BACKGROUND OF THE CASE

The Hon’ble Supreme Court of India in M. Rajendran v. KPK Oils and Proteins India Pvt. Ltd¹ decided two Civil Appeals arising from a Madras High Court judgment which had quashed a bank’s sale certificate issued to auction purchasers under the securitisation and reconstruction of financial assets and the enforcement of security interest in India Act, 2002 (“SARFAESI Act”), and permitted the borrowers to redeem the mortgage upon payment, despite completion of an auction sale and issuance of the sale certificate.

The Hon’ble Court addresses the issue of validity of a bank auction and the sale certificate issued for a mortgaged industrial land under the SARFAESI Act, and whether the borrowers could still redeem the mortgage after publication of the auction notice and issuance of the sale certificate in light of the 2016 amendment to Section 13(8) of the SARFAESI Act and the Hon’ble Supreme Court’s own decision in Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd².

FACTS OF THE CASE

The dispute arose in January 2016, when the borrowers availed a cash credit limit of Rs. 5 crore and a term loan of Rs. 30 lakh from the Bank. To secure these borrowings, the guarantors created an equitable mortgage by depositing the title deeds of several properties, including the “Subject Property”.

By December 2019, the loan account was classified as Non-Performing Asset (“NPA”) due to repayment defaults with outstanding dues of approximately Rs. 3.9 Crore. This triggered the bank’s enforcement action under the SARFAESI Act. A notice under Section 13(2) of the SARFAESI Act was issued by the bank for the discharge of the entire liability within 60 days, and then a possession notice under Section 13(4) of the SARFAESI Act on 28^th October 2020.

Later, an auction sale notice under Rule 8 read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 (“SARFAESI Rules”) was then published on 22^nd January 2021 to sell the mortgaged property. The auction was conducted, and a sale certificate was issued in favour of the appellants, who emerged as the successful biddersand deposited the full sale consideration of Rs. 1.25 crore.

Meanwhile, the borrowers approached the Debt Recovery Tribunal (“DRT”), Coimbatore, challenging the bank’s possession and auction sale notices. DRT granted a status quo order, and the auction purchasers were subsequently impleaded. The borrowers made substantial repayments and paid Rs. 2.88 crore in March 2021, and another Rs. 62 lakhs in May 2021. The bank eventually closed the loan account on 7^th May 2021, after appropriating the auction proceeds.

The DRT, however, dismissed all the Securitisation Applications. The Borrowers, instead of filing an appeal before the DRAT, moved to the Madras High Court, which granted an interim status quo based on their readiness to clear the dues. The borrowers subsequently deposited the remaining dues of Rs. 50 lakh on 24^th January 2023 and Rs. 9 lakh on 31^st January 2023.

The Hon’ble High Court relied upon the case of Mathew Varghese v. Amritha Kumar,³ wherein the Hon’ble Court held that the right of redemption subsists until the sale is completed. The Hon’ble High Court in its judgment quashed the sale certificate, directed the Bank to permit redemption and close the loan account, and ordered a refund of Rs. 1.25 Crore with 9% interest to auction purchasers (interest to be borne by borrowers).

Aggrieved by this decision, the auction purchasers filed Civil Appeals before the Hon’ble Supreme Court, challenging the Hon’ble High Court’s decision and asserting their vested rights as bona fide purchasers under the SARFAESI Act.

ISSUE

Whether the Hon’ble High Court committed an error in quashing the sale certificate and permitting redemption, particularly in view of the 2016 amendment to Section 13(8) of the SARFAESI Act and the Hon’ble Supreme Court’s ruling in the Bafna Motors case?

RULE APPLIED

1. The SARFAESI Act, 2002

• Section 13(2): Enables a secured creditor, after classifying a borrower’s account as NPA, to demand full repayment within 60 days; on failure, the creditor may proceed with enforcement under Section 13(4).
• Section 13(4): Stipulates enforcement measures, including taking possession of secured assets and the right to transfer by lease, assignment, or sale for the realization of dues.
• Section 13(8): Allows borrower to tender full dues “at any time before the publication of notice for public auction or invitation for tender/quotation/private treaty.
• Section 17: The borrower’s statutory remedy to challenge any measure under Section 13(4), typically filed within 45 days.

2. Security Interest (Enforcement) Rules, 2002

• Rule 8 and Rule 9: Prescribes procedure for sale of immovable secured assets valuation, reserve price, requirement of a thirty-day sale notice, newspaper publication for auction/tender modes, deposit timelines, confirmation, and sale certificate.
• Rule 9(6): A Sale Certificate is issued upon confirmation of sale and full payment by the auction purchaser.

SUPREME COURT’s ANALYSIS

1. Purpose of the SARFAESI Act: The SARFAESI Act was enacted to empower banks to enforce security without court intervention. Section 13(8) of the SARFAESI Act, as amended in 2016, narrowed the borrower’s redemption window by linking it to “publication” of the sale notice, unlike the earlier “date fixed for sale or transfer,” thereby curtailing redemption timelines and bringing certainty to the auction process. 
2. Court’s interpretation of Section 13(8) amendment: In Allokam Peddabbayya & Anr. v. Allahabad Bank & Ors,⁴ the Hon’ble Supreme Court held that the right of redemption is lost once the property is put to auction and a sale certificate is issued. Later, the Telangana High Court took a contrary view in Concern Readymix v. Corporation Bank⁵ , wherein the Hon’ble High Court relied upon Section 60 of the Transfer of Property Act, 1882 (“TP Act”) to hold that the borrower’s right of redemption would continue to exist until the execution of the conveyance.

