corporate laws – Banking Laws – Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) – Education Loan- Dwelling on Section 60 of the Transfer of the Property Act, this Court held that the right of redemption is available to a mortgagor unless it stands extinguished by an act of parties. The right of the mortgagor to redeem the property survives until there has been a transfer of the mortgagor’s interest by a registered instrument of sale. – the appellant failed to comply with the provisions of Section 13(8). The statute mandates that it is only where the dues of the secured creditor are tendered together with costs, charges and expenses before the date fixed for sale or transfer that the secured asset is not to be sold or transferred.= The stay was extended till 28 March 2016 by which date the appellant was to deposit an amount of Rs 7,00,000. The balance was required to be deposited by 30 April 2016. While appellant deposited an amount of Rs 7,00,000 with the bank, he failed to deposit the balance in accordance with the provisions of Section 13(8). The sale was confirmed, a sale certificate was issued and a registered sale deed was executed on 12 April 2016. The appellant failed to ensure compliance with Section 13(8). The right to redemption stands extinguished on the execution of the registered sale deed. ; The appellant, is however, entitled to a refund of his deposit of Rs 7,00,000 with interest at 9% per annum from the date of deposit till payment. The bank has in its counter affidavit stated that it was at all times ready and willing to do so. The bank shall refund this amount of Rs 7,00,000 with interest at 9% per annum within 8 weeks. For the above reasons, save and except for the above direction to refund Rs 7,00,000 with interest, we find no merit in the appeal.

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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO 000148 OF 2018

(@ Special Leave Petition (C )No 26428 of 2016)

DWARIKA PRASAD ..Appellant

VERSUS

STATE OF UTTAR PRADESH AND ORS ..Respondents

J U D G M E N T

Dr D Y CHANDRACHUD, J

1 The appellant was a guarantor to a loan sanctioned for educational

purposes to one Jitendra Kumar. Under the letter of sanction dated 20 June

2009, there was a ‘repayment holiday’ of 24 months (comprised of a grace

period of 12 months and an additional 12 months) or six months after the

borrower obtained a job, whichever was earlier. Repayment was to commence

from 20 June 2011. In order to secure the liability, the appellant created an

equitable mortgage in respect of an immovable property bearing Khasra

Nos.185, 186 and 188, Central Doon, Dehradun. At the request of the

appellant, the period prescribed for repayment was extended by two periods

REPORTABLE

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each of six months (29 June 2011 to 20 December 2011 and again upto 30

June 2012). The loan was not repaid. The account was classified as a nonperforming

asset on 3 September 2013. Corporation bank (the second

respondent) which had disbursed the loan initiated proceedings by issuing a

recall notice under Section 13(2) of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI

Act’) on 12 September 2013. Neither was a representation made nor was any

money deposited. The bank took symbolic possession on 14 February 2015.

The property was put to e-auction on 30 March 2015. No bid was received. A

second e-auction was scheduled on 30 January 2016. After the bank received

one bid in response to the auction, the appellant initially proposed to deposit

the amount of Rs 2,00,000 as against the dues of Rs.36 lakhs. This was not

acceptable. The proceedings before the DRT were listed on 1 February 2016

during the course of which the appellant stated that he would move a

redemption application within three days. The proceedings were adjourned to

4 February 2016. No stay was granted on the confirmation of the sale. The

sale was confirmed on 2 February 2016. The appellant moved a redemption

proposal on 3 February 2016. During the pendency of the proceedings before

the DRT, the appellant filed a writ petition before the Allahabad High Court (Writ

(C ) 10877 of 2016). The following order was passed on 15 March 2016 by a

Division Bench of the Allahabad High Court:

“Learned counsel for the petitioner upon instructions states

that the petitioner is ready and wiling to deposit the entire loan

amount within a month. He further submits that on or before

28.3.2016 the petitioner will deposit Rs. 7,00,000/- and the

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remaining amount as may be intimated by the Bank would be

deposited on or before 30.4.2016

Put up this case as a fresh case on 28.3.2016. By the said date

the petitioner will fill a supplementary affidavit annexing proof

of receipt of deposit of Rs. 7,00,000/- with the respondent

Bank.

