
SARFAESI UPDATE: SUPREME COURT LAYS DOWN THE PRINCIPLE FOR BORROWER’S RIGHT TO REDEMPTION UNDER SARFAESI ACT
The Supreme Court of India ("Supreme Court") recently clarified its stance on the borrower’s right of redemption in Sanjay Sharma v. Kotak Mahindra Bank Ltd. The Supreme Court ruled that borrower’s right of redemption can only be exercised until the notice for the sale of the mortgaged property is published under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. Prior to the 2016 amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"), borrowers retained the right to redeem the property until its actual sale or transfer. However, post-amendment, this right is curtailed at the publication of the sale notice.
Facts of the Case
The brief facts of the case are that one Champa Bhen Kundia was the original owner of a property in Old Rajinder Nagar, New Delhi. The basement of the said property was also transferred multiple times vide unregistered documents and the said property was finally in possession of Raj Kumar Vij i.e., Respondent No.2. In the meantime, Champa Bhen Kundia also secured a loan from Associated India Financial Services in the year 2001 who later assigned the loan to Kotak Mahindra Bank. Following a loan default, the bank initiated SARFAESI proceedings, culminating in a public auction in December 2010.
The appellant, an auction purchaser, acquired the secured asset through a public auction conducted by Kotak Mahindra Bank Limited (“Respondent No. 1/Kotak”) under SARFAESI provisions. A sale certificate for the secured asset was issued to the appellant on 27 December 2010. However, Respondent No. 2, relying on an unregistered agreement to sell and other documents, contested the auction, claiming ownership of the property. Respondent No. 2 also invoked the right of redemption under Section 13(8) of the SARFAESI Act. After prolonged litigation across various forums, including the Debt Recovery Tribunal ("DRT") and the Hon'ble Delhi High Court, the matter reached the Supreme Court.
Issue
The primary question was whether Respondent No. 2, relying on unregistered documents, had the right to redeem the mortgaged property after the issuance of the sale certificate.
Findings:
- Unregistered Documents
The Supreme Court emphasized the requirements under Section 54 of the Transfer of Property Act, 1882 (TP Act) to validate Respondent No. 2’s claim. According to the TP Act, the sale of tangible immovable property is valid only if executed through a registered instrument. The documents relied upon by Respondent No. 2, including an agreement to sell dated 23 April 2001, were unregistered. Therefore, unregistered sale deeds cannot convey or transfer ownership as required under Section 54 of the TP Act.
The Supreme Court also observed that the neither the Respondent No. 1 nor the appellant (auction purchaser) were aware of sale of tangible immovable property. Moreover, Respondent No. 1 or Appellant could not have anticipated Respondent No. 2’s claim since the unregistered documents were not publicly available for the Respondent No. 1 and Appellant to conduct due diligence.
- Right of Redemption under Section 13(8) of SARFAESI
The Court clarified that, post the 2016 amendment, the borrower’s right of redemption is extinguished upon the publication of a public auction notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. Previously, the redemption right extended until the completion of the sale or transfer. The Court also noted that Respondent No. 2 was given ample opportunity to redeem the mortgage but Respondent No. 2 failed to act on it.
MHCO Comment
This judgment reinforces the importance of registering sale deeds to secure legal ownership of immovable property. It underscores the strengthened legal framework for property transactions in India, safeguarding bona fide auction purchasers from potential misuse of redemption rights by borrowers or mortgagors. The ruling serves as a vital precedent, ensuring clarity and fairness in property dealings by auction sales.
This update was released on 24 Jan 2025.
The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.
Legal Update Team
MANSUKHLAL HIRALAL & COMPANY
Advocates, Solicitors and Notaries
T: +91 22 40565252
Mumbai Office: Surya Mahal, 2nd Floor, 5, Burjorji Bharucha Marg, Fort, Mumbai-400 023, India
Delhi Office: Block C-9, Lower Ground Floor, Jangpura Extension, New Delhi - 110 014, India
www.mhcolaw.com
"Noted lawyer in the Real Estate practitioner from India" - Chambers & Partners
Please consider the environment before printing this email
The information contained in this communication is intended solely for the use of the individual or entity to whom it is addressed and others authorized to receive it. This communication may contain confidential or legally privileged information. If you are not the intended recipient, any disclosure, copying, distribution or action taken relying on the contents is prohibited and may be unlawful. If you have received this communication in error, or if you or your employer does not consent to email messages of this kind, please notify the sender immediately by responding to this email and then delete it from your system. No liability is accepted for any harm that may be caused to your systems or data by this message.
Subscribe to our Knowledge Repository
If you would like to receive content directly in your inbox from our knowledge repository, please complete this subscription form.