Author: HANSHIKA MOHAPATRA, a pupil at Xim University, Bhubaneswar, Odisha.
TO THE POINT
A significant banking law question is answered by the Moonlight Poultry Farm case: Is it possible for a borrower to redeem the mortgaged property after the auction notice is sent but before the sale is finalised ? The SARFAESI Act’s Section 13(8) may be considered as a remedy. The court ruled that debtors have the right to redeem the secured asset until the sale is finalised and a sale certificate is presented. It was decided that it was illegal for the bank to disregard this right.
SARFAESI Act SECTION 13 [8] BEFORE AND AFTER CHANGE
Pre-Amendment, Before 2016
Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) stated, prior to the 2016 amendment: The secured assets could not be be transferred by the secured creditor through lease, assignment, or sale if the secured creditor tendered the whole amount of his obligations, together with all charges, fees, and expenses incurred to the secured creditor at any point prior to the date set for sale or transfer. This clause gave the borrower the option to redeem the mortgaged property by paying back the debt at any point prior to the sale or transfer date. Until the sale was finalised, including the registration of the sale certificate and the transfer of ownership, the redemption right was still in force.
Post-Amendment, After 2016
According to the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, SARFAESI Act The amended Section 13(8) states that the secured creditor will not be allowed to lease, assign, or sell the secured assets to the secured creditor at any time before the date of the notice for public auction or soliciting quotations or tender from a public or private treaty if the secured creditor tendered the amount of his debts, along with all costs, charges, and expenses incurred.
USE OF LEGAL JARGON
i). A mortgagor’s entitlement to settle the outstanding balance and redeem the mortgaged property is said to be equity for redemption.
ii). When someone holds a security interest in a borrower’s assets, they are said to be a secured creditor.
iii).Banks and other financial institutions are able to pursue security interests without going to court thanks to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, or SARFAESI.
THE PROOF
The Supreme Court’s decision in SARFAESI Act, 2002 shed light on the legal position regarding the borrower’s right of redemption under the amended Section 13(8) of the Act in the case of Moonlight Poultry Farm v. Union Bank of India (2022). When the auction notice is published, the borrower’s right to redeem the mortgaged property ends, the Court decided, in accordance with Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. The revised clause, which states that the right of redemption expires on the day the auction notice is published, is consistent with this reading. According to Section 35 of the SARFAESI Act, the Court emphasised that because the SARFAESI Act is a unique statute, it takes precedence over the general provisions of the Transfer of Property Act, 1882.
ABSTRACT
The Supreme Court looked at how Section 60 of the TPA and the revised Section 13(8) interacted in this case.The Court decided that the modified clause prevails over the TPA and removes the borrower’s right of redemption once the auction notice was published. This interpretation preserves the integrity and finality of the auction processes by guaranteeing that subsequent redemption attempts have no impact on the auction process.
The Court’s decision highlights the significance of prompt action by borrowers to protect their interests and offers crucial advice on the temporal extent of the right of redemption under the SARFAESI Act. It also emphasises the legislative goal of expediting the enforcement procedure and minimising the time it takes for secured creditors to collect their debts.
In addition to providing a precedent for future interpretations of the SARFAESI Act’s right of redemption, this case is an essential resource for both borrowers and attorneys seeking to comprehend the subtleties of property rights and enforcement procedures.
CASE SUMMARY
Facts
The respondent bank had granted the petitioner a loan that was secured by a number of assets. An auction notice was published as a result of the bank starting procedures under the SARFAESI Act, 2002, due to non-repayment. The petitioner deposited all outstanding debts with the bank prior to the auction. The bank nevertheless conducted the auction and gave a sale certificate to the highest bidder.
Issues
- Interpretation of revised Section 13(8): As per the SARFAESI Act, 2002’s revised Section 13(8), does the borrower’s right to redeem the mortgaged property stop when the auction notice is published?
- Is there a conflict between the modified provision and Section 60 of the Transfer of Property Act? Section 60 of the Transfer of Property Act normally permits redemption up until the sale is completed.
- Validity of Sale Certificate: Considering the extinguishment of the right of redemption, is the sale certificate that was issued upon the borrower’s payment of the outstanding balance still valid?
Decision
The court reviewed both the pre-amended and post-amended versions of Section 13(8) of the SARFAESI Act, as amended by amendment dated 1-9-2016. According to the ruling, the modified Section 13(8) was only meant to address the start date of the secured creditor’s authority to transfer the secured assets. Referring to the Supreme Court’s ruling in Mathew Varghese vs M. Amritha Kumar, it was decided that the right to redeem the mortgage remains active beyond the date set for sale, such as the day set for a public auction or e-auction.The modified clause in Section 13(8) does not mention or eliminate the mortgagor’s equity of redemption; rather, it only forbids the secured creditor from transferring the secured assets through lease, assignment, or sale in the event that the full amount is paid off before the notice of auction. When the top bidder’s bid at an auction is approved, the right to redeem the mortgage is not instantly forfeited; it always occurs after the sale notice. Furthermore, the sale certificate that was given to the auction buyer was issued after the petitioners deposited the outstanding amount into the bank’s current account. As a result, the sale certificate was obviously void because the right to redeem the mortgage property was still in place and was not immediately forfeited upon the highest bidder’s highest bid being accepted at an auction. The court determined that the petitioner borrower had timely exercised the right to redeem the property from the bank, and as a result, the High Court annulled the sale confirmation and sale certificate letters.
CONCLUSION
The enforcement of security interests under the SARFAESI Act is significantly impacted by the Supreme Court’s ruling in Moonlight Poultry Farm vs Union Bank of India. The Court has strengthened the finality of the auction process by making it clear that the right of redemption expires when the auction notice is published. This interpretation gives secured creditors and auction buyers legal certainty by guaranteeing that debtors cannot postpone the enforcement process by redeeming the property after the auction notice is published.
FAQ
1. Is it possible for a borrower to redeem the mortgaged property following the publication of the auction notice?
The borrower’s right to redeem the mortgaged property ends when the auction notice is published, as per the Supreme Court’s interpretation of the amended Section 13(8) of the SARFAESI Act. This decision highlights the finality of the auction process and aims to prevent any post-auction acts that can compromise the auction buyer’s rights.
2. What does this decision mean for borrowers and financial institutions?
This decision highlights the need for prompt repayment for borrowers in order to maintain their right to redeem mortgaged properties. In order to guarantee the enforceability of their acts, financial institutions are reminded of how crucial it is to follow the statutory timelines and processes under the SARFAESI Act. The ruling also emphasises how important it is to communicate clearly and be transparent during the auction process in order to preserve public trust and adhere to the law.
3. What Is the Connection Between Section 60 of the Transfer of Property Act and the Amended Section 13(8)?
The borrower is typically given the option to redeem the mortgaged property prior to the sale being finalised under Section 60 of the Transfer of Property Act. The SARFAESI Act’s revised Section 13(8), however, is a special legislation that supersedes the Transfer of Property Act’s basic provisions, the Supreme Court emphasised. The Court emphasised that the SARFAESI Act’s provisions take precedence in the event of an inconsistency, effectively extinguishing the borrower’s right to redemption following the publication of the auction notice.
4. What impact does this have on the auction process’s integrity?
The Supreme Court stressed that the integrity of the auction process would be compromised if a borrower were permitted to redeem the property after the auction notice was published. The possibility that the borrower might subsequently redeem the property could deter prospective bidders and make the auction procedure useless.
