 37 of the SARFAESI Act provides that the provisions of the SARFAESI Act shall be in addition to the Acts mentioned in or and any other law for the time being in force and further that the other laws shall also be applicable alongside the SARFAESI Act.
The Court emphasised that in interpreting the various provisions of the SARFAESI Act and the SARFAESI Rules framed thereunder, one must be mindful of the observations made by the Court in Mardia Chemicals Ltd v. Union of India, (2004) 4 SCC 311, wherein the Court had observed that the provisions of the SARFAESI Act & SARFAESI Rules must be interpreted keeping in mind the economic object which is sought to be achieved by the legislature.
Coming onto Section 13(8) SARFAESI Act, the Court noted that the provision firstly enables the borrower to exercise his right of redemption upto a particular point of time by stipulating the time limit during which the borrower can tender all the dues with interest, costs and charges to the secured creditor; secondly, it enables the secured creditor to exercise its power to deal or dispose of the secured asset, by providing as to when the secured creditor can proceed to sell, auction, assign or lease the secured asset.
Delving further into Section 13(8), the Court explained that the words “if the dues of the secured creditor”, used in Section 13(8), would only mean the dues in its entirety, and not the price fetched on the sale of one of the secured assets in a public auction. The words “that secured asset” in Section 13(8) is preceded by the words “transfer or sale”, and even in case one of the secured assets is brought to sale, the borrower is obligated to repay the entire dues of the secured creditor together with costs, charges and expenses before the date fixed for sale or transfer, to prevent the secured creditor from either selling or transferring, or from taking further steps for the transfer or sale of, that secured asset. The Court clarified that the law declared by the Court, in Mathew Varghese v. Amritha Kumar, (2014) 5 SCC 610, does not permit a borrower, after an auction is held, to come forward and tender payment of merely the auction amount for release of the auctioned secured asset. The Court further perused its decision in Celir LLP v. Bafna Motors (Mumbai) Private Ltd., (2024) 2 SCC 1, wherein the Court had held that a borrower only has a right to redeem the mortgage till the publication of Auction Notice under Section 13(8) of the SARFAESI Act.
The Court noted that prior to the amendment to Section 13(8) of SARFAESI Act, Court had applied the principles pertaining to redemption of mortgage as enshrined in Section 60 of the Transfer of Property Act, 1882 (“TP Act”) for construing the pre-amendment provision of Section 13(8). Thus, it had been held that the borrower shall continue to have a right of redemption of mortgage until the execution of the conveyance of the secured asset by way of a registered instrument. Post Amendment of 2016 to Section 13(8) and substituted the words “any time before the date fixed for sale or transfer” of the original provision with “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 Court noted that many orders of different courts, inconsistent with each other had accumulated on the interpretation of the amended Section 13 (8) of the SARFAESI Act, that had made it very difficult to apply the correct principles of law as regards the right of redemption by the borrower under the SARFAESI Act. Perusing the amended Section 13(8), it was noted that a borrower can tender the amount of due to the secured creditor along with all costs, charges and expenses, at any time, before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty, as the case may be. The Court explained that the textual reading of the provision appears to convey that the right of redemption of the borrower would be extinguished on the date on which the notice is published for auction, invitation of quotations, tender from public or private treaty. It was further pointed out that Section 13 (8) of the SARFAESI Act must be read along with Rule(s) 8 and 9 of the SARFAESI Rules.
The Court pointed out that the language couched in the provision of Section 13(8) of the SARFAESI Act, also makes no distinction between what mode or manner of sale is adopted by the secured creditor, insofar as the application of the rigours of the provision is concerned. The expression “before the date of publication of notice of sale” has not been confined or restricted to only some modes of sale and not to others. Noticing an inherent contradiction, the Court further explained that Section 13(8), more particularly the expression “before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty” would effectively read to mean that a borrower can exercise its right of redemption of mortgage till the date of publication of notice of sale in the newspaper for “auction” where such notice is required, “or inviting quotations” where no such notice is required, “or tender from public” where such publication of notice is required, “or private treaty”, where again, no such notice is required to be published.
Delving into the provisions and considering diverse interpretative rulings by the High Courts as well as Supreme Court, the current Bench noted that there is divergence of opinion as regards, (i) whether Rule 8(6) read with Rule 9(1) of the SARFAESI Rules contemplate issuance of two distinct and separate notices of sale; and (ii) notwithstanding the aforesaid, whether there is a requirement to maintain a gap of thirty-days each, between the service of notice or notice(s) of sale to the borrower, and the publication of such notice or notice(s) in the newspaper in terms of Rule(s) 8(6) and 9(1), respectively.
