What is the affect of the amendment of section 13(8) of the SARFESI ACT, 2002.
"The SARFESI Act is a special law of recovery with a
paradigm shift that permits expeditious recovery for the banks and
the financial institutions without intervention of Courts." - Pardiwala J.
In SARFESI proceedings once the borrower fails to comply and discharge his liabilities with the demand notice under section 13 (2) given by the creditor, the creditor shall be entitled to exercise all or any rights provided under sub section 4 of the Act i.e. take steps for possession, appoint any person to manage the assets of the said possession. After taking the possession with compliance under section 13(4), the creditor can also sell the possession as if the transfer had been made by the owner of such asset.
The section 13(8) of the SARFESI ACT, 2002 comes into picture when the creditor puts up the possession for auction and the borrowers objects to the said sale and tenders the due amount along with the costs, charges and expenses incurred, then the sale notice by way of auction ought to be halted.
But the main issue arises is when should such the objection be taken by the borrower against the sale of the asset vide auction.
Before we delve in elaboration, lets us understand the wording of the section 13(8) of the SARFESI Act, 2002.
Section 13(8) of the Act, stipulates that where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,-
- the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and
- in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this subsection, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.
As the section 13(8) was amended in 2016, The wording of this section had been mis-read leading to many irregularities with respect to when an objection to the sale notice by way of auction(section 13 (8)) could be taken by the borrower.
Pre - amendment.
If the dues of the secured
creditor together with all costs,
charges and expenses incurred
by him are tendered to the
secured creditor at any time
before the date fixed for sale
or transfer, the secured asset
shall not be sold or transferred
by the secured creditor, and no
further step shall be taken by
him for transfer or sale of that
secured asset.
Post-amendment.
Where the amount of dues of
the secured creditor together with
all costs, charges and expenses
incurred by him is tendered to
the secured creditor at any time
before the date of publication
of notice for public auction or
inviting quotations or tender
from public or private treaty
for transfer by way of lease,
assignment or sale of the
secured assets,—
(i) the secured assets shall
not be transferred by way of
lease assignment or sale by the
secured creditor; and, (ii) in case, any step has been
taken by the secured creditor
for transfer by way of lease
or assignment or sale of the
assets before tendering of such
amount under this sub-section,
no further step shall be taken by
such secured creditor for transfer
by way of lease or assignment
or sale of such secured assets.
The law with respect to the above section pre-amendment was that the right of the borrower to redeem the auctioned asset could be done at any time before the date fixed for sale or transfer. In other words, the borrowers had the right to halt the sale of its property by the creditors vide auction any time even after publication of the said notice until the final stage of transfer of name of the said property. the borrower’s right of redemption did not stand terminated on the date of the auction sale of the secured asset itself and remained alive till the transfer was completed in favor of the auction purchaser
This section gave ample of remedy to the borrowers to object to the sale notice and retrieve its assets.
However, with the advent of the 2016 Amendment, Section 13(8)
of the SARFAESI Act now uses the expression “before the date of
publication notice for public auction or inviting quotations or tender
from public or private treaty for transfer by way of lease, assignment
or sale of the secured assets”
The borrower's right to redeem the auctioned asset could only be made to the extent prior to the publication of the auction notice, and no redemption would be entertained after the publication of the auction notice and thereafter, in light of the amended Section 13(8).
In CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS [2023] 13 S.C.R.53, Justice Pardiwala has meticulously curtailed that
"It is the duty of the courts to zealously protect the sanctity of any auction conducted – The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same – Any other interpretation of the amended Section 13(8) will lead to a situation where multiple redemption offers would be encouraged by a mischievous borrower, the members of the public would be dissuaded and discouraged from in participating in the auction process and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the SARFAESI Act – Thus, it is in the larger public interest to maintain the sanctity of the auction process under the SARFAESI Act."
The court while dealing with inconsistency between the right of redemption of mortgage in section 60 Transfer of Property Act, 1882 and section 13(8) of the SARFESI Act, reasoned why Special Act overrides general enactments. It held that:
The amended section 13(8) of the SARFESI Act is by no stretch of imagination could
be said to be in consonance with the general rule under the Act 1882
that the right of redemption is extinguished only after conveyance
by registered deed. Thus, in the light of clear inconsistency between
Section 13(8) of the SARFAESI Act and Section 60 of the Act 1882
the former special enactment overrides the latter general enactment in
light of Section 35 of the SARFAESI Act. Section 13(8) of the SARFAESI Act and Section 60 of the Act 1882 the former special enactment overrides the latter general enactment in light of Section 35 of the SARFAESI Act. 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
Therefore, the aforesaid judgement of the Hon'ble Supreme Court has made it clear regarding the intent of the amended provisions of Section 13(8) of the SARFAESI Act, the right of the
borrower to redeem the secured asset stands extinguished once the auction notice was published.
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