2021 Supreme(P&H) 1600

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. RAMACHANDRA RAO, JASJIT SINGH BEDI, JJ.
M/s Pal Alloys and Metal India Private Limited and Others – Petitioners
Versus
Allahabad Bank and Others – Respondents
CWP No. 6402 of 2019
Decided On : 23-12-2021

Headnote:

The right of redemption of the mortgagor/borrower is not extinguished until the sale certificate is issued and the sale is registered in favor of the auction purchaser even where the sale is held under the SARFAESI Act (as is the position as per Sec. 60 of the Transfer of Property Act). It does not get extinguished on the date fixed for sale, i.e. the date of public auction/e-auction (though Sec. 13(8) says so).

Fact of the Case:

Petitioners, a company and its directors, availed credit facilities from Allahabad Bank (respondent) and stood as guarantors. Their residential house was mortgaged to the respondent along with hypothecation of stock, plant, and machinery. The loan account was classified as a Non-Performing Asset (NPA) on 31.10.2017. Respondent issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act) demanding payment of Rs. 2,62,98,047.72. Respondent filed an application under Section 14 of the SARFAESI Act before the District Magistrate, Faridabad. On 14.06.2018, the application was allowed, and the respondent was permitted to take physical possession of the residential house. Since possession was not being delivered, the respondent filed a CWP before the High Court impleading the petitioners as respondents. Notice of motion was issued for 15.02.2019. On 14.02.2019, the respondent's officials along with the Tehsildar, Faridabad, went to the residential house of the petitioners to take possession. At that time, the 2nd petitioner gave a letter dated 14.2.2019 to Tehsildar, Faridabad that he will himself give possession of the property within 15 days and undertook to repay the whole amount due to the respondent within 90 days. But possession of the property was taken by the respondent on 14.02.2019 in spite of the said letter. In CWP No. 565 of 2019, the 2nd petitioner filed an affidavit of undertaking (Annexure-P.3) to clear the outstanding amount within 3 months from 15.02.2019 and sought restoration of the house of the petitioners. He also undertook to deposit Rs. 70 Lacs within one month and the rest of the amount within 3 months. He stated that if he has not been able to clear the outstanding dues within 3 months, he would vacate the residential house and hand over peaceful vacant possession to the authorized officer of the respondent. The same was taken on record on 15.02.2019. The matter was adjourned to 25.02.2019. On 25.02.2019, the 2nd petitioner appeared before the High Court, and to show petitioners’ bona fides, produced two demand drafts of Rs. 25 Lacs each (Total Rs. 50 Lacs) before the High Court and they were handed over to the counsel representing the respondent. By that time, an auction notice dated 22.02.2019 (Annexure-P.5) was issued by the respondent proposing to sell the residential property of the petitioners fixing the date of auction as 28.03.2019.

Finding of the Court:

The right of redemption of the mortgagor/borrower continues till the execution of a conveyance i.e. issuance of sale certificate in favor of the mortgagee. A similar view has been taken by this Bench in M/s Hoshiarpur Roller Flour Mill Private Limited and Another vs. Punjab National Bank, CWP No. 14440 of 2021, decided on 10.12.2021.

Issues: 1. Till what time or date can the right of redemption of the mortgage be exercised by the mortgagors/borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act? 2. Whether the petitioners are entitled to any relief? 3. If so, to what relief?

Ratio Decidendi: The amended Section 13(8) of the SARFAESI Act merely prohibits a secured creditor from proceeding further with the transfer of the secured asset by way of lease, assignment, or sale; a restriction on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor; the payment of the amount mentioned in Section 13(8) of the SARFAESI Act ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the Act; that redemption comes later; extinction of the right of redemption comes much later than the sale notice; and the right of redemption is not lost immediately upon the highest bid made by a purchaser in an auction being accepted. We also hold that such a right would continue till the execution of a conveyance i.e. issuance of sale certificate in favor of the mortgagee.

Final Decision: The Writ Petition is allowed. Subject to the petitioners paying the entire balance outstanding dues with applicable interest to the 1st respondent-Bank within four weeks from today, the 1st respondent-Bank shall close the loan account of the petitioners and restore possession of their residential property to them; No costs. If not, this Writ Petition shall stand dismissed with costs of Rs. 25,000/- without reference to this Court. In the event the petitioners comply with Clause (ii) above, the amount deposited by the respondents No. 2 and 3 with the 1st respondent-Bank be refunded to them with interest rate @ 7% per annum from the respective dates of deposit till date of refund and such refund shall be made within one week of the petitioners’ complying with Clause (ii) above.