The Court further pointed out that Rule 8(6) and the Proviso appended to it, Rule 8(7) and Rule 9(1) of the SARFAESI Rules all speak of only one single notice of sale. The distinction lies only in the manner in which it is to be given, inasmuch as under Rule(s) 8(6), Proviso thereto, 8(7) and 9(1), the same notice is required to be served to the borrower, published in the newspaper, affixed on the secured asset & uploaded on the website, and maintain a 30-day gap from the date of actual sale, respectively. Despite the variance in the manner in which the notice of sale is to be given or effectuated under the aforesaid rules, it nevertheless still continues to be one single composite notice only.
Decision:
Rule(s) 8(6), the Proviso thereto, Rule 8(7) and Rule 9(1) of the SARFAESI Rules do not speak of any separate or distinct notice of sale that is required to be issued by the secured creditor for the transfer of the secured asset by way of lease, assignment or sale in accordance with any of the methods enumerated in Rule 8(5).
The different manner in which the notice of sale has to be served, caused, published, affixed, uploaded as stipulated in Rule(s) 8(6) and 8(7) of the SARFAESI Rules, do not constitute separate notices of sale by themselves, they are part and parcel of one single composite intended “notice of sale” of the secured asset by the secured creditor, by any of the mode of sale listed in Rule 8(5). All of the aforesaid rules are concerned with a single composite “notice of sale”, and the only distinction between the said rules, is the manner in which the said “notice of sale” has to be given, on the basis of which relevant rule or rules are applicable, as the case may be.
The stipulation under Rule 9(1) of a 30-days gap between the date of publication of notice of sale and the date of actual sale does not impute a distinct characteristic to the public notice in the newspaper in contrast to the notice of sale that is served to the borrower. As is evident from Appendix IV-A to the SARFAESI Rules, the public notice of sale in newspaper as-well the notice of sale served to the borrower are one and the same, for the purpose of Rule 9(1).
The embargo enshrined under Rule 9(1), that no sale, in the first instance shall take place before the expiry of thirty-days, would be reckoned from the date of issuance of the “notice of sale”, which would include both the public notice of sale in the newspaper and the service thereof to the borrower, whichever is later.
Under Rule 8(6) read with Rule 9(1) both the notice of sale can be served as-well as published in the newspaper, simultaneously on the same date. All that is required under Rule 9(1) is that thirty-day gap is maintained between when the notice of sale is served, affixed and published, whichever is later, as the case may be, till the date of actual sale.
For the purpose of the amended Section 13(8) of the SARFAESI Act, the expression “before the date of publication” used therein, has to be construed to refer and mean the publication of a valid “notice of sale” for the secured asset, although such publication may vary depending upon the mode of sale chosen by the secured creditor.
The word “publication” used in Section 13(8) of the SARFAESI Act, has to be understood to mean and include the service, publication in newspaper, and the affixation and uploading of the “notice of sale”, as may be required under the SARFAESI Rules. Wherever, the chosen mode of sale requires the secured creditor to effectuate the “notice of sale” in any or all of the aforesaid manner, as the case may be, the expiry of thirty-days as required under Rule 9(1) from the day when the secured creditor complies with the requirement of giving the notice of sale, as per the applicable rules, would be the date on which the secured creditor is said to have validly published the “notice of sale” and it would be this date on which the right of redemption of the borrower would stand extinguished.
[M. Rajendran v. KPK Oils and Proteins India Pvt Ltd, CIVIL APPEAL NO. 12174 OF 2025, decided on 22-9-2025]
*Judgment by Justice JB Pardiwala
Advocates who appeared in this case:
For Petitioner(s): Mr. K. S. Mahadevan, Adv. Ms. Swati Bansal, Adv. Mr. R. Rangarajan, Adv. Mr. Aravind Gopinathan, Adv. Mr. Rajesh Kumar, AOR Ms. Praveena Gautam, AOR Mr. Vijay Balu S B, Adv. Mr. Pawan Shukla, Adv. Ms. Tissy Annie Thomas, Adv. Mr. Rohan Bansla, Adv.
For Respondent(s): Mr. S. Gowthaman, AOR Mr. S. Thananjayan, AOR Mr. K. S. Mahadevan, Adv. Ms. Swati Bansal, Adv. Mr. R. Rangarajan, Adv. Mr. Aravind Gopinathan, Adv. Mr. Rajesh Kumar, AOR Ms. Praveena Gautam, AOR Mr. Vijay Balu S B, Adv. Mr. Pawan Shukla, Adv. Ms. Tissy Annie Thomas, Adv. Mr. Rohan Bansla, Adv.