Facts of the Case:

The borrower defaulted his loan, he failed to repay and redeem his mortgaged property. This led the bank to invoke its powers by sending a notice under Section 13(2) of the SARFAESI Act, 2002. When the borrower did not comply, the bank proceeded with SARFAESI proceedings, taking possession of the secured asset and initiating auction proceedings.

Despite eight failed auction attempts, the ninth auction was finally successful, and the bank confirmed the sale in favour of the auction purchaser. However, the issuance of the sale certificate remained pending.

Simultaneous Legal Battle:

While these auction processes were going on, the borrower had also approached the Debt Recovery Tribunal (DRT), asserting his Right of Redemption and seeking two months' time to repay the dues. Additionally, the borrower escalated the matter by filing a Writ Petition under Article 226 of the Indian Constitution before the Hon’ble High Court of Bombay, pleading for an opportunity to redeem the asset.

The Bombay High Court ruled in favor of the borrower, allowing him time to redeem the property. Further, the court directed the bank to refund the Auction Purchaser.

Auction Purchaser's Challenge in Supreme Court:

Aggrieved by the High Court’s decision, the auction purchaser approached the Hon’ble Supreme Court of India, raising a fundamental question:

Can a sale that has been confirmed by the bank be nullified by allowing the borrower to redeem the asset post-confirmation?

Supreme Court’s Verdict:

            The supreme Court of India held that the right to redeem a secured asset extinguishes upon the publication of the auction notice. If a borrower fails to repay and clear his dues, his right to redeem shall cease upon publication of the auction notice. The Court has made this interpretation by the amended Section 13(8) of the SARFAESI Act, 2002.

Coram: Justice.J.B. Pardiwala. And Justice.Manoj Misra

Case Citation: 2024 INSC 978

Key Takeaway:

• A borrower’s right to redeem is not indefinite. The right of redemption available to a borrower under law stands extinguished upon the publication of the auction notice under the SARFAESI Act.
• Once the sale is confirmed, the borrower and the secured creditor have no right over the secured asset. Further, the borrower and the secured creditor have no power to nullify the sale and/or act against the auction purchaser. It is the duty of the bank and the borrower to release the Secured Asset and the Auction Purchaser’s entitlement to claim and obtain the Sale Certificate. 

Legal Implication:

For borrowers, this is a reminder for taking timely action to redeem the secured asset before the bank initiates SARFAESI Act proceedings. 

For auction purchasers, the ruling is a much-needed assurance of legal certainty and transactional security in property auctions conducted by the banks under the SARFAESI Act.

Source: 2024 INSC 978 

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Disclaimer : The content in this blog is for informative purposes only. Expert opinion may be sought as your case and circumstances may be.