CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS.

JUDGMENT / ORDER OF THE SUPREME COURT

JUDGMENT J. B. PARDIWALA, J. For the convenience of the exposition, this judgment is divided in the following parts: A. Factual Matrix........................................................................ 3-10* B. Submissions on behalf of the Appellant .............................. .........10-13* C. Submissions on behalf of the Borrowers.......................................13-23* D. Questions of Law falling for the determination of the Court ...........................................................................................23-24* E. Legislative History and Scheme of the SARFAESI Act......................................................................................................24-45* F. Redemption of Mortgage under Section 60 of the Transfer of Property Act, 1882............................................................................45-49* G. Redemption of Mortgage under the SARFAESI Act.....................................................................................................49-68* H. Effect of the Amendment to Section 13(8) of the SARFAESI Act.....................................................................................................69-80* I. Why the decision of the Telangana High Court in the case of Amme Srisailam v. Union Bank of India, Regional Office, Guntur, rep. by its Region Head & Deputy General Manager, Andhra Pradesh & Ors., W.P. No. 11435 of 2021, is not a good law?...................................................................................................80-93* J. Sanctity of Public Auction................................................... ...........93-97* K. Exercise of Extraordinary Jurisdiction by the High Court under Article 226 of the Constitution in SARFAESI matters................97-103*

*Ed. Note: The pagination as per the original Judgment.

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L. Conduct of the Bank...........................................................103-108* M. Summary of the Final Conclusion...................................108-111*

1Copy pinpoint1. Since the issues raised in both the captioned appeals are same, the parties are also the same and the challenge is also to the self-same judgment and order passed by the High Court those were taken up for hearing analogously and are being disposed of by this common judgment and order.

2Copy pinpoint2. For the sake of convenience, we clarify that the appellant herein is an auction purchaser, the respondent No. 1 is the Borrower, the respondent No. 2 is the Guarantor and the respondent No. 3 is the Bank (Secured Creditor).

3Copy pinpoint3. These appeals are at the instance of an auction purchaser left high and dry by the respondents herein and is directed against the common judgment and order passed by the High Court of Judicature at Bombay in Writ Petition No. 9523 of 2023 with Interim Application (ST) No. 21706 of 2023 (for impleadment) by which the High Court allowed the writ petition filed by the borrowers and thereby directed the Bank to permit the borrowers to redeem the mortgage of the secured asset more particularly after the auction proceedings attained finality. FACTUAL MATRIX

4Copy pinpoint4. It appears from the materials on record that the borrowers had availed credit facility from the Bank on 03.07.2017. Accordingly, the Bank sanctioned Lease Rental Discounting (for short, ‘the LRD’) credit facility to the tune of Rs. 100 crore in favour of the borrower with the respondent No. 2 standing as a guarantor. Out of the total amount sanctioned, the amount of Rs. 65 crore was adjusted against the then existing LRD facility granted by the previous bank and for the balance amount of Rs. 35 crore a security in the form of a simple mortgage was created over a parcel of land admeasuring 16200 sq. metres having buildings and ancillary structures on it at plot Nos. D-105, D-110 and D-111 respectively situated at the Trans Thane Creek Industrial Area MIDC Village Shirwane, Thane, Belapur Road, Nerul, Navi Mumbai, Thane, Maharashtra in lieu of the sanctioned credit. *Ed. Note: The pagination as per the original Judgment.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 61 LTD. & ORS. [J. B. PARDIWALA, J.]

5Copy pinpoint5. The borrower defaulted in repayment of the loan amount and accordingly the loan account was declared as a Non-Performing Asset (NPA).

6Copy pinpoint6. The Bank issued a demand notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short, ‘the SARFAESI Act’) for repayment of the principal amount along with interest, cost, charges, etc. As on 30.04.23, an aggregate sum of Rs. 123.83 crore was due and payable by the borrower to the Bank.

7Copy pinpoint7. Owing to the failure of the borrower & the guarantor in repaying the outstanding amount referred to above, the Bank proceeded to take measures for possession of the secured asset under the provisions of the SARFAESI Act. The Bank decided to put the secured asset to auction. It appears that between April 2022 & June 2023, the Bank attempted eight auctions but all failed.

8Copy pinpoint8. In the meantime, the borrowers preferred a Securitization Application being SA No. 46 of 2022 before the Debt Recovery Tribunal-I, Mumbai (for short, “DRT”) inter alia challenging the demand notice issued under Section 13(2) of the SARFAESI Act and also for quashing of the sale notice dated 25.03.22 in respect of the secured asset. It is not in dispute that the said application as on date is still pending before the DRT.

9Copy pinpoint9. It appears that the borrowers informed the Bank that they were trying to sell the secured asset but were not getting good offers. The borrowers informed the Bank that the maximum they might be able to fetch from the sale of the secured asset would be around Rs. 91-92 crore and they were willing to settle the entire account by offering such amount to the Bank.

10Copy pinpoint10. The Bank decided to go for one more auction. On 14.06.23, the Bank published the auction notice for the 9th time for sale of the secured asset at a reserve price of Rs. 105 crore. On publication of the auction notice, the appellant herein participated in the auction proceedings conducted on 27.06.23 and submitted its bid of Rs. 105.05 crore, along with a deposit of Rs. 10.5 crore as earnest money.

11Copy pinpoint11. In the 9th auction conducted by the Bank, the appellant herein was declared as the highest bidder. The Bank on 30.06.2023 vide its email sent a “Sale Confirmation Letter” to the appellant, declaring him as the highest bidder / H1 in the auction of the secured asset and called upon the appellant to deposit

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25% of the bid amount by 01.07.23 and the balance amount on or before 15.07.23. The email is reproduced below: - “admin@mstcauction.com SALE CONFIRMATION LETTER (Property-UBINMUMSAM2888) To: Mac, Cc: samvmumbai@unionbankofindia.bank, ibapiop@ mstcauction.com CELIR LLP Date: 30-06-2023: C-708 teerth technospace 7th floor Sr no 103 baner Pune 411045 INDIA Date: 30.06.2023 Time: 06:36 PM Dear Sir / Madam, Your Bid of amount Rs.1050500000. for the property ID No. UBINMUMSAM2888 during online auction held on e-BKRAY portal on Date: 30-06-2023, is accepted as highest bid and accordingly you have been declared H1 bidder for the said property.

