1. Bank initiated SARFAESI proceedings — Auction of secured asset — Borrower's right of redemption after auction sale. (Para 2 , 3 , 4 , 5 , 6 , 15 , 16 , 17 )
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2025 Supreme(Online)(MP) 11817
HIGH COURT OF MADHYA PRADESH
Vivek Rusia, Pradeep Mittal, JJ
Punjab National Bank – Appellant
Versus
Shri Sakhroo Ram – Respondent
WP 10385/2013
Advocates:
Rajesh Maindiretta,Varun Kumar(R-5)
Rajesh Maindiretta,Varun Kumar(R-5)
The right of redemption under Section 13(8) of the SARFAESI Act is extinguished upon publication of the public auction notice. Once an auction is completed and the bid accepted, the bank cannot enter into a settlement with the borrower, as vested rights are created for the auction purchaser.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(8) - Rules of 2002 - Rules 9(1), 9(2) and 9(6) - Right of redemption of borrower - Extinguished upon publication of notice for public auction under Rule 9(1) - Right of redemption available only until the date of publication of sale notice and not until the completion of sale or transfer of secured asset - Special provisions of the Act override general right of redemption under the Transfer of Property Act. (Paras 10, 15, 17)
(B) Auction of secured asset - Completion of auction proceedings - Once the bid is accepted and auction proceedings are completed, the secured creditor has no right to accept a one-time settlement with the borrower - Interim order passed after auction but before issuance of sale certificate only precludes the issuance of the certificate and does not quash the auction itself. (Paras 15, 16)
Facts of the case:
The petitioner bank auctioned a secured asset. Successful bidders deposited the entire bid amount. Subsequently, the borrower filed an application before the tribunal and obtained an interim order of status quo. During the pendency of the proceedings, the bank accepted a settlement proposal from the borrower and liquidated the dues. The tribunal initially permitted this settlement, but the appellate tribunal set aside that order and directed the bank to issue a sale certificate to the auction purchasers. The bank challenged this order before the High Court.
Findings of Court:
The court found that the auction proceedings were completed before the interim order was passed. Under the statutory regime, the right of redemption of the borrower is drastically curtailed and stands extinguished on the date of publication of the auction notice. Consequently, after the auction process was completed and the bid accepted, the bank could not enter into a private settlement with the borrower.
Issues: Whether the right of redemption under Section 13(8) of the SARFAESI Act survives after the publication of the auction notice, and whether the bank is permitted to enter into a settlement with the borrower after the successful conclusion of an auction.
Ratio Decidendi: The amended Section 13(8) of the SARFAESI Act specifies that the borrower's right to redeem the secured asset is extinguished upon the publication of the notice for public auction under Rule 9(1). Since the auction was concluded and the bid accepted prior to the interim stay, the status quo order only deferred the issuance of the sale certificate but did not invalidate the sale. Therefore, the bank was legally barred from settling with the borrower after the auction purchaser's rights had been created.
Result: Writ petition is dismissed.
Legal Category Hierarchy
- banking and finance
- practice and procedure
Table of Contents
2. Whether sale is complete on bid acceptance or only on confirmation — Borrower's right of redemption post-amendment — Bank's authority to accept OTS after auction. (Para 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 )
3. After amendment of Section 13(8), borrower's right of redemption extinguishes on publication of notice under Rule 9(1), not on completion of sale. (Para 15 , 16 , 17 )
4. Under amended Section 13(8), right of redemption stands extinguished on publication of auction notice under Rule 9(1). (Para 15 , 17 )
5. DRAT order upheld — Writ petition dismissed — No costs. (Para 18 )
6. When does the borrower's right of redemption extinguishes under the amended Section 13(8) of the SARFAESI Act?
It extinguishes on the date of publication of notice for public auction under Rule 9(1) of the 2002 Rules, not on completion of sale. (Para 15 , 17 )
7. Can a bank accept a one-time settlement from the borrower after the auction sale is completed?
No. Once the auction proceedings are completed and the auction purchaser's right has vested, the bank cannot accept an OTS. (Para 16 )
8. Does an interim order passed after the auction sale affect the validity of the completed auction?
No. An interim order passed after the auction is completed cannot quash the auction; it can only preclude issuance of sale certificate. (Para 15 )
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Appearance:
Shri Rajesh Maindiretta - Advocate for petitioner.