The Hon’ble Supreme Court, in Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. and Ors, held that under Section 13(8) of the SARFAESI Act, a borrower only has the right of mortgage redemption till the publication of the auction notice. The Courts have interpreted Section 60 of the TP Act to hold that the mortgagor’s right to redeem will be extinguished only after completion of the sale by a registered deed. The Hon’ble Supreme Court noted that the amended Section 13(8) of the SARFAESI Act allows the right of redemption only till the date of publication of notice, which is a departure from the general right of redemption under the general law and therefore is inconsistent with Section 60 of the TP Act. In such a situation of inconsistency, the SARFAESI Act, being a special one, would override the general law.

Section 13(8) of the SARFAESI Act is reproduced below for a better understanding:-

“Section 13 (8): Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor 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,—

1. The secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and
2. In case any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.”

Section 13(8) of the SARFAESI Act has two parts: –

1. It enables the borrower to exercise his right of redemption up to 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;
2. 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.

The words “if the dues of the secured creditor”, used in Section 13(8) of the SARFAESI Act, mean the dues in their entirety, and not the price raised on the sale of one of the secured assets in a public auction.

3. Interpretation of “Publication” and “Composite Sale Notice” under the SARFAESI Rules: The Hon’ble Apex Court held that under the SARFAESI Rules there is one composite notice of sale envisaged under Rule 8(6) (with its proviso for publication in newspaper where auction/tender is used), read with Rule 9(1) which requires that the auction cannot take place before thirty days from service/publication. Rule 9 of the SARFAESI Rules does not mandate a second, distinct thirty‑day notice, and the expression “Publication” in Section 13(8) of the SARFAESI Act corresponds to the publication of the sale notice issued under Rule 8(6) of the SARFAESI Rules in cases of public auction or tender. 
4. Effect of Sale Confirmation: The Hon’ble Apex Court emphasized that once the sale is confirmed under Rule 9(2) of the SARFAESI Rules and a sale certificate under Rule 9(6) of the SARFAESI Rules is due, the auction purchaser acquires a vested right to the certificate, and banks cannot withhold a certificate to strike private arrangements. The Hon’ble Supreme Court further clarified that the Hon’ble High Court’s reliance on the pre-amendment in the Mathew Varghese case to permit redemption after publication/auction was erroneous.

The proper understanding of post-amendment is that redemption is available only up to the date of publication of the auction notice, and the Hon’ble High Court should not have quashed the sale certificate after a concluded auction process and DRT dismissal, especially when an appellate remedy existed before the DRAT.

5. The Doctrine of Vested Right: ‘Once a sale is confirmed and the purchaser pays the full amount, a vested right is created in their favour’. The Hon’ble Supreme Court held that the right cannot be taken away later by allowing the borrower to repay the dues, and concluded that the auction must have finality.
6. Retrospectivity of the 2016 amendment to Section 13(8) of the SARFAESI Act: The Hon’ble Supreme Court, through its recent decision in the Bafna Motors case, had already clarified that post‑2016, the redemption cutoff is the “date of publication” of the sale/transfer notice across modes, without artificial distinctions between auction, tender, or private treaty. In the present case, the Hon’ble Supreme Court also addressed a separate issue as to whether the amended Section 13(8) of the SARFAESI Act operates retrospectively or is applied prospectively to enforcement steps taken after its commencement, irrespective of when the loan originated. The borrowers contended that since their credit facilities were availed in January 2016, their right of redemption under the pre-amendment regime could not be curtailed by a subsequent statutory change.

The Hon’ble Supreme Court rejected this argument and held that theamendment does not operate retrospectively in respect of past enforcement actions, but it does apply prospectivelyto all enforcement measures taken after its commencement, even if the loan transaction itself originated earlier. The Hon’ble Court explained that Section 13(8) of the SARFAESI Act regulates the procedure for enforcementand thetiming of the borrower’s right of redemption, not the contractual right under the loan agreement. Therefore, once the enforcement process, such as the issuance of a possession notice or the publication of a sale notice, occurs after 1^st September 2016, it is necessary to be governed by the amended provision.

Accordingly, the Hon’ble Apex Court held that the borrowers in the present case, whose auction sale and enforcement steps were initiated after the amendment, could not claim the benefit of the pre-2016 redemption window.

CONCLUSION

The Hon’ble Supreme Court, through this judgment, clarified the post-amendment redemption under amended Section 13(8) of the SARFAESI Act, that the borrower’s right to redeem in auction/tender cases endures only until the publication of the sale notice. After the publication, the statute curtails redemption to ensure certainty, market confidence, and finality in statutory sales, protecting auction purchasers’ vested rights. The decision affirms that the 2016 amendment applies prospectively to enforcement actions initiated after its commencement, thereby reinforcing the integrity of the SARFAESI process and the stability of statutory sales.

Written By: Shubhangi Dengre (Associate)