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By Madala Bindu, Associate, Litigation & Sapavat Teja, Intern, DNLU, Madhya Pradesh.
Introduction:
The fundamental objective of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (From here referred to as “SARFAESI Act”), 2002, is to empower banks and financial institutions to recover their dues while ensuring that the borrower’s right to fair procedure is not infringed. Broadly, the redemption of mortgaged property is governed under Section 60 of the Transfer of Property Act, 1882[1], read with Section 13(8) of the SARFAESI Act, 2002[2], whereby the borrower is entitled to redeem the secured asset by paying the outstanding dues. In recent times, the Hon’ble Supreme Court of India in the case of M. Rajendran and Ors. v. KPK Oils and Protiens India Pvt. Ltd. and Ors.[3], has reaffirmed that the right of redemption under section 13(8) of the SARFAESI Act, 2002, stands ceased upon the publication of Auction Notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002[4]. Whereas the Amendment to the SARFAESI Act, 2016, clarified that the right of redemption of a secured asset stands extinguished upon the publication of the auction notice, and not at the stage of execution of the sale, such clarification shall apply mutatis mutandis to loans availed prior to the said amendment.
Analysis of Judgement:
KPK Oils and Proteins India Pvt. Ltd. and others availed loan facilities comprising a cash credit limit of approximately Rs. 5 crores along with a term loan of Rs. 30 lakhs, secured by an equitable mortgage, from the bank on 6th January, 2016. On 31st December 2019, the borrower’s loan account was classified by the Bank as a Non-Performing Asset (NPA) due to the borrower’s failure to repay the outstanding dues. The Bank issued a demand notice under Section 13(2) of the SARFAESI Act as well as a possession notice under Section 13(4) of the Act on 28th October, 2020. Subsequently, an auction sale notice was published in newspapers on 31st October, 2020.
During the auction, the Appellants placed as the highest bidder and deposited the full amount, which resulted in the issuance of a sale certificate. After the sale was confirmed, the borrowers deposited a significant portion of the dues. Thereafter, litigation arose before the Debts Recovery Tribunal (DRT), followed by a writ petition filed by the borrowers before the Hon’ble High Court of Madras seeking redemption of the mortgage. Pursuant to which an appeal before the Hon’ble Supreme Court has been filed regarding a discrepancy between the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002, upon procedural steps under Rules 8 and 9 of the Rules.
The Hon’ble Supreme Court held that the expression ‘notice of sale’ must be construed as a composite concept, encompassing service to the borrower, publication in a newspaper, affixation, and uploading, as mandated under the provisions, Rule 8(6), its Proviso, Rule 8(7), and Rule 9(1) of Security Interest (Enforcement) Rules, and elucidated that these are not separate or distinct notices but parts of a single composite process required for a valid sale under Rule 8(5) Security Interest (Enforcement) Rules. The Court harmonised Rule 9(1) of the Security Interest (Enforcement) Rules, which mandates a 30-day gap from publication to sale, read with Section 13(8) SARFAESI Act, 2002, by clarifying that the thirty-day period begins from the latest date of publication, service, or affixation, depending on the applicable mode of sale. However, the Court rejected the contention that the auction sale notice and the notice to the borrower are separate, emphasising that Appendix IV-A to the Rules underscores their unified character within the same procedural framework.
In conclusion, the Hon’ble Supreme Court has reaffirmed that the principal object of the SARFAESI Act to facilitate swift and effective enforcement of secured interests must not be compromised by procedural inconsistencies. At the same time, it preserves the borrower’s legitimate right to redemption within the statutory limits. The Court’s pronouncement conclusively clarifies that the mortgagor’s right of redemption stands extinguished prior to the publication of the sale notice, irrespective of the mode of sale undertaken. By declaring that a single composite notice suffices to meet the statutory requirement, the judgment harmonises conflicting judicial views previously adopted by various High Courts. Furthermore, it ensures certainty for auction purchasers by upholding that their acquired rights, arising from a valid and duly conducted auction process, remain unaffected by any subsequent borrower payments.
[1] Transfer of Property Act, § 60, Act 4 of 1882.
[2] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, § 13, cl. 8.
[3] (2025) ibclaw.in 367 SC
[4] Security Interest (Enforcement) Rules, § 9, cl. 1.