Bombay High Court: In a case revolving around the issue whether, after the amendment to Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’), the ownership rights of borrowers in a secured asset stood extinguished upon issuance of the sale notice under Rule 8(6) of the SARFAESI Rules, or only upon issuance of the sale certificate; the Division Bench of R.I. Chagla and Farhan P. Dubash*, JJ., held that ownership of the secured asset is transferred only upon issuance of the sale certificate, and not merely on publication of the sale notice; and once an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), comes into effect before the sale certificate is issued, the auction purchaser cannot claim ownership rights as the interim moratorium halts the SARFAESI sale.
Background:
Certain financial facilities were provided by the Union Bank of India (‘Bank’) to the borrowers. The borrowers were the owners of the secured asset, which was mortgaged by them as security for the said facility availed from the Bank. Upon the borrowers’ default, their accounts were classified as a non-performing asset, and on 24-04-2023, the Bank issued a notice of demand under Section 13(2) of the SARFAESI Act calling upon the borrowers to make payment of a sum of Rs 49.33 crore. Following this, symbolic possession was taken, and eventually an auction sale notice was published by the Bank on 09-05-2025. The auction was conducted on 30-05-2025, and the successful auction purchaser (‘purchaser’) deposited the bid amount of Rs 9.12 crore.
However, before the sale certificate could be issued, one of the co-owners filed a personal insolvency application under Section 94 of the IBC on 09-06-2025, triggering an interim moratorium under Section 96. Despite this, the Bank proceeded to issue the sale certificate on 20-06-2025. The borrowers then filed an application under Section 17 of the SARFAESI Act before the DRT, Mumbai impugning the sale process carried out by the Bank, contending that the same was contrary to the provisions of the IBC. The purchaser filed the present writ petition being aggrieved by the Bank’s inaction to hand over the possession of the secured asset despite the issuance of the sale certificate in its favour.
The purchaser’s counsel argued that the borrowers’ ownership rights were extinguished upon issuance of the auction notice, and therefore the interim moratorium did not prevent the Bank from handing over the possession. He distinguished between a moratorium under Section 14 and an interim moratorium under Section 96 of the IBC by stating that whilst any action under the SARFAESI Act would be covered under the former, it would stand excluded under the latter by relying on the specific inclusion in Section 14(1)(c) thereof. He further contended that whilst execution proceedings would be covered under Section 14 moratorium, the same would not be included in the Section 96 interim moratorium. He further alleged that the borrowers’ right of redemption stood extinguished once the sale notice was published and argued that since only one co-owner had filed the personal insolvency application and not her husband, the Resolution Professional (‘RP’) cannot deal with his 50% undivided share in the secured asset.
The Bank supported this position, emphasising that the insolvency application was filed only to frustrate enforcement under SARFAESI. It was stated that the Bank was a secured creditor and was entitled to enforce its security to realise the outstanding amounts due and payable by the borrowers, who were not entitled to the benefit of the interim moratorium under the IBC.
On the other hand, the RP’s counsel argued that the interim moratorium which came into effect on 09-06-2025, barred acceptance of payments and issuance of the sale certificate by the Bank, thereby rendering the auction incomplete. They also highlighted the gross undervaluation of the asset compared to its fair market value.
Analysis and Decision:
The Court relied on Indian Overseas Bank v. RCM Infrastructure Ltd., (2022) 8 SCC 516, and observed that in case of a sale governed by Section 13(8) of the SARFAESI Act and Rules 8 and 9 of the SARFAESI Rules, the transfer of ownership of the secured asset is complete, only upon the issuance of the sale certificate and not at any time prior to that.
The Court opined that the effect of the 2016 Amendment to Section 13(8) of the SARFAESI 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. However, post the amendment, 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 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.
The Court relied on Narayan Deorao Javle v. Krishna, (2021) 17 SCC 626, and emphasised that the equity of redemption is only a facet or one of the bouquetof rights that constitute ownership. The equity of redemption is a right which is subsidiary to the right of ownership, and it is not over and above the right of ownership. Ownership, on the other hand, is a bundle of rights such as the right to exclusive enjoyment, destruction, alteration, and redemption. The Court opined that on losing merely the right of redemption, a borrower does not automatically lose ownership rights over the secured asset and that the ownership right is ultimately lost only upon issuance of sale certificate in accordance with Rule 9(6) of the SARFAESI Rules.
The Court relied on Indian Overseas Bank (supra), which held that a statutory sale under SARFAESI Act is complete only when the entire payment is made and the sale certificate is issued. The Court also relied on Dilip B. Jiwrajka v. Union of India, (2024) 5 SCC 435, wherein it was observed that “the impact of the interim moratorium under Section 96 is that a legal action or proceeding pending in respect of any debt is deemed to have been stayed and the creditors or the debtors shall not initiate any legal action or proceedings in respect of any debt”.
The Court also referred to Sanjay Dhingra v. IDBI Bank Ltd., 2024 SCC OnLine Del 4521, where it was 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 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.
The Court applied Indian Overseas Bank (supra) and held that once the interim moratorium under Section 96 of the IBC Act came into force, a secured creditor could not receive balance payment from the purchaser. Thus, if the interim moratorium kicked in post confirmation of the sale but before the balance payment was made, the only outcome was that there was no transfer of ownership of the secured asset in favour of the purchaser. The Court noted that in the present case, several tranches of payment were made after the interim moratorium had come into effect. Since the moratorium barred acceptance of payments and issuance of the sale certificate, the sale could not be said to have been completed.
The Court distinguished Celir LLP v. Bafna Motors (Mumbai) (P) Ltd., (2024) 2 SCC 1, noting that while it curtailed the borrower’s right of redemption upon publication of the sale notice, it did not alter the principle that ownership transfers only upon issuance of the sale certificate and also that the case did not concern itself with the IBC.
In conclusion, the Court, while dismissing the petition, held that since the payments of few trenches could not be accepted by the Bank and the sale certificate was issued after the interim moratorium had come into effect, the purchaser did not acquire ownership rights in the secured asset and was not entitled to possession of the same.
[Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India, Writ Petition No. 11132 of 2025, decided on 10-12-2025]
*Judgment authored by: Justice Farhan P. Dubash
Advocates who appeared in this case:
For the Petitioner: G.S. Hegde (Senior Advocate) a/w. P.M. Bhansali, Arafat Siddique and Juhi Pandey
For the Respondents: Mable Soans of M/s. Mable & Associates, Shrirang Katneshwarkar, Gajendra Rajput a/w. Shubham Kahite
Naushad Engineer (Senior Advocate) – Amicus Curiae a/w. Sharad Bansal and Yohann Limathwalla