Sale Certificate Registration and Mortgage Redemption: Legal Battle Resolved

In a recent landmark decision by the Supreme Court of India, the legal battle over sale certificate registration and mortgage redemption has been resolved. The case involved a dispute between the appellants and the auction purchaser, raising crucial questions about property rights. The Court’s ruling provides insights into the complexities of mortgage redemption under the SARFAESI Act, shedding light on important legal principles. Let’s delve into the details of this significant judgment.

Facts

• The respondent bank took constructive possession of the mortgaged property on 8 February, 2005.
• The appellants filed S.A. Nos.21 and 22 of 2005 challenging the notices issued by the bank before the Debts Recovery Tribunal II, Chennai.
• The appellants failed to comply with the order of paying Rs.1.50 Lac in each appeal, resulting in the dismissal of the appeals for non-prosecution/default.
• The respondent bank brought the secured property for sale through sealed tenders on 15 November, 2005.
• The appellants filed applications for restoration of the main proceedings, but they were dismissed.
• The auction purchaser filed Writ Appeal against the judgment of the Learned Single Judge.
• The sale was confirmed in favor of the auction purchaser after compliance with all terms and conditions.
• The appellants approached the High Court to quash the auction of the subject property and direct the respondents to receive the settlement amount.
• The Division Bench of the High Court dismissed the writ petitions filed by the appellants.
• The sale certificate in respect of the suit property was registered on 18 September, 2007, and the property was subsequently sold to a third party.
• The Division Bench of the High Court considered three main points in the impugned judgment.
• The Learned Single Judge’s judgment on March 9, 2007, allowed the writ petitions of the appellants, stating their right of redemption until the sale certificate was registered.

Also Read: Balancing Justice: Case Summary of C.P. No. 16/2017

Issue

• The issue at hand is whether the sale of the secured asset in public auction as per section 13(4) of SARFAESI Act, resulting in the issuance of a sale certificate as per rule 9(7) of the Security Interest (Enforcement) Rules, 2003 constitutes a complete and absolute sale for the purpose of SARFAESI Act.
• Additionally, the question arises on whether the sale in public auction becomes final only upon the registration of the sale certificate.
• There is an inquiry into whether the second respondent’s refusal to accept the amounts paid by the borrowers and failure to cancel the sale certificate prior to registration of the sale infringes upon section 60 of the Transfer of Property Act, in light of Section 37 of the SARFAESI Act.
• Lastly, a consideration is made as to whether section 35 of the SARFAESI Act supersedes section 37 of the SARFAESI Act in its effect.

Also Read: Interpreting Section 14 of the 2002 Act: Equivalence of CJM and CMM

Arguments

• The appellants argue that the right of redemption available to borrowers under the Transfer of Property Act is not taken away by the SARFAESI Act.
• They challenge the conclusion that registration of the sale certificate is not essential based on a previous decision (B. Arvind Kumar) and argue that registration is necessary for transfer of the auctioned property.
• They contend that subsequent sale of the property is affected by lis pendens as per the Transfer of Property Act.
• The appellants assert the importance of valuation in the auction process and that the reserve price set did not reflect the property’s true market value.
• They argue that a sale certificate must be registered for the transfer to be complete, contrary to the Respondent’s position.
• The appellants claim that the sale of the subject property without a proper valuation report by an approved valuer is a violation of the Enforcement Rules, 2002.
• They also criticize the Authorized Officer as an employee of the bank rather than a Civil or Revenue Officer.
• The appellants contend that allowing redemption even after the sale certificate is issued would make the SARFAESI Act redundant and open the door to extensive litigation.
• The subsequent purchaser is not a bonafide purchaser for consideration without notice.
• The subsequent purchaser cannot resist the claim of the appellants.
• The appellants did not tender the dues to the respondent bank before the date fixed for sale or public auction.
• Reliance is placed on T. Ravi and Another Vs. B. Chinna Narasimha and Others and Kirpal Kaur Vs. Jitender Pal Singh and Others to support the above contentions.
• It is contended that the Court should use Article 142 of the Constitution of India to declare the subsequent sale of the mortgaged property as null and void.

Also Read: Judgment by Supreme Court of India in M/s. Bhilwara Processors Ltd. vs. Department of Central Excise

Analysis

• The appellants did not make a valid tender to pay the outstanding dues to the bank before the specified date.
• The attempts made by the appellants – depositing in the father’s account, issuing cheques to the authorized officer, were not valid tenders according to the agreed terms.
• The sale certificate registration and transfer of property to a third party had already taken place on 18 September, 2007, and 5 October, 2007, respectively.
• The appellants did not seek permission to deposit the requisite amount either in the loan accounts or in the court throughout the legal proceedings.
• The appellants’ contentions of wanting to exercise their right of redemption were not substantiated as they approached the secured creditor only after the sale concluded.
• The appellants failed to challenge the notice of auction before the auction date, thus preventing them from redeeming the mortgage.
• The Division Bench allowed the appeals of the auction purchaser (respondent No.3) and dismissed the writ petitions by the appellants.
• Even after the disposal of the writ appeals, the appellants did not seek an interim injunction to prohibit further transactions by the auction purchaser.
• The sale in favor of respondent No.3 was considered final and complete post the registration of the sale certificate.
• The entire auction process could not be set aside as the sale transaction had reached finality.
• The SARFAESI Act provisions regarding redemption, auction process, and validity of tenders were discussed to ascertain the appellants’ claims.
• The SARFAESI Act provides the right to redeem the mortgage before foreclosure or sale of the property.
• The right to redemption by the mortgagor continues until the sale of the property is completed by registration.
• In this case, the sale became absolute and complete upon the issuance of the sale certificate on 6.1.2006.
• The sale on 19.12.2005 became final once confirmed in favor of the auction purchaser.
• The auction purchaser becomes the absolute owner upon issuance of the sale certificate, registration is not essential.
• The mortgagor’s right to redemption under Section 60 of the Transfer of Property Act must be exercised before the mortgagee files a suit for enforcement.
• The sale certificate issued to the appellant does not require registration under section 17(2)(xii) of the Registration Act.
• The Supreme Court decision in Narandas Karsondas vs. S.A. Kamtam is deemed inapplicable to this case as per section 17(2)(xii) of the Registration Act.
• Registration of the sale certificate in relation to the auction conducted under the 2002 Act is deemed unnecessary in the present case.
• The appellants lost their right of redemption due to the registration of the sale certificate on 18 September 2007 and their failure to pay dues before that date.
• The appellants failed to make a valid and legal tender to the respondent bank before the sale certificate was issued on 6 January 2006 and registered on 18 September 2007.
• The court does not need to consider other grounds presented by the appellants due to the conclusions reached above.
• The court cannot accept the argument for exercising plenary powers under Article 142 of the Constitution of India based on the circumstances outlined.
• Reported decisions cited by both parties were considered in reaching the decision.

Decision

• All applications disposed of
• Appeals dismissed
• No order as to costs

Case Title: SHAKEENA . Vs. BANK OF INDIA AND ORS.

Case Number: C.A. No.-008097-008098 / 2009

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