Borrower’s Right To Redeem Mortgage Extinguishes Once Bank Publishes Auction Notice: Supreme Court’s Interpretation of the SARFAESI Act
The Supreme Court of India has clarified a crucial aspect concerning the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court ruled that a borrower’s right to redeem a mortgage ceases to exist once the bank publishes an auction notice for the sale of the secured asset.
The Act serves as a comprehensive legislative framework, enabling banks to recover non-performing assets without the need for court intervention. It outlines the procedures for securitization, reconstruction of financial assets, and enforcement of security interests.
Relevant Provisions for Borrower’s right to redeem a mortgage
- Section 13(2): This section allows the secured creditor to issue a demand notice to the borrower, requiring the discharge of liabilities within 60 days.
- Section 13(8): This section states that the borrower has the right to redeem the secured asset by tendering all dues before the date of publication of the notice for public auction or inviting quotations or tenders from the public or private treaty for transfer by way of lease, assignment, or sale of the secured assets.
Facts of the Case for Borrower’s Right To Redeem Mortgage
The borrowers had availed a credit facility from the bank and secured it with a simple mortgage over a parcel of land. Upon default, the bank initiated the auction process for the secured asset. The borrowers filed a redemption application before the Debt Recovery Tribunal (DRT) and also sought relief from the High Court.
Supreme Court’s Ruling
Extinguishment of Right of Redemption
The Court held that failure to tender all dues before the publication of the auction notice, as stipulated by Section 13(8) of the SARFAESI Act, results in the “extinguishment of the right of redemption of mortgage.”
Justice Pardiwala noted:
“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 Transfer of Property Act, 1882, till the execution of conveyance of the mortgaged property.”
Legal Sanctity of Auction Process In Borrower’s right to redeem a mortgage
The Court emphasized the necessity of upholding the sanctity of the auction process under the SARFAESI Act. Any contrary interpretation would undermine public confidence and the very objective of auctions.
Conclusion about Borrower’s Right To Redeem Mortgage
The judgment serves as a legal precedent, clarifying that the borrower’s right to red
eem a mortgage under the SARFAESI Act is extinguished upon the publication of an auction notice by the bank. It also underscores the importance of maintaining the sanctity of the auction process, aligning with the larger public interest.
Case Citation (Borrower’s Right To Redeem Mortgage)
Case Title: Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. And Ors C.A. No. 5542-5543/2023
This article provides a comprehensive and precise understanding of the Supreme Court’s judgment, incorporating the relevant provisions of the SARFAESI Act and quoting significant paragraphs for reference.