Ownership Under SARFAESI Transfers Only on Sale Certificate: Section 96 IBC Interim Moratorium Bars Completion of Auction Sale
- REEDLAW
- 10 hours ago
- 5 min read
REEDLAW Legal News Network reports: In a significant ruling clarifying the interplay between the SARFAESI Act, 2002, and the Insolvency and Bankruptcy Code, 2016, the High Court held that ownership of a secured asset does not pass to an auction purchaser merely upon issuance of a sale notice or confirmation of sale. The Court ruled that statutory transfer of ownership occurs only upon full compliance with the sale process culminating in issuance of a sale certificate, and that an intervening interim moratorium under the IBC operates as a complete bar against further completion of the auction process.
The Bombay High Court Division Bench of Justice R.I. Chagla and Justice Farhan P. Dubash, while adjudicating a writ petition, held that even after the 2016 amendment to Section 13(8) of the SARFAESI Act, ownership of a secured asset transfers to an auction purchaser only upon completion of the statutory sale through full payment and issuance of a sale certificate under Rule 9(6) of the Security Interest (Enforcement) Rules, 2002. The Court further held that where an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 intervenes before completion of the sale, the secured creditor is barred from accepting further payments or issuing a sale certificate, and no right to possession or ownership accrues to the auction purchaser.
The Court considered a writ petition filed by a successful auction purchaser seeking physical possession of a secured immovable asset under the SARFAESI Act, 2002, despite the commencement of an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016. The Bank, as a secured creditor, had conducted an auction after issuing a sale notice under Rule 8(6) of the SARFAESI Rules and had confirmed the sale in favour of the Petitioner upon receipt of part consideration. Subsequently, the Borrower filed an application for the initiation of personal insolvency, which triggered an interim moratorium. The central issue before the Court was whether, after the 2016 amendment to Section 13(8) of the SARFAESI Act, the Borrower’s ownership rights stood extinguished upon publication of the sale notice, thereby rendering the interim moratorium ineffective.
Upon an exhaustive analysis of the SARFAESI Act and the SARFAESI Rules, the Court held that the 2016 amendment to Section 13(8) only curtailed the Borrower’s right of redemption upon publication of the sale notice and did not extinguish ownership rights in the secured asset. The Court reiterated that a statutory sale under SARFAESI is completed only upon fulfilment of all statutory requirements, culminating in the issuance of a sale certificate under Rule 9(6) after full payment of the sale consideration. Relying on Indian Overseas Bank v. RCM Infrastructure Limited and Another, REEDLAW 2022 SC 05504, it was held that ownership in an immovable secured asset does not pass upon confirmation of sale or part payment, but only upon issuance of the sale certificate. The Court further held that the equity of redemption constitutes only one facet of ownership and its extinguishment does not, by itself, divest the Borrower of title, as recognised in Narayan Deorao Javle (Deceased) v. Krishna and Others, REEDLAW 2021 SC 08002 and reinforced by Paramjeet Singh Patheja v. ICDS Ltd. and Hindon Forge Private Limited and Another v. The State of Uttar Pradesh Through District Magistrate Ghaziabad and Another, REEDLAW 2018 SC 11001.
The Court further examined the effect of the interim moratorium under Section 96 of the IBC and held that such moratorium comes into force immediately upon filing of a personal insolvency application and operates in respect of all debts. Relying on Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, the Court held that the interim moratorium under Section 96 is wider in scope than the moratorium under Section 14 and statutorily restrains creditors from continuing or initiating any legal action or proceedings in respect of a debt. Applying this principle, and following the decision of the Delhi High Court in Sanjay Dhingra v. IDBI Bank Limited and Others, REEDLAW 2024 Del 07606, the Court held that once the interim moratorium had commenced, the Bank was prohibited from accepting the balance auction consideration and from issuing the sale certificate. Since a substantial portion of the sale consideration had been paid and accepted after the interim moratorium came into force, the sale was held to be incomplete in law.
The Court distinguished the decision in Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others, REEDLAW 2023 SC 09201, holding that while confirmation of sale confers a vested right upon the auction purchaser to obtain a sale certificate, such right remains conditional upon lawful completion of payment. Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others, REEDLAW 2023 SC 09201, was held to be confined to the extinguishment of the borrower’s right of redemption and did not dilute the settled principle that ownership passes only upon issuance of the sale certificate, nor did it involve the impact of an IBC moratorium. In the present case, the subsisting interim moratorium constituted a legal embargo on completion of the sale.
In view of the incomplete statutory sale and the overriding effect of the interim moratorium under Section 96 of the IBC, the Court held that no transfer of ownership had taken place in favour of the Petitioner and that no enforceable right to seek possession of the secured asset had accrued. The writ petition was accordingly dismissed, while leaving it open to the Petitioner to pursue appropriate remedies in accordance with law in separate proceedings.
Mr. G.S. Hegde, Senior Advocate a/w. Ms. P.M. Bhansali, Mr. Arafat Siddique and Ms. Juhi Pandey, Advocates, represented the Appellant.
Ms. Mable Soans of M/s. Mable & Associates, Advocates, appeared for the Respondent No.1/Bank.
Mr. Shrirang Katneshwarkar, Advocate, appeared for the Respondent No. 2/RP.
Mr. Gajendra Rajput a/w Mr. Shubham Kahite, Advocates, for the Respondent.
Mr. Naushad Engineer, Senior Advocate, Amicus Curiae a/w Mr. Sharad Bansal and Mr. Yohann Limathwalla, Advocates, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.
The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments