Borrower’s Redemption Rights Extinguished on Auction Notice Under Amended Section 13(8) SARFAESI Act
- REEDLAW
- Oct 9
- 5 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, reaffirmed the legal position that a borrower’s right of redemption under the amended Section 13(8) of the SARFAESI Act ceases upon the issuance of an auction notice. The Tribunal held that once the auction process has commenced, any subsequent initiation of CIRP and the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016 cannot invalidate or reverse such auction sales, thereby upholding the sanctity of public auction processes and protecting the legitimate actions of secured creditors undertaken prior to the moratorium.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Technical Member), while adjudicating the Company Appeal, held that under the amended Section 13(8) of the SARFAESI Act, a borrower’s right to redeem the secured asset extinguishes once an auction notice is published. Consequently, any sale conducted thereafter, even during the period of CIRP moratorium, remains valid and cannot be nullified under the Insolvency Code. The Appellate Tribunal emphasised that this interpretation preserves the sanctity of public auctions and ensures that bona fide actions of secured creditors taken before the moratorium are legally protected.
The appeal had been filed by the Liquidator of the Corporate Debtor to challenge the order passed by the Adjudicating Authority, whereby the application filed by the Appellant under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, seeking reversal of the sale transactions of two mortgaged properties, had been dismissed. The appeal arose in the background of credit facilities availed by the Corporate Debtor from a Financial Creditor against which two immovable properties located at Defence Colony, New Delhi, had been mortgaged. Proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, had been initiated by the Financial Creditor due to default in repayment.
The Financial Creditor had issued a notice under Section 13(2) of the said Act demanding repayment, and upon non-payment, possession of the secured properties had been taken under Section 13(4). The properties were put up for e-auction. The first property was sold on 28 January 2019 to the highest bidder (Respondent), and the sale was confirmed on the same date. The balance sale consideration was paid, and the sale certificate was issued and registered in February 2019. The second property had been purchased by the Financial Creditor itself through adjustment under Section 13(5A) and 13(5B) of the Act, with the sale certificate issued on 30 January 2019.
The Appellant contended that since the Corporate Insolvency Resolution Process (CIRP) had commenced on 1 February 2019, all subsequent steps taken, including the issuance of sale certificates and registration of the documents, were in violation of the moratorium under Section 14(1)(c) of the Code. The Appellant further submitted that the sale of the second property amounted to a preferential transaction under Section 43 of the Code, as it conferred an undue benefit upon the Financial Creditor by allowing a purchase through adjustment rather than payment. Reliance had been placed on earlier judicial precedents to argue that the transactions were hit by the moratorium and contrary to the Code.
The Respondents argued that the sales had been lawfully completed prior to the commencement of the CIRP. It was contended that the material date for determining the borrower’s right of redemption was the date of publication of the e-auction notices. The first e-auction notice had been issued on 30 November 2018 for the first property and on 3 January 2019 for the second property, both preceding the insolvency commencement date. The Respondents relied upon the amendment to Section 13(8) of the Act, effective from 1 September 2016, under which the borrower’s right to redeem the mortgage stood extinguished upon publication of the auction notice itself. As such, by the time CIRP commenced, the Corporate Debtor no longer retained any right, title, or interest in either property. The Respondents also placed reliance on the Supreme Court’s decision in Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others, REEDLAW 2023 SC 09201, which upheld the sanctity of public auction and the extinguishment of redemption rights upon publication of notice under the amended Section 13(8).
The Appellate Tribunal observed that the issue turned upon the interpretation of the amended Section 13(8) of the SARFAESI Act. Referring to the pronouncement of the Hon’ble Supreme Court in Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others, REEDLAW 2023 SC 09201, the Tribunal held that once the borrower failed to tender the dues before the publication of the auction notice, his right of redemption stood extinguished. Hence, the relationship of mortgagor and mortgagee had come to an end upon the publication of the e-auction sale notices—30 November 2018 and 3 January 2019 respectively—well before the date of commencement of the CIRP.
In view of the authoritative decision of the Supreme Court, the Tribunal held that the case relied upon by the Appellant, namely Indian Overseas Bank v. RCM Infrastructure Limited and Another, REEDLAW 2022 SC 05504, was not applicable as it had not dealt with Section 13(8) of the SARFAESI Act. It further observed that the sanctity of public auctions must be preserved, and interference post-auction would undermine confidence in the process and defeat the purpose of the statute. The contention regarding non-deposit of sale consideration in the estate of the Corporate Debtor was also found to be immaterial in the present circumstances.
Accordingly, the Tribunal concluded that the sale transactions of both properties had been validly executed prior to the commencement of the CIRP in accordance with law, and no violation of Section 14 of the Insolvency and Bankruptcy Code had occurred. The appeal was found to be devoid of merit and was dismissed without any order as to costs. All interim applications, if any, were directed to stand closed.
Mr. J. Rajesh, Mr. Dhrupad Vaghani, Md. Arsalan Ahmed, Mr. Yashwardhan Agarwal, and Mr. Jaitegan Khurana, Advocates, represented the Appellant.
Mr. Anupam Singh, Mr. Ajeyo Sharma, Ms. Nika Tiwari, Advocates, appeared for the Respondent No. 1.
Mr. Sunil Fernandes, Sr. Advocate, along with Ms. Rajshree Chaudhary, Ms. Diksha Dadu, Ms. Honey Satpal and Mr. Kanishk Khullar, Advocates, appeared for the Respondent No.2.
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