Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) – s.17 – Constitution of India – Art. 226 - Exercise of writ jurisdiction u/ Art.226 of the Constitution when alternative remedy u/s.17 of SARFAESI Act already availed by the borrower – If justified.

Held: The Supreme Court has time and again, reminded the High Courts that they should not entertain petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person under the provisions of the SARFAESI Act – In the present case, the High Court was not justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the borrowers had already availed the alternative remedy available to them under s.17 of the SARFAESI Act. [Paras 92, 105]

Security Interest (Enforcement) Rules, 2002 – r.9(2) - Whether the confirmation of sale by the Bank under r.9(2) invests the successful auction purchaser with a vested right.

Held: The confirmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right to obtain a certificate of sale of the immovable property in form given in appendix (V) to the Rules i.e., in accordance with Rule 9(6) of the SARFAESI. [Para 105]

Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) – ss.13(8) and 35 – Transfer of Property Act, 1882 – s.60 – Impact of amended s.13(8) of SARFAESI Act on the Borrowers’ right of redemption in an auction conducted under the SARFAESI Act – Effect of amendment to s.13(8) of SARFAESI Act r/w s.60 of the Transfer of Property Act, 1882.

Mortgage – Right of redemption of mortgage.

Held: 1. In accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset – 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 favour of the auction purchaser, by registration of the sale certificate and delivery of possession of the secured asset – However, the amended provisions of Section 13(8) of the SARFAESI Act, make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules of 2002 – In effect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9(1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser. [Para 105]

2. The SARFAESI Act is a special law containing an overriding clause in comparison to any other law in force – Section 60 of the Transfer of Property Act, 1882, is a general law vis-a-vis the amended Section 13(8) of the SARFAESI Act which is special law – The right of redemption is clearly restricted till the date of publication of the sale notice under the SARFAESI Act, whereas the said right continues under Section 60 of the Act 1882 till the execution of conveyance of the mortgaged property – The SARFAESI 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 – Similarly, Section 13(8) of the SARFAESI Act is a departure from the general right of redemption under the general law i.e. the Act 1882 – Further, the legislature has in the objects and reasons while passing the amending Act specifically stated “to facilitate expeditious disposal of recovery applications, it has been decided to amend the said Acts....” – Thus, while interpreting Section 13(8) vis-à-vis Section 60 of the Act 1882, an interpretation which furthers the said object and reasons should be preferred and adopted – If the general law is allowed to govern in the manner as sought to be argued by the borrowers, it will defeat the very object and purpose as well as the clear language of the amended Section 13(8) – 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 – Thus, the right of redemption of mortgage is available to the borrower under the SARFAESI Act only till the publication of auction notice and not thereafter, in light of the amended Section 13(8). [Paras 64 and 68]

Security Interest (Enforcement) Rules, 2002 – r.9(2) and r.9(6) – Whether a Bank after having confirmed the sale under r.9(2), can withhold the sale certificate u/r.9(6) and enter into a private arrangement with a borrower.

Held: The Bank after having confirmed the sale under Rule 9(2) of the Rules of 2002 could not have withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower. [Para 105]

Constitution of India – Art. 226 – Scope u/Art. 226, to apply equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act – Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act).

Held: The High Court under Article 226 of the Constitution could not have applied equitable considerations to overreach the outcome contemplated by the statutory auction process prescribed under the SARFAESI Act. [Para 105]

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – s.13(8) – Interpretation of.

Auction - Auction process under the SARFAESI Act.

Auction – Public Auction – Sanctity of – Courts ought to be loath in interfering with auctions.

Held: As per the amended Section 13(8) of the SARFAESI Act, once the borrower fails to tender the entire amount of dues with all cost & charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished/waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the Rules of 2002 – 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. [Paras 86, 87 and 88]

Equity – Law and Equity – Relationship.

Held: Equity cannot supplant the law – Equity has to follow law, if the law is clear and unambiguous. [Para 104]