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The Supreme Court of India has ruled that borrowers lose their right to redeem mortgaged property once an auction notice is published under Section 13(8) of the SARFAESI Act. The Court clarified that this rule applies even to loans taken before the 2016 amendment, if the default happened after September 2016. The judgment addressed confusion created by conflicting provisions in the Act and its Rules. It overturned a Madras High Court order in the KPK Oils and Proteins India Pvt Ltd case, while also asking the government to review inconsistencies in the law to avoid further disputes.
The Supreme Court has held that once an auction notice under Section 13(8) of the SARFAESI Act is issued, the borrower's right to redeem mortgaged property comes to an end. The Court said that buyers obtain clear rights when a sale certificate is issued by secured creditors such as banks and financial institutions. Advertisement
The ruling has settled a long-standing confusion between the main Act and the SARFAESI Rules, especially Rules 8 and 9. The bench noted that differences in the wording of these provisions had led to years of litigation and uncertainty. The SARFAESI Act, introduced in 2002, was designed to help financial institutions recover non-performing loans more efficiently, but the inconsistent drafting of redemption clauses had weakened its effectiveness.
The Court explained that the 2016 amendment to Section 13(8) must apply even if a loan was taken before that year, as long as the borrower defaulted after 1 September 2016. This means borrowers cannot rely on the timing of the loan itself to retain redemption rights once an auction process begins.
The decision came while hearing multiple appeals, including the case of M. Rajendran and others versus KPK Oils and Proteins India Pvt Ltd. In that matter, the Madras High Court had set aside the auction of mortgaged property, but the Supreme Court found that the High Court had overstepped its jurisdiction. It ruled that once the auction notice was published, the borrower's right of redemption no longer existed, and the findings of the Debt Recovery Tribunal should not have been interfered with.
The bench, comprising Justices J. B. Pardiwala and R. Mahadevan, also highlighted that any third-party rights created after the auction notice would be invalid. They directed the Union Finance Ministry and the Ministry of Law and Justice to examine and correct the inconsistent wording in the Act and the Rules, so that future cases do not face similar disputes.
By clarifying the position, the Court has reinforced that once an auction notice is published, the process of recovery becomes final and borrowers cannot delay it through redemption claims. This is expected to make the recovery of bad loans more predictable and faster for financial institutions.
Source PTI
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