Shri Siddharth Sharma & Shubham Manchani and Shri Devendra Kumar Prajapati - Advocate for respondent No.4.
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ORDER
Per. Justice Pradeep Mittal
The petitioner / Bank has filed the present writ petition being aggrieved by the order dated 03.04.2013 passed by the Debts Recovery Appellate Tribunal, Allahabad (hereinafter referred to as "DRAT"), whereby the order dated 25.04.2012 passed by the Debts Recovery Tribunal, Jabalpur (hereinafter referred to as "DRT") in S.A. No. 70/2009 has been set aside and the petitioner Bank has been directed to issue a sale certificate in favour of respondent nos. 1 to 3 auction purchaser.
2. Brief facts necessary for adjudication of the present writ petition are that the petitioner Bank initiated proceedings under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the Act of 2002") against respondent no. 4 - Shri Atul Anand borrower. The said action was challenged by respondent no. 4 by filing Securitisation Application No. 70/2009 before the DRT on 6/5/09, Jabalpur, wherein an interim order dated 22/5/09, directing maintenance of status quo was passed.
3. Before filing of the securitisation application, the Bank issued an auction notice dated 21.04.2009 for sale of the secured asset, fixing the auction on 27.04.2009 with a reserve price of Rs. 27.00 lakh. Respondent nos. 1 to 3 participated in the auction and submitted a bid of Rs. 27.15 lakh as against the outstanding dues of Rs. 40,95,384/-. The entire bid amount was deposited by respondent nos. 1 to 3. However, due to the subsisting interim order of status quo passed by the DRT, neither the sale certificate was issued nor possession of the property was handed over.
4. The OTS tender of respondent nos. 1 to 3 was accepted by the petitioner Bank vide letter dated 28.04.2009, wherein it was specifically stated that the acceptance of sale was subject to confirmation by the Bank as secured creditor. The bidders were directed to deposit 25% of the sale amount and the balance on or before 14.05.2009.
5. During pendency of the securitisation application, respondent no. 4 approached the petitioner Bank with a proposal for settlement. Since the sale had not been confirmed, the Bank accepted the settlement for a sum of Rs. 68.14 lakh, which amount was deposited by respondent no. 4, thereby liquidating the entire outstanding dues.
6. The DRT, Jabalpur, vide judgment dated 25.04.2012, took note of the settlement arrived at between the Bank and respondent no. 4 and permitted respondent no. 4 to settle the dues. The Bank was directed to release the title deeds after receipt of the settlement amount. To compensate respondent nos. 1 to 3, the DRT further directed payment of interest @ 7.5% per annum on the amount of Rs. 27.15 lakh, along with costs of proceedings.
7. Learned counsel for the petitioner submits that the DRAT, Allahabad has committed a grave error in law and on facts in holding that the sale stood confirmed merely because the entire bid amount was deposited by respondent nos. 1 to 3. It is contended that mere issuance of a letter accepting the bid does not confer any vested right upon the bidder, particularly when the acceptance letter itself categorically stipulated that the sale was subject to confirmation by the Bank. Learned counsel further submits that in the present case the sale was never confirmed, and no sale certificate was issued due to the subsisting order of status quo passed by the DRT, Jabalpur. It is urged that the DRAT, Allahabad failed to appreciate the settled legal position that the right of an auction purchaser accrues only upon confirmation of sale and issuance of sale certificate. Learned counsel also submits that respondent no. 4 has paid the entire settlement amount