In terms of Sale Notice issued under the provisions of SARFAESI Act, you are required to deposit 25% of the Bid amount, which comes to Rs.262625000. Including 10% of reserve price as EMO amount, which has been deducted from your Global EMO Wallet, immediately, but not later than 01-07-2023. In case 01.07.2023 is a holiday, payment should be made within the next working day at concerned branch of Bank in account No.087021980050000. Further, you are required to deposit the balance amount of Rs.787875000, being 75% of entire bid amount within 15 days i.e. on or before 15.07.2023 at Concerned Branch of Bank in account No.087021980050000. Please be informed that in case you fail to deposit due amount by scheduled dates, sale shall be cancelled and any amount deposited by you related to this bid, shall be forfeited.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 63 LTD. & ORS. [J. B. PARDIWALA, J.]

Authorized officer Name of Authorized Officer: Sidharath S. Mhade Name of Bank: UNION BANK OF INDIA Contact No. or AO: 898-518779 e-Mail to or AO: samvmumbai@unionbankofinida.bank (This mail is from Authorized Officer and being generated through computer system, hence needs no signature)”

12Copy pinpoint12. On 01.07.2023, the appellant deposited 25% of the total bid amount (minus the earnest money deposit). In the wake of such development, the borrowers filed an Interim Application No. 2339 of 2023 on 04.07.2023, titled Redemption Application in S.A. No. 46 of 2022 before the DRT-I, Mumbai for redemption of the mortgage in respect of the secured asset by payment of the total outstanding sum of Rs 123.83 crore (approx.) on or before 31.08.23.

13Copy pinpoint13. On 27.07.23, the appellant herein deposited the balance sum of the total bid amount which was duly received and accepted by the Bank. On the very same day, the redemption application referred to above was also heard by the DRT-I. The redemption application was opposed by both the appellant herein as well as the Bank. The DRT after hearing the parties at length, reserved orders to be pronounced on 02.08.23.

14Copy pinpoint14. While the parties were awaiting for the DRT to pass appropriate an on order on the redemption application, the borrowers went to the High Court and filed the Writ Petition No. 9523 of 2023, seeking directions to the Bank to permit them to redeem the mortgage of the secured asset.

15Copy pinpoint15. The writ petition was filed on the premise that the borrowers had strong apprehension that the DRT may reject their redemption application and the entire matter would become infructuous more particularly, the Bank having accepted the entire amount from the appellant herein of the total bid.

16Copy pinpoint16. Before the High Court, the borrowers expressed their willingness to pay a total sum of Rs. 129 crore for redeeming the mortgage by 31.08.23. The Bank which had earlier opposed the plea for redemption of mortgage before the DRT for some good reason expressed its willingness before

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the High Court to accept the offer of the borrowers. The Bank perhaps got lured by the fact that the borrowers were paying almost Rs. 23.95 crore more than what was paid by the appellant herein and Rs. 5 crore more than the outstanding amount.

17Copy pinpoint17. It also appears that the appellant herein having come to know about such writ petition filed in the High Court preferred Interim Application (ST) No. 21706 of 2023 for being impleaded in the writ petition.

18Copy pinpoint18. The writ petition along with interim application was heard by the High Court and vide its impugned judgment and order dated 17.08.2023 allowed the writ petition and permitted the borrowers to redeem the mortgage of the secured asset subject to payment of Rs. 25 crore on the same day and the balance amount of Rs. 104 crore on or before 31.08.2023, failing which the sale of secured asset in favour of the appellant herein would be confirmed.

19Copy pinpoint19. The operative part of the impugned order passed by the High Court reads thus: “(a) The Petitioner shall hand over a sum of Rs. 25 crores to the Respondent Bank today. In compliance with this direction, Mr. Khandeparkar has handed over three Demand Drafts in the sum of Rs. 10 crores, 10 crores and 5 crores respectively to the learned Advocate appearing on behalf of the Respondent Bank which is duly acknowledged by him. The Bank is entitled to encash these Demand Drafts and appropriate the sum of Rs.25 crores towards the outstanding dues of the Petitioners. (b) The balance amount of Rs. 104 crores shall be paid by the Petitioners to the Respondent Bank on or before 31st August 2023 in the designated account below: - Union Bank of India Stressed Asset Management Branch, Mumbai IFSC UBIN0908703 A/c. No. 087021980050000 (c) If the amount of Rs. 104 crores are paid in the said account on or before 31st August 2023, the same shall be appropriated by the Respondent-Bank towards the dues of the Petitioners. The Bank

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 65 LTD. & ORS. [J. B. PARDIWALA, J.]

shall then return the original title deeds of the secured asset to the Petitioners, execute all such documents for cancellation of mortgage, and issue a ‘No Dues Certificate’ to the Petitioners. (d) Mr. Shinde, the learned Advocate appearing for the Respondent- Bank, has brought to our attention that out of the entire amount of Rs. 105.05 crores deposited by the Auction Purchaser, the Respondent- Bank has appropriated the sum of Rs. 63,50,45,000/- towards the loan amount of the Petitioners. We therefore direct that the Respondent-Bank shall reverse this entry and immediately keep the entire amount of Rs. 105.05 crores [deposited by the auction purchaser] in a No Lien interest bearing account. If the Petitioners pay the balance amount of Rs.104 crores to the Respondent Bank by 31st August 2023, then the Respondent-Bank shall refund the amount of Rs. 105.05 crores deposited by the Auction Purchaser together with accrued interest on or before 7th September 2023. (e) In the event the balance amount of Rs. 104 crores are not paid by the Petitioners to the Respondent-Bank on or before 31st August 2023, the Respondent Bank shall then be entitled to appropriate the money from the No Lien interest bearing account towards the dues payable by the Petitioners and the sale of the secured asset shall be confirmed in favour of the Auction Purchaser and a sale certificate shall be issued in their favour. All formalities in relation to registration of that certificate shall also be done by the Respondent-Bank and the Auction Purchaser. (f) In light of this order, Mr. Khandeparkar has stated that, nothing would survive in Securitization Application No. 46 of 2022 and/or the Interim Applications filed therein and seeks leave to withdraw the same within a period of one week from today. The said statement is accepted as an undertaking given to the Court. It is needless to clarify that even if the Petitioners do not withdraw the Securitization Application, the same shall stand dismissed in light of this order and the Petitioners will not be permitted to litigate any further with the Respondent Bank in relation to the secured asset. In other words, if the Petitioners default in making the balance payment of Rs.104 crores to the Respondent Bank by 31st August 2023, the Auction