The execution of the sale deed will remain stayed till

28.3.2016”

From the record it is not in dispute that the appellant paid the amount of Rs

7,00,000 by demand drafts of the State Bank of India. However, on 28 March

2016 the attention of the court was drawn to the fact that the appellant had

already initiated proceedings before the DRT. The objection raised by the bank

to the maintainability of the writ petition being noted, the appellant sought leave

to withdraw the writ petition and to pursue the proceedings initiated by him

before the DRT. Hence, on 28 March 2016, the following order was passed:

“Sri Shashi Dhar Sahai, learned counsel for the respondentBank

on the basis of instructions has brought to our notice that

petitioner who is a guarantor to the loan has already initiated

proceedings before the Debt Recovery Tribunal, Lucknow for

the same relief which is being claimed in the writ petition and

same cause of action. An application for temporary relief has

also been moved before the Debt Recovery Tribunal,

Lucknow, which is pending.

Learned counsel for the petitioner when confronted with the

aforesaid facts sought leave of the Court to permit withdrawal

of the writ petition with the liberty to pursue before the Debts

Recovery Tribunal.

Prayer made is allowed.

Writ petition stands dismissed as withdrawn.”

4

After the dismissal of the writ petition, the sale certificate was issued on 5 April,

2016 in favour of the auction purchaser. After the confirmation of the sale the

bank executed a registered sale deed against the receipt of a total consideration

of Rs 54,41,500. The auction purchasers (respondent nos 3 and 4) took

possession of the property.

2 The appellant filed a writ petition before the Allahabad High Court

contending that since he was ready and willing to clear the outstanding dues of

the bank, he has a right of redemption to the mortgaged property and that the

auction sale without considering his offer for redemption was illegal and void.

The Division Bench of the High Court rejected the writ petition, placing reliance

on the provisions of Section 13(8) of the SARFAESI Act. The High Court held

that the exercise of the right of redemption is permissible before the execution

of the sale in favour of the auction purchaser. In this view, once the sale was

complete and was registered, it was not open to the appellant to exercise the

equity of redemption. The High Court has relied on the judgment of this Court

in Mathew Varghese v M. Amritha Kumar1

.

3 The learned counsel appearing on behalf of the appellant submits that

prior to the confirmation of the sale, the appellant voluntarily offered to defray

an amount of Rs 36,00,000 towards claim of the bank and indicated his

willingness to make an initial deposit of Rs 6,00,000. Though before the DRT

 

1

(2014) 5 SCC 610

5

the bank had on 1 February 2016 stated that the appellant should apply for

redemption, when the application was moved on 3 February 2016 it was

arbitrarily rejected. Thereafter in pursuance of the order of the High Court dated

15 March 2016, the appellant deposited a sum of Rs 7,00,000 and was ready

to deposit the balance within 30 days, the time stipulated in the order dated 15

March 2016. Hence it was urged that there was no reason or justification for

the bank to issue a certificate of sale on 12 April 2016. The fact that the

appellant did not obtain an interim order before the DRT was not a circumstance

within his control and the appellant demonstrated his willingness by making a

part payment of Rs 7,00,000.

4 On the other hand, the learned counsel appearing on behalf of the bank

and for the auction purchasers supported the order of the High Court. It was

urged that despite moving the DRT, the appellant sought relief before the

Allahabad High Court in proceeding under Article 226 of the Constitution. After

the High Court passed an order on 15 March 2016 recording the statement that

the appellant would deposit an amount of Rs 7,00,000 by 28 March 2016 and

the balance by 30 April 2016 the writ petition was withdrawn on 28 March 2016

with liberty to pursue the proceedings before the Tribunal. At no stage did the

Tribunal interdict the issuance of a certificate of sale. The sale certificate was

issued and was followed by the registration of the sale deed in April 2016. The

bank had advertised the proposed sale by auction and followed all requisite

procedure under law. The appellant failed to comply with the provisions of

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Section 13(8). Having failed to do so, the appellant cannot assert an equity of

redemption upon the completion of the sale and the registration of the sale

deed.

