Issues for consideration:
The present appeals by the appellant-auction purchaser were against the judgment passed by the High Court by which it allowed the writ petition filed by respondent no.1-borrowers and directed the respondent no.3-Bank to permit the borrowers to redeem the mortgage of the secured asset after the auction proceedings had attained finality. The questions for consideration were:1. Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the alternative remedy available to the Borrowers had already been availed of.
2. Whether the confirmation of sale by the Bank under Rule 9(2) of the Security Interest (Enforcement) Rules, 2002 invests the successful auction purchaser with a vested right.
3. What is the impact of the amended Section 13(8) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) on the Borrowers’ right of redemption in an auction conducted under the SARFAESI Act. What is the effect of amendment to Section 13(8) of the SARFAESI Act read with Section 60 of the Transfer of Property Act, 1882.
4. Whether a Bank after having confirmed the sale under Rule 9(2), can withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower.
5. Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act.
6. Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction. Till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act.
Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) – s.17 – Constitution of India – Art. 226 - Exercise of writ jurisdiction u/ Art.226 of the Constitution when alternative remedy u/s.17 of SARFAESI Act already availed by the borrower – If justified. Held: The Supreme Court has time and again, reminded the 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 – In the present case, the High Court was not justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the borrowers had already availed the alternative remedy available to them under s.17 of the SARFAESI Act. [Paras 92, 105]
Security Interest (Enforcement) Rules, 2002 – r.9(2) - Whether the confirmation of sale by the Bank under r.9(2) invests the successful auction purchaser with a vested right.
Held: The confirmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right to obtain a certificate of sale of the immovable property in form given in appendix (V) to the Rules i.e., in accordance with Rule 9(6) of the SARFAESI. [Para 105]
Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) – ss.13(8) and 35 – Transfer of Property Act, 1882 – s.60 – Impact of amended s.13(8) of SARFAESI Act on the Borrowers’ right of redemption in an auction conducted under the SARFAESI Act – Effect of amendment to s.13(8) of SARFAESI Act r/w s.60 of the Transfer of Property Act, 1882.
Mortgage – Right of redemption of mortgage.
Held: 1. 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 – 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 registration of the sale certificate and delivery of possession of the secured asset – However, the amended provisions of Section 13(8) of the SARFAESI Act, make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules of 2002 – In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9(1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser. [Para 105]
2. The SARFAESI Act is a special law containing an overriding clause in comparison to any other law in force – Section 60 of the Transfer of Property Act, 1882, 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 Act 1882 – Further, the legislature has in the objects and reasons while passing the amending Act specifically stated “to facilitate expeditious disposal of recovery applications, it has been decided to amend the said Acts….” – Thus, while interpreting Section 13(8) vis-à-vis Section 60 of the Act 1882, an interpretation which furthers the said object and reasons should be preferred and adopted – If the general law is allowed to govern in the manner as sought to be argued by the borrowers, it will defeat the very object and purpose as well as the clear language of the amended Section 13(8) – In the light of clear inconsistency between Section 13(8) of the SARFAESI Act and Section
60 of the Act 1882 the former special enactment overrides the latter general enactment in light of Section 35 of the SARFAESI Act – Thus, the right of redemption of mortgage is available to the borrower under the SARFAESI Act only till the publication of auction notice and not thereafter, in light of the amended Section 13(8). [Paras 64 and 68]
Security Interest (Enforcement) Rules, 2002 – r.9(2) and r.9(6) – Whether a Bank after having confirmed the sale under r.9(2), can withhold the sale certificate u/r.9(6) and enter into a private arrangement with a borrower.
Held: The Bank after having confirmed the sale under Rule 9(2) of the Rules of 2002 could not have withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower. [Para 105]
Constitution of India – Art. 226 – Scope u/Art. 226, to apply equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act – Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act).
Held: The High Court under Article 226 of the Constitution could not have applied equitable considerations to overreach the outcome contemplated by the statutory auction process prescribed under the SARFAESI Act. [Para 105]
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – s.13(8) – Interpretation of. Auction - Auction process under the SARFAESI Act.
Auction – Public Auction – Sanctity of – Courts ought to be loath in interfering with auctions.
Held: As per the amended Section 13(8) of the SARFAESI Act, once the borrower fails to tender the entire amount of dues with all cost & charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule
8 of the Rules of 2002 – It is the duty of the courts to zealously protect the sanctity of any auction conducted – The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same – 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. [Paras 86, 87 and 88] Equity – Law and Equity – Relationship.
Held: Equity cannot supplant the law – Equity has to follow law, if the law is clear and unambiguous. [Para 104]
LIST OF CITATIONS AND OTHER REFERENCES
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12 SCC 761 : [2019] 11 SCR 341; S. Karthik & Ors. v. N. Subhash Chand Jain & Ors., (2022) 10 SCC 641 – explained.
Varimadugu OBI Reddy v. B. Sreenivasulu & Ors. (2023) 2 SCC 168; Authorised Officer State Bank of India v. C. Natarajan and Anr. 2023 SCC OnLine SC 510; Narandas Karsondas v. S.A. Kamtam and Another (1977) 3 SCC 247 : [1977] 2 SCR 341; Embassy Hotels Private Ltd. v. Gajraj and Company & Ors. (2015) 14 SCC 316 : [2014] 14 SCR 603; Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal (2010) 3 SCC 786 : [2010] 3 SCR 91; National Spot Exchange Ltd. v. Anil Kohli, Resolution Professional for Dunar Foods Ltd. (2022) 11 SCC 761; Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. (2004) 4 SCC 311 : [2004] 3 SCR 982; Madras Petrochem Ltd. & Anr. v. Board for Industrial and Financial Reconstruction & Ors. (2016) 4 SCC 1 : [2016]
11 SCR 419; L.K. Trust v. EDC Limited and Others (2011) 6 SCC 780 : [2011] 7 SCR 569; Dwarika Prasad v. State of Uttar Pradesh (2018) 5 SCC 491 : [2018] 3 SCR 29; Allokam Peddabbayya & Anr. v. Allahabad Bank & Ors. (2017) 8 SCC 272 : [ 2017] 8 SCR 121; Arce Polymers Pvt. Ltd. v. Alpine Pharmaceuticals Pvt. Ltd. & Ors. (2022) 2 SCC 221; M.D. Frozen Foods Exports Private Limited & Ors. v. Hero Fincorp Limited (2017) 16 SCC 741 : [2017] 13 SCR 800; Vishal N. Kalsaria v. Bank of India & Ors. (2016) 3 SCC 762 : [2016] 1 SCR 419; Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Ors. (2008) 9 SCC 299 : [2008] 12 SCR 1; K. Kumara Gupta v. Sri Markendaya and Sri Omkareswara Swamy Temple & Ors. (2022) 5 SCC 710; Eva Agro Feeds Private Limited v. Punjab National Bank & Anr. 2023 SCC OnLine SC 1138; United Bank of India v. Satyawati Tondon & Ors. (2010) 8 SCC 110 : [2010] 9 SCR 1; Commissioner of Income Tax & Ors. v. Chhabil Dass Agarwal (2014) 1 SCC 603; Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir & Ors. (2022) 5 SCC 345; Sadashiv Prasad Singh v. Harendar Singh & Ors. (2015) 5 SCC 574 : [2014] 1 SCR 249 – referred to.
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