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Purchaser shall get the secured asset free from litigation. As per the statement made by Mr. Khandeparkar, and which is accepted as an undertaking given to the Court, if the Petitioners default in making the balance payment of Rs.104 crores by 31st August 2023, physical, vacant, quiet, and peaceful possession of the secured asset shall be handed over to the Auction Purchaser on or before 5th September 2023.”

20Copy pinpoint20. It appears that during the pendency of the present appeals, the borrowers transferred the balance amount of Rs. 104 crore on 26.08.2023 to the Bank in terms of the impugned order passed by the High Court. With the transfer of the amount of Rs. 104 crore, the Bank issued a “No Dues Certificate” on 28.08.23. On the very same day, the borrowers entered into an Agreement of Assignment of Leasehold Rights with a third-party viz. M/s Greenscape I.T. Park LLP for the transfer of leasehold rights in the secured asset and the said agreement was registered before the Joint Sub Registrar, Thane 8 vide Registration No. 19286 of 2023.

21Copy pinpoint21. Being aggrieved and dissatisfied with the aforesaid order passed by the High Court, the appellant is here before this Court with the present appeals. SUBMISSIONS ON BEHALF OF THE APPELLANT

22Copy pinpoint22. Mr. Mukul Rohatgi, the learned Senior Counsel and Mr. Neeraj Kishan Kaul, the learned Senior Counsel appearing for the appellant made the following submissions: a. The writ petition filed by the borrowers before the High Court was not maintainable in view of the alternative remedy available to them under Section 17 of the SARFAESI Act and more particularly when such alternative remedy had already been availed by the borrowers. b. The High Court ought not to have entertained the writ petition on the ground that although the auction proceedings had attained finality and the appellant herein was declared as the successful highest bidder yet the bank was getting more amount as offered by the appellant compared to the sale bid.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 67 LTD. & ORS. [J. B. PARDIWALA, J.]

c. Mere apprehension on the part of the litigant that an adverse order might be passed by a forum which was already looking into the issue cannot be a ground to invoke the extraordinary jurisdiction under Article 226 of the Constitution. d. The High Court failed to consider that in view of the amended provision of Section 13(8) of the SARFAESI Act, the right of redemption of mortgage stood extinguished upon publication of the auction notice. If the Borrower is permitted to redeem the mortgage at the very last moment, more particularly even after payment of entire amount by the auction purchaser, then no auction would ever attain finality and indirectly, the borrower is given indefi nite time to repay the outstanding amount. e. The High Court failed to appreciate an important fact that the Bank had already confirmed the sale of the secured asset to the appellant and as such the appellant had a vested right to the secured asset. Once the sale was confirmed, the Bank in accordance with Rule 9(2) read with Rule 9(6) of the Security Interest (Enforcement) Rules, 2002, (“Rules of 2002”) was under a legal obligation to issue a sale certificate to the appellant. The Bank could not have consented before the High Court to the borrowers’ plea of redemption. f. The High Court committed a serious error of law in considering the equities in favour of the borrowers unmindful of the fact that equity follows the law. g. In the last, Mr. Rohatgi submitted that his client is ready and willing to make good the entire amount of Rs. 129 crore by depositing Rs. 23.95 crore with the Bank, in addition to the amount of Rs. 105.05 already deposited with the Bank. h. With a view to fortify the aforesaid submissions reliance was placed on the following decisions: i) United Bank of India v. Satyawati Tondon & Ors., (2010) 8 SCC 110; ii) Varimadugu OBI Reddy v. B. Sreenivasulu & Ors., (2023) 2 SCC 168;

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iii) Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Ors., (2008) 9 SCC 299; iv) Authorised Officer State Bank of India v. C. Natarajan and Anr., 2023 SCC OnLine SC 510; and v) Sadashiv Prasad Singh v. Harendar Singh & Ors., (2015) 5 SCC 574. SUBMISSIONS ON BEHALF OF THE BORROWERS

23Copy pinpoint23. Mr. Shyam Divan, the learned Senior Counsel and Mr. Nikhil Nayyer, the learned Senior counsel appearing for the borrowers made the following submissions: a. That after the impugned order was dictated in the open court on 17.8.2023 and subsequently uploaded on the website of Bombay High Court on 26.8.2023, the following developments took place: (i) The borrowers transferred an amount of Rs. 104 Crores to t h e U ni on Ba n k o f I nd i a vi d e RT G S, h avi ng UT R No. HDFCR52023082882894716. (ii) This was followed by the Respondent No.3, i.e., Union Bank of India issuing a No Dues Certificate dated 28.08.2023 thereby acknowledging that the borrowers do not owe any further amount to the Bank and releasing the personal guarantees as well. (iii) Further, after the No Dues Certificate was issued by the Bank, the borrowers executed a registered Deed of Release in favour of the Tata Motors Financial Solutions Limited registered with the Joint Sub Registrar, Thane 8 having registration No. 19283/2023, whereby the second charge that the Tata Motors Finance Solutions Limited had on the second property came to be released, pursuant to payment of Rs. 15 Crore (Rs. 10 Crore on 18.08.2023 and Rs. 5 Crore on 22.08.2023 ), which came to be duly acknowledged by the Tata Motors Finance Solutions Limited. (iv) Following this, the borrowers have also entered into a registered Agreement of Assignment of Leasehold Rights for the transfer of leasehold rights in the secured asset with M/s Greenscape L.T. Park LLP on 28.8.2023, which came to be registered before the Joint Sub Registrar, Thane 8 having registration No. 19286/2023.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 69 LTD. & ORS. [J. B. PARDIWALA, J.]

