RAJENDRAN V. KPK OILS: A CRITICAL EXAMINATION OF CORPORATE AND CIVIL LIABILITY

FACTS

On January 6, 2016, the Original Borrowers (respondents 1 to 4), who had secured a cash credit facility of ₹5 crore and a term loan of ₹30 lakh from the Bank (respondent 5), authorized guarantors to create an equitable mortgage on 1.92 acres of land in Dharapuram, Tiruppur District. The loan account was categorized as a non-performing asset (NPA) on 31 December 2019, and in the next month (February 2020), the Bank issued a Section 13(2) notice under the SARFAESI Act for ₹3.96 crore, and a Section 13(4) notice of possession in October 2020, which it then published in two newspapers. The borrowers filed a challenge to possession before the Debts Recovery Tribunal (DRT), while possession proceedings went ahead. In January 2021, the Bank published and issued a notice for auction. On February 26, 2021, the appellants (the auction purchasers) successfully bid for ₹1.25 crore and paid the full amount, receiving a sale certificate on March 22, 2021. After this, the borrowers paid a significant sum against the remaining dues and they filed a writ petition before the High Court in 2023 to challenge the sale certificate. The Madras High Court quashed the sale.

LEGAL PROVISIONS

1. When does the borrower lose the right of redemption under Section 13(8) of the SARFAESI Act?
2. Was it justifiable for the High Court to entertain the writ petition and bypass the statutory remedy under the SARFAESI Act?
3. Was it permissible for the borrowers to redeem their property after the auction sale and sale certificate was issued?
4. Did amended Section 13(8) (post-amendment in 2016) apply to the loan borrowed prior to the amendment?

ARGUMENTS

PETITIONER

1. Revised Section 13(8) is applicable only if the default / NPA classification / auction notice occurs following the amendment. The appellants contended that, although the loan was issued before the amendment, the operative event in respect of the amendment being operative was when the default becomes NPA and when the auction notice is issued, and here both were after September 1, 2016. They argued that for “alive claims” (i.e. defaults / action taking place after the date of the amendment), the amended law should apply.
2. Right of redemption ends when auction notice is issued. They argued that the amended Section 13(8) extinguishes the borrower’s right to redeem the mortgaged property upon publication of the notice of sale / auction (or inviting quotations/ tenders etc.) and that the publication date (January 22, 2021) is the date when their right expired. 
3. Single and composite notice principle. The appellants argued that the sale notice under Rule 8 (with Rule 9) of the SARFAESI Rules is a single composite Notice of Sale; that having separate, different methods of issuing the same notice by way of public notice in the newspaper, affixing notice on the property, etc is not a different notice. Once that composite notice has been accomplished, per prescribed method, the right of redemption cannot be undone.
4. Legislative purpose / purpose of SARFAESI. The appellants maintained the position that the SARFAESI Act is a special law to facilitate swifter recovery of debts owed to secured creditors, the object of recent amendments (especially Section 13(8)), is described as removing delay or continued litigation or rights to redeem after an auction has occurred or a certificate was issued. To rely on an old law/apply it, would be to defeat that object.
5. Authoritative precedents / recent authorities. They referred to other Supreme Court cases to refer/interpret the right of redemption at the amended Section 13(8) (for example Celir LLP v. Bafna Motors (2024)) and argued that the right to redeem ends with the publication of auction not with the sale transfer. The appellants submitted that those decisions are binding and relevant.

RESPONDENT 

1. a) Pre-amendment law should apply. The borrowers claimed that, as the loan was sanctioned on 6 January 2016, prior to the amendment of Section 13(8) of the SARFAESI Act which came into force on 1 September 2016, the unamended provision should govern their case. They said, under that old provision they had a right of redemption up to the date of sale / transfer (ie even beyond the publication of the auction notice).
2. b) Right of redemption survives until transfer. They argued that their right of redemption survives until actual transfer / registration of the sale deed in favor of the auction purchaser, on pre-amendment reading and with analogy Section 60 of the Transfer of Property Act, 1882.
3. c) No retrospective application of the amendment. The borrowers contended that the 2016 amendment to Section 13(8) should not be applied retroactively to its loan (which was taken pre-amendment). They argued that since it was their contract pre-September 1, 2016 to published auction notice, their contract should be governed by the right of redemption before auction (which would end the moment the sale deed was executed).
4. d) Exceptional circumstances / equity. The borrowers (via the High Court) also argued that there ought to still be a right of redemption in light of “exceptional circumstances” after the auction and issuance of the sale certificate, and that equitable considerations ought to allow for payment of the amounts due post-auction and issuance of a sale certificate, in order to reflect principles of fairness.

ANALYSIS

The Supreme Court remarked that SARFAESI was enacted for speedy recovery and reduction of NPAs, and that it overrode contrary provisions in other inconsistent legislations. The prior judgments were focused on the necessary protections for borrowers, while the 2016 amendment to section 13(8) changed this position and drew a line in the sand to terminate the right of redemption on publication of a notice of sale. The Court explained that the notice of sale under Rules 8 and 9 is one ‘single’ composite notice and not multiple notices. Because this amendment was procedural and remedied the statutory operation of section 13(8), the amendment had retroactive effect and coverage and applied to all auctions conducted after enforcement of the amendment – even if the loan occurred prior to the amendment. The High Court acted improperly when it attempted to extend the redemption rights in its discretionary powers to beyond the limits of the statute. The Supreme Court further held that it was justified to uphold the auction sale, and therefore, the borrower’s right of redemption was extinguished at the time the notice of sale was published.

JUDGEMENT

The Supreme Court overturned the order of the Madras High Court, determining that the borrower’s right of redemption as set forth in Section 13(8) of the SARFAESI Act came to an end on the date of the auction sale notice publication. It also upheld the legality of the sale certificate executed in favour of the auction purchasers, considering the High Court’s quashing of the sale, as well as its entertaining of the writ petition prematurely, to be erroneous in light of the availability of alternate statutory remedies to the borrowers. In response to the appeal, the Court reinstated the rights of the auction purchasers.

CONCLUSION 

In summary, the ruling determines the cut-off point for redemption under the amended law, that is, the borrower’s right is extinguished upon the publication of a notice of auction sale. It strengthens the position of banks and auction purchasers by providing clarity to the recovery process and prevents borrowers from seeking equitable relief or avoiding the statutory process after a sale certificate is issued.

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Written by- Anwesha Anant

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