The Supreme Court held that the borrower's right to redeem the mortgage was extinguished after the sale notice was issued, upheld the validity of the auction, and found the borrower and subsequent transferee guilty of contempt for obstructing the Court’s order.
The Supreme Court Bench of Justice J.B. Pardiwala and Justice Manoj Misra reviewed two contempt petitions in civil appeals and held that the borrower's right to redeem the mortgage under the SARFAESI Act is extinguished once a sale notice is issued. The Court further affirmed that the auction sale is valid unless challenged on grounds of fraud or procedural errors, and found that actions obstructing the Court's decision amounted to contempt.
The Supreme Court case concerns a dispute over the redemption of a mortgage under the SARFAESI Act following an auction sale. In 2017, a Bank granted a credit facility that included a Lease Rental Discounting (LRD) facility of Rs. 100 crore, followed by an additional Rs. 6.77 crore in 2020, with a mortgage created over a parcel of land as collateral. The borrower defaulted, leading the Bank to declare the account a Non-Performing Asset (NPA) and initiate possession proceedings in 2021. Despite multiple auction attempts, a successful sale occurred in June 2023, with the petitioner making payments in instalments. The borrower attempted to redeem the mortgage, filing a writ petition in the Bombay High Court seeking redemption, and despite initial opposition, the Bank agreed to the borrower’s offer of Rs. 129 crore for redemption.
The Bombay High Court allowed redemption on payment terms, but the petitioner filed Special Leave Petitions (SLPs) before the Supreme Court, which set aside the High Court's order. The Court held that the borrower could not redeem the mortgage after the sale notice and directed the petitioner to pay an additional amount to the Bank for the issuance of a sale certificate. Post-judgment, the borrower and a subsequent transferee engaged in further litigation to challenge the sale and prevent the transfer of possession, leading to contempt proceedings. The Court found their actions obstructed the implementation of its judgment and highlighted the importance of judicial authority in upholding the sale.
The key issues revolved around the interpretation of the borrower’s right to redeem the mortgage, with the Court affirming that such a right exists only until the sale notice is issued, as per the 2016 Amendment to Section 13(8) of the SARFAESI Act. It also addressed the applicability of the Doctrine of Election, preventing the borrower from pursuing both DRT and High Court proceedings. The principle of lis pendens was invoked, rendering the transfer of the secured asset to a subsequent transferee invalid due to pending litigation. On contempt, the Court found both the borrower and the transferee guilty of obstructing the Court’s order. Finally, the Court confirmed the validity of the auction sale, emphasizing that such sales can only be contested on the grounds of fraud or procedural errors, thus upholding the auction and directing the issuance of the sale certificate to the petitioner.
Mr. Mukul Rohatgi and Mr. Neeraj Kishan Kaul, Senior Advocates represented the Appellant.
Dr. A.M. Singhvi, Senior Advocate appeared for Respondent No. 1.
Mr. Kapil Sibal, Senior Advocate appeared for the Subsequent Transferee/R-2 & R-4.
Mr. Raju Ramachandran, Senior Advocate appeared for the Bank/R-3.
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