b. Since there has been full compliance of the Impugned Order by the borrowers herein as well as the Bank, the appeals have essentially become infructuous. c. The only issue which remains is the refund of the amount deposited by the appellant herein. This is an issue between the appellant and the Bank and the borrowers have no reason to come in the way of the refund of the amount to the appellant herein. d. There is a specific direction issued by the High Court that the Respondent Bank shall immediately keep the entire amount of Rs. 105.05 crore (deposited by the Auction Purchaser/appellant herein) in a “No Lien Interest Bearing Account” and if the borrowers pay the balance amount of Rs. 104 crore to the Respondent Bank by 31.8.2023 (which it has), then the Respondent Bank shall refund the amount of Rs. 105.05 Crores deposited by the Auction Purchaser together with the accrued interest on or before 7.9.2023. e. The High Court correctly interpreted Section 13(8) of the SARFAESI Act. The right of redemption is nowhere mentioned in the SARFAESI Act and in such circumstances, Section 60 of the Transfer of Property Act, 1882 (for short, ‘the Act 1882’) should be looked into. Section 60 of the Act 1882 has been interpreted to reserve the right of mortgagor to redeem the property till the stage of the same being conveyed /transferred to a third party. f. The aforesaid interpretation is discernible from the decision of this Court in the case of Narandas Karsondas v. S.A. Kamtam and Another reported in 1977 (3) SCC 247, wherein it has been held that: “34. The right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties. The combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument that the mortgagor’s right of redemption will be extinguished. The conferment of power to sell without intervention of

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the Court in a Mortgage Deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale.

35. The mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. In England a sale of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Further Section 69(3) of the Transfer of Property Act shows that when a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right of redemption.” (Emphasis supplied) g. The aforesaid position has also been echoed in the case of Mathew Varghese v. M. Amritha Kumar and Ors., (2014) 5 SCC 610, wherein this Court held that upon a combined reading of Sections 60 and 54 respectively of the Act 1882 with Section 17 of the Registration Act, 1908, it can be concluded that the extension of the right of redemption comes much later than the sale notice. h. Although the decision in Mathew Varghese (supra) was prior to the 2016 amendment to the SARFAESI Act, yet its applicability has been held valid even after the amendment of the said Act. A Division Bench of the High Court of Telangana in the case of Concern Readymix, rep. by its Proprietor, Smt. Y. Sunitha v. Authorised Officer, Corporation Bank and Anr., reported in 2018 SCC OnLine Hyd 783 has held after juxtaposing the amended and unamended provisions of Section 13(8) of the SARFAESI Act, with respect to the right of redemption available to the Mortgagor that the amended Section 13(8) of the SARFAESI Act only puts a restriction on the right of the mortgagee to deal with the property and does not speak in express terms about the equity of redemption available to the mortgagor. It was further held that the danger of interpreting Section 13(8) as though

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 71 LTD. & ORS. [J. B. PARDIWALA, J.]

it relates to the right of redemption is if the payments are not made in accordance with Section 13(8), the right of redemption may get lost even before the sale is complete in all respects and that holding that the right of redemption would be extinguished at the stage of issue of notice under Rule 9(1) would tantamount to annulling the relevant provision of the Act 1882 which do not stand expressly excluded insofar as the question of redemption is concerned. The said judgment of the Telangana High Court was challenged before this Court vide SLP(C) D. No. 28967 of 2019 and the same came to be dismissed. i. The view expressed in Concern Readymix (supra) was echoed by a Division Bench of the High Court of Punjab and Haryana in the case of M/s Pal Alloys and Metal India Private Limited & Ors. v. Allahabad Bank & Ors., reported in 2021 SCC OnLine P&H 2733, wherein the High Court, inter alia, considered the specific issue “(a) till what time and date can the right of redemption of the Mortgage can be exercised by the Mortgagors / Borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act”. j. While answering the aforesaid question, the Court considered the report of the Joint Committee on the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 (the Report) as well as the law laid down by this Court in Mathew Varghese (supra) and the judgment in Concern Readymix (supra), in order to determine whether the said right of redemption was available up to the date of transfer of the asset or only up to the date of publication of the sale notice. On a consideration of Section 60 of the Act 1882 as well as the judgment in Narandas Karsondas (supra), it was observed that: “62. Thus even if the sale of secured assets is under a special statute like State Financial Corporations Act, there is no deviation from the general principle that the mortgagor’s right of redemption is not extinguished till the execution of conveyance.” k. It was ultimately held as below:- “96. … that 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

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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 favour of the mortgagee. A similar view has been taken by this Bench in Hoshiarpur Roller Flour Mill Private Limited V/s Punjab National Bank (CWP No. 14440 of 2021, decided on 10.12.2021).