5 Section 13(8) of the SARFAESI Act provides as follows:

“(8) If the dues of the secured creditor together with all

costs, charges and expenses incurred by him are tendered

to the secured creditor at any time before the date fixed for

sale or transfer, the secured asset shall not be sold or

transferred by the secured creditor, and no further step shall

be taken by him for transfer or sale of that secured asset.”

These provisions have fallen for interpretation before this Court in Mathew

Varghese (supra). Dwelling on Section 60 of the Transfer of the Property Act,

this Court held that the right of redemption is available to a mortgagor unless it

stands extinguished by an act of parties. The right of the mortgagor to redeem

the property survives until there has been a transfer of the mortgagor’s interest

by a registered instrument of sale. Applying these principles in the context of

the SARFAESI Act this Court held as follows:

“39. When we apply the above principles stated with

reference to Section 60 of the T.P. Act in respect of a

secured interest in a secured asset in favour of the secured

creditor under the provisions of the SARFAESI Act and the

relevant Rules applicable, under Section 13(1), a free hand

is given to a secured creditor to resort to a sale without the

intervention of the Court or Tribunal. However, under

Section 13(8), it is clearly stipulated that the mortgagor, i.e.

the borrower, who is otherwise called as a debtor, retains

his full right to redeem the property by tendering all the

dues to the secured creditor at any time before the date

fixed for sale or transfer. Under Sub-section (8) of Section

13, as noted earlier, the secured asset should not be sold

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or transferred by the secured creditor when such tender is

made by the borrower at the last moment before the sale

or transfer. The said Sub-section also states that no further

step should be taken by the secured creditor for transfer or

sale of that secured asset. We find no reason to state that

the principles laid down with reference to Section 60 of the

T.P. Act, which is general in nature in respect of all

mortgages, can have no application in respect of a secured

interest in a secured asset created in favour of a secured

creditor, as all the above-stated principles apply in all fours

in respect of a transaction as between the debtor

and secured creditor under the provisions of the

SARFAESI Act”.

6 In the present case, the appellant failed to comply with the provisions of

Section 13(8). The statute mandates that it is only where the dues of the secured

creditor are tendered together with costs, charges and expenses before the date

fixed for sale or transfer that the secured asset is not to be sold or transferred.

The appellant was aware of the proceedings initiated by the bank for asserting

its right to recover its dues by selling the property. The appellant moved the

DRT in Securitization Application 176 of 2015. During the pendency of those

proceedings, orders were passed by the Tribunal on 1 February 2016 and 3

February 2016. The appellant moved the Allahabad High Court which by its

order dated 9 March 2016 restrained the bank and the auction purchaser from

executing the sale deed until 15 March 2016. The stay was extended till 28

March 2016 by which date the appellant was to deposit an amount of Rs

7,00,000. The balance was required to be deposited by 30 April 2016. While

appellant deposited an amount of Rs 7,00,000 with the bank, he failed to deposit

the balance in accordance with the provisions of Section 13(8). Even after the

writ proceedings before the High Court was withdrawn, the appellant did not

8

deposit the balance due together with the costs, charges and expenses. The

sale was confirmed, a sale certificate was issued and a registered sale deed

was executed on 12 April 2016. The appellant failed to ensure compliance with

Section 13(8). The right to redemption stands extinguished on the execution of

the registered sale deed. This is also the view which has been expressed in the

judgment in Mathew Varghese (supra).

7 The appellant, is however, entitled to a refund of his deposit of Rs

7,00,000 with interest at 9% per annum from the date of deposit till payment.

The bank has in its counter affidavit stated that it was at all times ready and

willing to do so. The bank shall refund this amount of Rs 7,00,000 with interest

at 9% per annum within 8 weeks. For the above reasons, save and except for

the above direction to refund Rs 7,00,000 with interest, we find no merit in the

appeal. The appeal shall accordingly stand disposed of. There shall be no order

as to costs.

…………………………………….CJI

[DIPAK MISRA]

…………………………………….J

[A M KHANWILKAR]

…………………………………….J

[Dr D Y CHANDRACHUD]

New Delhi;

March 06, 2018