[SARFAESI Act] Borrower who fails to pay dues before auction notice cannot redeem mortgage: Supreme Court

The Supreme Court on Thursday held that the right of mortgage redemption is available to a borrower under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), only till the publication of the auction notice and not thereafter. [Celir LLP vs Bafna Motors Mumbai Pvt Ltd and ors].This is the position after the the 2016 amendment to the SARFAESI Act, the Court noted. A bench of Chief Justice of India DY Chandrachud and Justice JB Pardiwala observed that after an auction is concluded, borrowers internally relinquish their right to redemption under Section 13(8) of the Act."We are of the view that the failure on the part of the borrower in tendering the entire dues including the charges, interest, costs etc. before the publication of the auction notice as required by Section 13(8) of the SARFAESI Act, would also sufficiently constitute extinguishment of right of redemption of mortgage by the act of parties as per the proviso to Section 60 of the Act 1882 ... once the Section 13(8) stage was over and auction stood concluded, it could be said that there was an intentional relinquishment of his right of redemption under Section 13(8)", the Court's judgment said.The bench added that with the 2016 amendment, the right of mortgage redemption for borrowers was drastically curtailed..The observations came while setting aside a Bombay High Court ruling that, in the apex court's words, had left the auction purchasers 'high and dry' by allowing borrowers to redeem the mortgage of a secured asset even after the auction proceedings had attained finality.The guarantor, in this case, had defaulted on repaying ₹123.83 crores extended to it by a bank as lease rental discounting credit. The bank proceeded to eventually auction the borrower's and the guarantor's secured assets under the SARFAESI Act but failed to complete the auction.In the meantime, the borrowers moved a Securitisation Application before a Debts Recovery Tribunal (DRT) in Mumbai, challenging the demand notice issued under Section 13(2) of the SARFAESI Act and to quash the sale notice.The asset eventually got auctioned, upon which the borrowers moved the High Court for the redemption of its mortgage, which was allowed.This led to the instant appeal by the auction purchaser before the apex court..The top court noted that Section 13(8) of the SARFAESI Act is a departure from the general right of redemption under the general law, that is, under the Transfer of Property Act of 1882. "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)," the Court explained..To read the SARFAESI Act in a manner so as to only stipulate a restriction upon the secured creditor and not on the borrower’s right of redemption would lead to 'a very chilling effect', where no auction conducted under the Act would have any form of sanctity, the Court pointed out."Such a scenario is all the more worrisome, because the general public who participate in such auctions are often neither aware nor informed by the secured creditors conducting the auctions, that as long as the sale certificate is not issued, they will not have a right in the said asset and that the borrower whose asset is being auctioned could sweep-in and redeem the mortgage any time, and thereby thwart their rights and the very auction process," the Court added..The apex court also slammed the conduct of the bank in this case, for supporting the borrowers before the High Court despite the auction purchaser having paid the highest bid amount in full."The genesis of the entire case lies in the illegitimate conduct of the Bank in placing different concerns above the clear provisions of the law. First, there was failure on the part of the Bank to issue sale certificate in favour of the auction purchaser despite the fact that the entire payment of auction bid was made ... the Bank proceeded to accept the Page offer of full payment of the Borrower which is clearly impermissible in law ... before the High Page Court they made a complete 360 degrees turn and accepted the offer," the Court said.The High Court's justification for such a move - that it would get a higher amount and bring quietus to the issue - was 'lame and weak', the Supreme Court added. "This again shows that the decisions of the Bank are not taken as per the provisions of law but according to the whims and fancies of the Bank officers. Bank is duty bound to follow the provisions of the law as any other litigant ... The proposition of law as discernible from the aforesaid decisions is that equity cannot supplant the law. Equity has to follow law, if the law is clear and unambiguous," the Supreme Court said..Further, the High Court was not justified in exercising its writ jurisdiction under Article 226 of the Constitution when the plea before the DRT was pending, the top court added..The appeal was, thus, allowed and the High Court's order set aside. .Senior Advocates Mukul Rohatgi and Neeraj Kishan Kaul, with advocate Mahesh Agarwal of Agarwal Law Associates, and counsel Kunal Mehta and Robin Fernandes, partner from Vesta Legal, represented the appellant-auction purchasers.Senior Advocates Shyam Divan and Nikhil Nayyer appeared for the borrowers..[Read judgment]