97. It would, therefore, certainly be available to the petitioners herein before the issuance of sale certificate in favour of respondents No. 2 and 3. Point (a) is answered accordingly in favour of the petitioners and against the respondents.” l. The said judgment also considered and distinguished the judgment of this Court in Shakeena and Anr. v. Bank of India and Ors., (2021) 12 SCC 761, holding that the said case did not consider the concept of redemption under Section 60 of the Act 1882. The observations in para 30 of Shakeena are in the nature of obiter dicta as in the said case the auction had concluded prior to the amendment of Section 13(8) and in any event the sale certificate had already been issued. Thus, the question of interpretation of Section 13(8) was not directly in issue. m. A perusal of the Report (the report of Joint Committee on the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016), more particularly para 24, indicates that the proposed amendment to Section 13(8) of the Act was intended to deal with: - “Provisions to stop secured creditor to lease or assignment or sale in the prescribed conditions”. The important thing to note is also that the report does not indicate that the Committee had considered the effect of Section 60 of the Transfer of Property Act, 1882, which is a general law regarding redemption of mortgage vis-a-vis the provisions of SARFAESI.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 73 LTD. & ORS. [J. B. PARDIWALA, J.]

n. The focus of the Committee in the said report is on the obligations of the Mortgagee to not create third party rights up to a certain time-period, but it is silent on the rights of the Mortgagor to exercise its redemption for which Section 60 of the Act 1882 is the relevant provision. o. It is further necessary to note that the non obstante clause in Section 13 specifically excludes only Sections 69 and 69A respectively of the Act

1882. This section does not specifically include the words “Notwithstanding anything contained in any other Act for the time being in force” which is the standard term used in non obstante clauses. In view thereof, the legislative intent should be interpreted to only exclude Sections 69 and 69A respectively of the Act 1882 and the same does not affect the applicability of Section 60 of the Act 1882. p. Various High Courts have consistently held that the right of redemption has to be exercised in terms of Section 60 of the Act 1882 and not under Section 13(8) of the SARFAESI Act and the amendment to Section 13(8) does not affect or take away this right in any manner.

24Copy pinpoint24. The Telangana High Court in the case of Amme Srisailam v. Union Bank of India, Regional Office, Guntur, rep. by its Region Head & Deputy General Manager, Andhra Pradesh & Ors., W.P. No. 11435 of 2021 decided on 17.08.2022 has referred to and relied upon on Concern Readymix (supra) and Pal Alloys (supra). The Telangana High Court in Amme Srisailam (supra) in turn has relied upon the decision of this Court in the case of S. Karthik & Ors. v. N. Subhash Chand Jain & Ors., (2022) 10 SCC 641. The Telangana High Court in Amme Srisailam (supra) held as under: “44. Before we revert back to the facts of the present case, we may also refer to Sections 35 and 37 of the SARFAESI Act. While Section 35 says that the provisions of the SARFAESI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, Section 37 clarifies that provisions of the SARFAESI Act or the rules made thereunder shall be in addition to and not in derogation of any other law for the time being in force.

45. This brings us to Section 60 of the Transfer of Property Act, 1882. Section 60 says that at any time after the principal amount has become

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due, the mortgagor has a right, on payment or tender, of the mortgage money, to require the mortgagee (a) to deliver to the mortgagor the mortgage deed and all documents relating to the mortgaged property which are in possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof back to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished. As per the proviso, the right conferred under the aforesaid provision shall not be extinguished by any act of the parties or by decree of a Court.

46. Therefore, on a careful application of Sections 35 and 37 of the SARFAESI Act, it is evident that the situation contemplated under Section 13(8) of the SARFAESI Act does not exclude application of Section 60 of the Transfer of Property Act, 1882. As explained by this Court in Concern Readymix (supra), a restriction on the right of the mortgagee to deal with the property post issuance of notice for public auction is not the same as the right of redemption available to the mortgagor.

47. In so far the present case is concerned, admittedly the bid amount of the petitioner was Rs.57.00 lakhs. Though the auction was conducted on 16.03.2021 and payment was made by the petitioner within the stipulated period, there is clear dispute between the parties as regards issuance of sale certificate by respondent Nos.1 and 2 in favour of the petitioner. However, admittedly there is no registration of any sale certificate. On the other hand, the borrower had approached respondent Nos.1 and 2 for settlement of the loan account under OTS Scheme on 18.03.2021 which was recommended by second respondent on 20.03.2021 and was accepted by first respondent on 31.03.2021 for an amount of Rs.5.10 crores, which has been paid by the borrower i.e., third respondent. On the one hand petitioner’s amount was Rs.57.00 lakhs which the petitioner had paid but on the other hand third respondent has paid Rs.5.10 crores as

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 75 LTD. & ORS. [J. B. PARDIWALA, J.]

per the OTS. Lending of money, recovery of dues and entering into OTS are all commercial decisions which are taken by the banks/ financial institutions in their best interest, subject of course within the statutory framework. In this case, we have already come to the conclusion that third respondent had not lost the right of redemption upon publication of notice for auction sale. If that be the position, then it should be left to the discretion of the secured creditor as to which course of action would be more beneficial to it. Evidently, the OTS with the third respondent is much more beneficial to the secured creditors i.e., respondent Nos.1 and 2 and as has been explained above such a course of action is not restricted or extinguished by Section 13(8) of the SARFAESI Act. xxx xxx xxx

50. Right to property is a valuable right. Though no longer a fundamental right, it is still a constitutional right. The interpretation which we have adopted subserves such a right. That apart, third respondent had not lost the right of redemption upon publication of notice for auction sale; his right of redemption would have been lost only upon the sale certificate getting registered which admittedly has not taken place. Therefore, the action of respondent Nos.1 and 2 in accepting the higher OTS amount of the third respondent though after publication of notice for public auction and auction is justified and cannot be faulted.”

25Copy pinpoint25. In such circumstances referred to above, the learned counsel prayed that there being no merit in the present appeals, those may be dismissed. ANALYSIS

26Copy pinpoint26. Having heard the learned counsel appearing for the parties and having gone through the materials on record the following questions fall for our consideration: (a) Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the constitution more particularly when the alternative remedy available to the Borrowers had already been availed of?

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(b) Whether 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? (c) What is the impact of the amended Section 13(8) of the SARFAESI Act on the Borrowers’ right of redemption in an auction conducted under the SARFAESI Act? Or in other words, what is the effect of amendment to Section 13(8) of the SARFAESI Act read with Section 60 of the Act 1882? (d) Whether a Bank after having confirmed the sale under Rule 9(2), can withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower? (e) Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act? (f) Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction? Or in other words till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act? (g) Whether the decisions of Telangana High Court in the case of Concern Readymix (supra) and Amme Srisailam (supra) lay down the correct position of law? LEGISLATIVE HISTORY AND SCHEME OF THE SARFAESI ACT

27Copy pinpoint27. Till early 1990s, the civil suits were being filed for recovery of the dues of banks and financial institutions under the Act 1882 and the Code of Civil Procedure, 1908 (CPC). Due to various difficulties the banks and financial institutions had to face in recovering loans and enforcement of securities, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, “the Act 1993” or “the RDBFI Act”).

