SC: Borrower’s Right of Redemption Extinguished Once Sale Certificate Issued under SARFAESI

The present civil appeals were filed against the judgment of the Madras High Court dated 24.04.2023 by which the High Court had quashed the Sale Certificate issued in favour of the auction purchasers and allowed the borrowers to redeem the mortgaged property. The borrowers had availed cash credit facilities of Rs. 5 crore and a term loan of Rs. 30 lakh in 2016, secured by an equitable mortgage of immovable properties. Upon default, the account was declared NPA in December 2019, and a demand notice under Section 13(2) of the SARFAESI Act was issued for dues of Rs. 3.96 crore. The secured asset was eventually auctioned, and a Sale Certificate dated 22.03.2021 was issued in favour of the appellants (auction purchasers).

The High Court, however, permitted the borrowers to redeem the mortgage even after issuance of the sale certificate, relying on equitable principles and earlier interpretations of Section 13(8). This prompted the auction purchasers to approach the Supreme Court. The core contention revolved around the interpretation of amended Section 13(8) (post-2016 amendment) and whether the right of redemption survives beyond the publication of the auction notice.

Issue Raised: Whether the amended Section 13(8) of the SARFAESI Act extinguishes the borrower’s right of redemption upon publication of auction notice under Rule 9(1), or whether such right continues until registration of the sale certificate.

SC Held: The Supreme Court allowed the appeals, set aside the judgment of the High Court, and restored the rights of the auction purchasers. It held that the High Court had committed a serious error in entertaining the writ petition when the statutory remedy before the DRAT was already available and had been dismissed at the borrowers’ instance.

On the interpretation of Section 13(8) of the SARFAESI Act, the Court ruled that the amended provision is not merely clarificatory but a procedural/remedial one, and therefore applies retrospectively to all pending and future proceedings, irrespective of when the loan was obtained. Relying on Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd., the Court reaffirmed that the borrower’s right of redemption is extinguished once the sale certificate is issued in favor of the successful auction purchaser. Registration of the sale certificate is not a condition for completion of sale or for extinguishing the right of redemption.

As the sale certificate had been issued to the auction purchasers on 22.03.2021, the borrower’s right of redemption stood extinguished on that date. The High Court, therefore, lacked jurisdiction to interfere with a perfected sale.

To Read Full Judgment, Download PDF Given Below