Factual Background and Procedural History
The dispute in M. Rajendran v. KPK Oils and Proteins (India) Ltd. arose from a secured loan transaction governed by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The borrowers had availed a loan from a bank in January 2016. Upon default, the bank classified the account as a Non-Performing Asset (NPA) and initiated recovery proceedings under Section 13 of the SARFAESI Act.
Following statutory notices under Sections 13(2) and 13(4), the secured asset was put up for public auction. The appellants emerged as the successful auction purchasers, and the sale was confirmed by the bank under Rule 9(2) of the Security Interest (Enforcement) Rules, 2002. A sale certificate dated 22 March 2021 was issued.
The borrowers, instead of filing an appeal before the Debt Recovery Appellate Tribunal (DRAT), directly approached the Madras High Court under Article 226 of the Constitution, challenging the sale certificate. The High Court entertained the writ petition on equitable grounds, observing that the borrowers had subsequently remitted the entire dues, and relying on Mathew Varghese v. Amritha Kumar (2014) 5 SCC 610, held that the right of redemption subsisted until the sale was registered. Consequently, the High Court quashed the sale certificate, directed closure of the loan account, and ordered the bank to refund the auction amount with 9% interest to the purchasers.
Aggrieved, the auction purchasers appealed to the Supreme Court, which delivered its judgment on 22 September 2025 through Justice J. B. Pardiwala.
Identification of Legal Issues
The Supreme Court identified the following pivotal legal issues:
- Whether the High Court was justified in entertaining a writ petition under Article 226, bypassing the alternative statutory remedy under Section 17 of the SARFAESI Act.
- Whether the borrowers retained the right of redemption after publication of the auction notice in view of the 2016 Amendment to Section 13(8) of the SARFAESI Act.
- Whether the amended Section 13(8) operates retrospectively to loans advanced prior to its enforcement on 1 September 2016.
- Whether equitable considerations could override the statutory auction process under the SARFAESI framework.
Arguments of the Parties
Appellants (Auction Purchasers)
Represented by Ms. Praveena Gautam, counsel contended that the High Court erred in entertaining a writ petition when an effective alternative remedy existed before the DRAT. The auction process was conducted strictly in accordance with the SARFAESI Act and Rules 8 and 9.
Relying on Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. (2024) 2 SCC 1, counsel argued that post-amendment, the borrower’s right of redemption stands extinguished upon publication of the auction notice. Hence, once the sale was confirmed, the borrower could not reclaim the asset by repayment.
Respondents (Borrowers)
Mr. Huzefa Ahmedi, appearing for the borrowers, contended that Section 13(8) as amended in 2016 could not apply retrospectively since the loan was availed in January 2016. Therefore, the pre-amendment legal position from Mathew Varghese should govern, permitting redemption until completion of sale and registration of the certificate.
He argued that the High Court rightly invoked equitable jurisdiction to prevent unjust enrichment and restore possession once the borrowers had tendered full repayment.
Court’s Analysis and Reasoning
The Supreme Court undertook a comprehensive review of the legislative history, statutory scheme, and judicial precedents governing Section 13(8).
1. Legislative Intent and Scheme of SARFAESI
The Court traced the origins of the Act to the recommendations of the Narasimham and Andhyarujina Committees, emphasizing its object—to enable banks and financial institutions to recover dues without court intervention. The SARFAESI Act, the Court observed, was a special legislation intended to provide speedy and final recovery mechanisms, which could not be diluted by equitable considerations.
2. Right of Redemption under Section 13(8)
Before the 2016 Amendment, borrowers retained the right to redeem the secured asset till completion of sale—consistent with Section 60 of the Transfer of Property Act, 1882 and the ruling in Mathew Varghese. However, post-amendment, the statutory language expressly restricts this right to “before the date of publication of the notice for public auction” under Rule 9(1).
The Court reaffirmed its decision in Bafna Motors (2024) that the right of redemption now extinguishes on the very date the public auction notice is published, thereby curtailing any subsequent claim by the borrower.
3. Retrospective Application of the Amendment
Rejecting the borrowers’ argument, the Court held that the amendment governs the enforcement proceedings, not the date of loan creation. Since enforcement actions occurred after 2016, the amended Section 13(8) applied. The right of redemption, being a statutory—not contractual—right, must conform to the prevailing statutory scheme.
4. Writ Jurisdiction and Equitable Relief
The Court reiterated that High Courts should not exercise writ jurisdiction where effective alternative remedies exist. Relying on United Bank of India v. Satyawati Tondon (2010) 8 SCC 110, it emphasized judicial restraint in interfering with SARFAESI processes. Equity cannot override clear statutory provisions—especially in a regime designed for expeditious debt recovery.
5. Policy Observations
The Bench expressed dismay that ambiguities in Section 13(8) and Rules 8 and 9 continue to cause litigation, defeating the Act’s purpose. It urged the Ministry of Finance to clarify the statutory inconsistencies to protect both secured creditors and bona fide auction purchasers, and to prevent clogging of DRTs and DRATs with avoidable disputes.
Final Conclusion and Holding
The Supreme Court allowed the appeals, set aside the High Court’s judgment, and restored the auction sale in favour of the purchasers. The Court declared that:
- The High Court acted beyond its jurisdiction in entertaining the writ petition despite the statutory remedy under Section 17.
- Under the amended Section 13(8), the borrower’s right of redemption ceases upon publication of the auction notice; subsequent tenders of payment are legally ineffective.
- Any third-party rights created by the borrower over the secured asset post-auction are non-est in law.
- The Court directed that its judgment be circulated to all High Courts and relevant Ministries for administrative and legislative attention.
The decision fortifies the sanctity of statutory auctions, underscores finality in enforcement, and reinforces that statutory obligations override equitable sympathies in SARFAESI proceedings.
FAQs:
1. What is the borrower’s right of redemption under the SARFAESI Act?
It allows a borrower to reclaim the mortgaged property by repaying full dues before the date fixed for sale. After the 2016 amendment, this right ends upon publication of the auction notice.
2. Can a borrower redeem property after the auction notice is issued?
No. Once the auction notice is published under Rule 9(1), the borrower’s right of redemption is extinguished. Subsequent repayment cannot invalidate the sale.
3. Can the High Court intervene in SARFAESI matters through writ petitions?
Generally, no. Borrowers must first use the statutory remedy before the DRT or DRAT. Writ jurisdiction under Article 226 applies only in exceptional cases of jurisdictional error.
4. Does the 2016 amendment to Section 13(8) apply to old loans?
Yes, it applies to enforcement actions initiated after 1 September 2016, regardless of when the loan was originally granted.
5. Why did the Supreme Court urge legislative clarification of Section 13(8)?
Because inconsistencies between Section 13(8) and Rules 8 and 9 have led to conflicting interpretations and excessive litigation, undermining the Act’s efficiency.
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