28Copy pinpoint28. On account of lack of infrastructure and manpower, the regular civil courts were not in a position to cope up with the speed in the adjudication of recovery cases. In the light of recommendations of the Tiwari Committee the special tribunals came to be set up under the provisions of the Act 1993

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 77 LTD. & ORS. [J. B. PARDIWALA, J.]

referred to above for the recovery of huge accumulated NPA of the Bank loans.

29Copy pinpoint29. On the continuing rise in number of Non-Performing Assets (NPA) at banks and other financial institutions in India; a poor rate of loan recovery and the failure of the existing legislation in redressing the difficulties of recovery by banks; the Narasimham Committee I & II and Andyarujina Committee were constituted by the Government for examining and suggesting banking reforms in India. These Committees in their reports observed that one out of every five borrower was a defaulter, and that due to the long and tedious process of existing frame work of law and the overburdening of existing forums including the specialised tribunals under the 1993 Act, any attempt of recovery with the assistance of court/tribunal often rendered the secured asset nearly worthless due to the long delays. In this background the Committees thus, proposed new laws for securitisation in order to permit banks and financial institutions to hold securities and sell them in a timely manner without the involvement of the courts.

30Copy pinpoint30. On the recommendations of the Narasimham Committee and Andyarujina Committee, the SARFAESI Act was enacted to empower the banks and financial institutions to take possession of the securities and to sell them without intervention of the court.

31Copy pinpoint31. The statement of objects and reasons for which the Act has been enacted reads as under: - “STATEMENT OF OBJECTS AND REASONS The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with

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the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce nonperforming assets by adopting measures for recovery or reconstruction.”

32Copy pinpoint32. This Court in Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. reported in (2004) 4 SCC 311, examined the history and legislative backdrop that ultimately led to the enactment of the SARFAESI Act as under: - “34. Some facts which need to be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 79 LTD. & ORS. [J. B. PARDIWALA, J.]

enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing presiding officers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster. In the present-day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and the Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another Expert Committee was constituted, then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth-oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved. xxx xxx xxx

36. In its Second Report, the Narasimham Committee observed that NPAs in 1992 were uncomfortably high for most of the public sector banks. In Chapter VIII of the Second Report the Narasimham Committee deals about legal and legislative framework and observed: “8.1. A legal framework that clearly defines the rights and liabilities of parties to contracts and provides for speedy resolution of disputes is a sine qua non for efficient trade and commerce, especially for financial intermediation. In our system, the evolution of the legal framework has not kept pace with

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changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries….” One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the assets without intervention of the court and for reconstruction of assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amounts of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of the Narasimham Committee, yet another Committee was constituted headed by Mr Andhyarujina for bringing about the needed steps within the legal framework. We are therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy.”

33Copy pinpoint33. In this regard, reference may be made to the following observations of this Court in the case of Satyawati Tondon (supra). The relevant paras are being reproduced hereunder: “1. … With a view to give impetus to the industrial development of the country, the Central and State Governments encouraged the banks and other financial institutions to formulate liberal policies for grant of loans and other financial facilities to those who wanted to set up

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 81 LTD. & ORS. [J. B. PARDIWALA, J.]

new industrial units or expand the existing units. Many hundred thousand took advantage of easy financing by the banks and other financial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading the civil courts to pass orders of injunction against the steps taken by banks and financial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular courts could not accomplish the task of expeditiously adjudicating the cases instituted by banks and other financial institutions for recovery of their dues. As a result, several hundred crores of public money got blocked in unproductive ventures.

2. In order to redeem the situation, the Government of India constituted a committee under the Chairmanship of Shri T. Tiwari to examine the legal and other difficulties faced by banks and financial institutions in the recovery of their dues and suggest remedial measures. The Tiwari Committee noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the Recovery Officer for expeditious execution of orders made by adjudicating bodies.”

34Copy pinpoint34. Section 13 of the SARFAESI Act contains the provisions relating to the enforcement of the security interest and the manner in which the same may be done by the secured creditor without the intervention of the Court or Tribunal in accordance with its provisions, and reads as under: - “13. Enforcement of security interest.–(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then,

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the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). Provided that – (i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee; (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:—

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 83 LTD. & ORS. [J. B. PARDIWALA, J.]

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any

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subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13. (5C) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A). (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,- (i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and (ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 85 LTD. & ORS. [J. B. PARDIWALA, J.]

shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets. (9) Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent. in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen’s dues with the liquidator in accordance with the provisions of section 529A of that Act: Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen’s dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen’s dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen’s dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen’s dues, such creditor shall be liable to pay the balance of the workmen’s dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:

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Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen’s dues, if any. Explanation.— For the purposes of this sub-section,— (a) “record date” means the date agreed upon by the secured creditors representing not less than sixty per cent. in value of the amount outstanding on such date; (b) “amount outstanding” shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measured specifies in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub- section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.” (Emphasis supplied)

35Copy pinpoint35. We are concerned in the present litigation with sub-section 8 of Section 13 of the SARFAESI Act referred to above. Section 13(8) is in two parts; (i) it enables the borrower to exercise his right of redemption upto a particular point of time and at the same time (ii) it enables the secured creditor to exercise its power to deal or dispose off the secured asset. First,

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 87 LTD. & ORS. [J. B. PARDIWALA, J.]

by stipulating the time limit during which the borrower can tender all the dues with interest, costs and charges to the secured creditor, and secondly, by providing as to when the secured creditor can proceed to sell, auction, assign or lease the secured asset.

