Case Note & Summary
The case involves an appeal by borrowers, Shakeena and another, against the Bank of India and others, challenging the sale of their mortgaged property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The borrowers had taken a term loan of Rs.10 lakhs each in 2003, which became non-performing assets (NPA) from June 30, 2004. After default, the bank issued a notice under Section 13(2) of the SARFAESI Act on December 1, 2004, and later took constructive possession under Section 13(4) on February 8, 2005. The borrowers filed applications under Section 17 before the Debts Recovery Tribunal (DRT), which were dismissed for non-prosecution on September 28, 2005. The bank then issued a sale notice on November 15, 2005, and conducted a public auction on December 19, 2005, where respondent No.3 was declared the highest bidder for Rs.42,51,000. The sale was confirmed, and a sale certificate was issued on January 6, 2006. The borrowers attempted to tender dues on January 2, 2006, but the bank returned the cheques. The borrowers filed writ petitions in January 2006, which were allowed by the Single Judge on March 9, 2007, holding that the right of redemption subsisted until registration of the sale certificate. The Division Bench of the Madras High Court reversed this decision on August 10, 2007, holding that the sale was complete upon issuance of the sale certificate and registration was not essential. The Supreme Court upheld the Division Bench's decision, dismissing the appeals. The Court analyzed three issues: (i) whether sale under SARFAESI Act becomes final only on registration of sale certificate; (ii) whether the bank's refusal to accept payment violated Section 60 of the Transfer of Property Act; and (iii) whether Section 35 of SARFAESI Act overrides Section 37. The Court held that under Rule 9(7) of the Security Interest (Enforcement) Rules, 2003, issuance of sale certificate completes the sale, and registration is not mandatory for transfer of title under SARFAESI Act. The right of redemption under Section 60 of the Transfer of Property Act is extinguished upon sale. Further, Section 13(8) of SARFAESI Act requires tender of dues before the date fixed for sale, not after. The Court also noted that the borrowers had not challenged the sale notice or the auction before the sale, and their restoration applications before DRT were dismissed and became final. The appeals were dismissed with no order as to costs.
Headnote
A) SARFAESI Act - Sale of Secured Asset - Finality of Sale - Section 13(4) read with Rule 9(7) of Security Interest (Enforcement) Rules, 2003 - Sale of secured asset under SARFAESI Act becomes complete and absolute upon issuance of sale certificate under Rule 9(7), not upon registration under the Registration Act, 1908 - The Division Bench of the High Court correctly held that registration is not essential for transfer of title under SARFAESI Act, as the Act is a complete code and Section 35 overrides other laws (Paras 10.7, 10.17). B) Transfer of Property Act - Right of Redemption - Section 60 - Extinguishment upon Sale under SARFAESI Act - The right of redemption under Section 60 of the Transfer of Property Act, 1882 is extinguished once the secured asset is sold under Section 13(4) of SARFAESI Act and sale certificate is issued - The borrowers' attempt to tender dues after the sale date (19.12.2005) on 02.01.2006 was invalid as per Section 13(8) of SARFAESI Act, which requires tender before the date fixed for sale (Paras 10.9, 16). C) SARFAESI Act - Overriding Effect - Section 35 - Section 35 of SARFAESI Act overrides Section 37 and other laws, including the Transfer of Property Act, 1882 - The provisions of SARFAESI Act prevail over inconsistent provisions in other statutes, ensuring that the sale process under the Act is not hindered by general law principles like right of redemption (Para 16). D) SARFAESI Act - Tender of Dues - Section 13(8) - Time Limit - Under Section 13(8) of SARFAESI Act, borrowers must tender all dues to the secured creditor before the date fixed for public auction or sale - In this case, the borrowers approached the bank on 02.01.2006, after the sale held on 19.12.2005, and thus the tender was invalid and the bank was not obliged to cancel the sale (Para 10.9).
Issue of Consideration
Whether the sale of secured asset under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) becomes final only upon registration of the sale certificate, or upon issuance of sale certificate under Rule 9(7) of the Security Interest (Enforcement) Rules, 2003; and whether the borrowers' right of redemption under Section 60 of the Transfer of Property Act, 1882 subsists until registration.
Final Decision
The Supreme Court dismissed the appeals, upholding the Division Bench judgment. The Court held that sale under SARFAESI Act is complete upon issuance of sale certificate under Rule 9(7) of the Security Interest (Enforcement) Rules, 2003, and registration is not essential for transfer of title. The right of redemption under Section 60 of Transfer of Property Act is extinguished upon sale. Section 35 of SARFAESI Act overrides other laws. The borrowers' tender of dues after the sale date was invalid under Section 13(8). No order as to costs.
Law Points
- Right of redemption under Section 60 of Transfer of Property Act
- 1882 is extinguished upon sale of secured asset under SARFAESI Act
- Sale under Section 13(4) of SARFAESI Act read with Rule 9(7) of Security Interest (Enforcement) Rules
- 2003 is complete upon issuance of sale certificate
- Registration of sale certificate under Section 17 of Registration Act
- 1908 is not mandatory for transfer of title
- Section 35 of SARFAESI Act overrides Section 37 and other laws including Transfer of Property Act
- Section 13(8) of SARFAESI Act requires tender of dues before date fixed for sale
- not after sale