36Copy pinpoint36. Rules 8 and 9 respectively of the Rules of 2002 prescribe the procedure and formalities to be followed for the sale of immovable secured asset as per Section 13 of the SARFAESI Act and reads as under: - “8. Sale of immovable secured assets. – (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper one in vernacular language having sufficient circulation in that locality, by the authorised officer. (2A) All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation

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of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction including through e-auction mode; or (d) by private treaty. Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provision of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State. (6) the authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality. (7) every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include; (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price of the immovable secured assets below which the property may not be sold;

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 89 LTD. & ORS. [J. B. PARDIWALA, J.]

(d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorised officer considers it necessary for a purchaser to know the nature and value of the property. (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing.

9. Time of sale, issue of sale certificate and delivery of possession, etc.–(1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower: Provided further that if sale of immovable property by any one of the methods specified by sub-rule (5) of rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 8: Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.

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(3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorised officer conducting the sale and in default of such deposit, the property shall be sold again; (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him. Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days, from date of finalisation of the sale. (8) On such deposit of money for discharge of the encumbrances, the authorised officer shall issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly.

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 91 LTD. & ORS. [J. B. PARDIWALA, J.]

(9) The authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. (10) The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.”

37Copy pinpoint37. From the above provisions under Rule 8(6) it is clear that the authorised officer of the Bank shall serve on the borrower a notice of thirty days for sale of immovable property, and that if the sale of such secured assets is by way of public auction, the Bank/secured creditor, shall cause publication of such notice in two leading newspapers, one in vernacular, language having sufficient circulation in the locality by setting the out the terms of sale, mentioned in the said provision; and under sub-rule (1) of Rule 9, such sale of immovable of property under these Rules shall not take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6), or notice of sale has been served to the borrower.

38Copy pinpoint38. In Mardia Chemicals (supra), this Court examined the provision of Section 13 of the SARFAESI Act and made the following relevant observations reproduced below: - “38. We may now consider the main enforcing provision which is pivotal to the whole controversy, namely, Section 13 in Chapter III of the Act. It provides that a secured creditor may enforce any security interest without intervention of the court or tribunal irrespective of Section 69 or Section 69-A of the Transfer of Property Act where according to sub-section (2) of Section 13, the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing against him has been classified as a non- performing asset by the secured creditor. Sub-section (2) of Section 13 further provides that before taking any steps in the direction of realising the dues, the secured creditor must serve a notice in writing to the borrower requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the measures as provided in sub-section (4) of Section 13. It

92 SUPREME COURT REPORTS [2023] 13 S.C.R.

may also be noted that as per sub-section (3) of Section 13 a notice given to the borrower must contain the details of the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of Section 13.”

39Copy pinpoint39. Section 35 of the SARFAESI Act contains the overriding clause and provides that the Act shall override any other law which is inconsistent with its provisions, and reads as under: - “35. The provisions of this Act to override other laws.–The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

40Copy pinpoint40. Section 37 of the SARFAESI Act provides that the provisions of the SARFAESI Act shall be in addition to the Acts mentioned in or and any other law for the time being in force and that the other laws shall also be applicable alongside the SARFAESI Act, and reads as under: - “37. Application of other laws not barred.–The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.”

41Copy pinpoint41. This Court in Madras Petrochem Ltd. & Anr. v. Board for Industrial and Financial Reconstruction & Ors. reported in (2016) 4 SCC 1, recapitulated the object behind the enactment of the SARFAESI Act and in that context examined the purpose of Sections 13, 35 and 37 respectively of the SARFAESI Act with the following observations given as under: - “16. It is important at this stage to refer to the genesis of these three legislations. Each of them deals with different aspects of recovery of debts due to banks and financial institutions. Two of them refer to creditors’ interests and how best to deal with recovery of outstanding loans and advances made by them on the one hand, whereas the Sick Industrial Companies (Special Provisions) Act, 1985, on the other

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 93 LTD. & ORS. [J. B. PARDIWALA, J.]

hand, deals with certain debtors which are sick industrial companies [i.e. companies running industries named in the Schedule to the Industries (Development and Regulation) Act, 1951] and whether such “debtors” having become “sick”, are to be rehabilitated. The question, therefore, is whether the public interest in recovering debts due to banks and financial institutions is to give way to the public interest in rehabilitation of sick industrial companies, regard being had to the present economic scenario in the country, as reflected in parliamentary legislation. xxx xxx xxx

19. While this Act had worked for a period of about 7 years, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was brought into force, pursuant to various committee reports. The Statement of Objects and Reasons for this Act reads as follows: “Statement of Objects and Reasons of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993

1. Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realised without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not

94 SUPREME COURT REPORTS [2023] 13 S.C.R.

only fulfil a long-felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30-9-1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than Rs 5622 crores in dues of public sector banks and about Rs 391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilisation and recycling of the funds for the development of the country.

2. The Bill seeks to provide for the establishment of Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill.”

20. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 took away the jurisdiction of the courts and vested this jurisdiction in tribunals established by the Act so as to ensure speedy recovery of debts due to the banks and financial institutions mentioned therein. This Act also included one appeal to the Appellate Tribunal, and transfer of all suits or other proceedings pending before any court to tribunals set up under the Act. The Act contained a non obstante clause in Section 34 stating that its provisions will have effect notwithstanding anything inconsistent contained in any other law for the time being in force or in any instrument having effect by virtue of any other law. In the year 2000, this Act was amended so as to incorporate a new sub-section (2) in Section 34 together with a saving provision in sub-section (1). It is of some interest to note that this Act was to be in addition to and not in derogation of various Financial Corporation Acts and the Sick Industrial Companies (Special Provisions) Act, 1985. Clearly, therefore, the object of the 2000 Amendment to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was to make the Sick Industrial Companies (Special Provisions) Act, 1985 prevail over it.

21. Regard being had to the poor working of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was brought into force in the year 2002. …”

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 95 LTD. & ORS. [J. B. PARDIWALA, J.]

22. This 2002 Act was brought into force as a result of two committee reports which opined that recovery of debts due to banks and financial institutions was not moving as speedily as expected, and that, therefore, certain other measures would have to be put in place in order that these banks and financial institutions would better be able to recover debts owing to them. xxx xxx xxx

24. The “pivotal” provision, namely, Section 13 of the said Act makes it clear that banks and financial institutions would now no longer have to wait for a tribunal judgment under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 to be able to recover debts owing to them. They could, by following the procedure laid down in Section 13, take direct action against the debtors by taking possession of secured assets and selling them; they could also take over the management of the business of the borrower. They could also appoint any person to manage the secured assets possession of which has been taken over by them, and could require, at any time by notice in writing to any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due from the borrower, to pay the secured creditor so much of the money as is sufficient to pay the secured debt.

25. In order to further the objects of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Act contains a non obstante clause in Section 35 and also contains various Acts in Section 37 which are to be in addition to and not in derogation of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Three of these Acts, namely, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992, relate to securities generally, whereas the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 relates to recovery of debts due to banks and financial institutions. Significantly, under Section 41 of this Act, three Acts are, by the Schedule to this Act, amended. We are concerned with the third of such Acts, namely, the Sick Industrial Companies (Special Provisions)

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Act, 1985, in Section 15(1) of which two provisos have been added. It is the correct interpretation of the second of these provisos on which the fate of these appeals ultimately hangs.” (Emphasis supplied) REDEMPTION OF MORTGAGE UNDER SECTION 60 OF THE TRANSFER OF PROPERTY ACT, 1882

42Copy pinpoint42. Section 60 of the Act 1882 provides the general statutory right of the mortgagor to redeem the mortgage and reads as below: - “60. Right of mortgagor to redeem.–At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgage, (b) where the mortgage is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re- transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgage has been extinguished: Provided that the right conferred by this section has not been extinguished by act of the parties or by decree of a Court. The right conferred by this section is called a right to redeem and a suit to enforce it is called a suit for redemption. Nothing in this section shall be deemed to render invalid any provision to the effect that, if the time fixed for payment of the principal money has been allowed to pass or no such time has been fixed, the mortgage shall be entitled to reasonable notice before payment or tender of such money. Redemption of portion of mortgaged property.—Nothing in this section shall entitle a person interested in a share only of the mortgaged property to redeem his own share only, on payment of a proportionate

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 97 LTD. & ORS. [J. B. PARDIWALA, J.]

part of the amount remaining due on the mortgage, except only where a mortgagee, or, if there are more mortgages than one, all such mortgages, has or have acquired, in whole or in part, the share of a mortgagor.”

43Copy pinpoint43. This Court in Narandas Karsondas (supra), upon examination of Section 60 of the Act 1882, held that the mortgagor’s right to redeem will be extinguished only after completion of sale by a registered deed, and made the following relevant observations reproduced below: - “28. The Rights and Liabilities of Mortgagor are dealt with in Section 60 of the Transfer of Property Act. It is that at any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage- deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re- transfer the mortgaged property to him or to such third person as he may direct, or to execute and to have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished. There is a proviso that the right conferred by this section has not been extinguished by the act of the parties or by decree of a Court. The right conferred by Section 60 of the Transfer of Property Act is called a right to redeem. Therefore, the said Section 60 provides for a right of redemption provided that the right has not been extinguished by the act of parties. xxx xxx xxx

33. In India, the word “transfer” is defined with reference to the word “convey”. The word “transfer” in English law in its narrower and more usual sense refers to the transfer of an estate in land. Section 205 of the Law of Property Act in England defines: “Conveyance” includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument. The word “conveys” in Section 5 of the Transfer of Property Act is used in the wider sense of conveying ownership.

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34. The right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties. The combined effect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument that the mortgagor’s right of redemption will be extinguished. The conferment of power to sell without intervention of the Court in a Mortgage Deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale.

35. The mortgagor’s right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. In England a sale of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Further Section 69(3) of the Transfer of Property Act shows that when a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right of redemption. xxx xxx xxx

37. In view of the fact that only on execution of conveyance, ownership passes from one party to another it cannot be held that the mortgagor lost the right of redemption just because the property was put to auction. The mortgagor has a right to redeem unless the sale of the property was complete by registration in accordance with the provisions of the Registration Act.” (Emphasis supplied)

CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 99 LTD. & ORS. [J. B. PARDIWALA, J.]

44Copy pinpoint44. A similar view was taken by this Court in L.K. Trust v. EDC Limited and Others reported in (2011) 6 SCC 780 wherein it was observed as follows: “53. On analysis of arguments advanced at the Bar, this Court finds that the proposition that in India it is only on execution of conveyance and the registration of transfer of the mortgagor’s interest by registered instrument that the mortgagor’s right of redemption stands extinguished is well settled. Further it is not the case of the appellant that a registered Sale Deed had been executed between the appellant-trust and the respondent No. 1 pursuant to the Resolution passed by the respondent No. 1 and, therefore, in terms of Section 54 of the Transfer of Property Act 1882 no title relating to the disputed property had passed to the appellant at all.

54. What is ruled in Narandas Karsandas (Supra) is that in India, there is no equity or right in property created in favour of the purchaser by the contract between the mortgagee and the proposed purchaser and in view of the fact that only on execution of conveyance, ownership passes from one party to another, it cannot be held that the mortgagor lost the right of redemption just because the property was put to auction. In this case, the respondent Housing Society, the mortgagor, had taken loan from the co-respondent Finance Society and mortgaged the property to it under an English mortgage. On default, the mortgagee exercised its right under the mortgage to sell the property without intervention of Court and after notice, put the property to sale by public auction. The appellant auction purchaser paid the sums due. Before the sale was completed by registration etc. the mortgagor sought to exercise his right of redemption by tendering the amount due. The appellant had based his case on the plea that in such a situation the mortgagee acts as agent of the mortgagor and hence binds him.

55. Rejecting the appeal, this Court has held that the right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties or by decree of a court. What is held by this Court is that, in India it is only on execution of the conveyance and registration of transfer of the mortgagor’s interest by registered instrument that the