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The Supreme Court Affirms Limited Redemption Rights under SARFAESI Act Post-Auction Notice, Reinforcing Auction Finality and Debt Recovery Mechanisms

The Supreme Court held that the borrowers' right to redeem the mortgage is extinguished upon the publication of the auction notice under Section 13(8) of the SARFAESI Act.


The Supreme Court Bench led by Dr. D.Y. Chandrachud, CJI and Justice held that the borrowers' right to redeem the mortgage is extinguished upon the publication of the auction notice under Section 13(8) of the SARFAESI Act, and any attempt to redeem the property post-auction undermines the finality of the auction process; the Court also emphasized that writ petitions are not maintainable when an alternative statutory remedy exists under Section 17 of the SARFAESI Act.


Under the amended Section 13(8) of the SARFAESI Act, a borrower’s right to redeem a secured asset is extinguished upon the issuance of a public auction notice under Rule 9(1) of the Rules of 2002. Once this auction notice is published, the auction purchaser acquires a vested right to the sale certificate, restricting the borrower’s redemption rights to the point of notice issuance and thereby ensuring the finality of the auction process. Bank after having confirmed the sale under Rule 9(2) of the Rules of 2002 could not have withheld the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower. Furthermore, High Courts should refrain from exercising writ jurisdiction under Article 226 where an effective remedy exists under Section 17 of the SARFAESI Act. Consequently, the High Court's decision was set aside, with the bank directed to issue the sale certificate to the auction purchaser upon receipt of the additional payment, reinforcing the procedural integrity of the auction process and upholding statutory debt recovery mechanisms under the SARFAESI Act.


The Supreme Court judgment addressed critical issues surrounding the right of redemption in mortgage cases involving the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The case arose from appeals challenging a High Court decision permitting borrowers to redeem mortgaged property even after an auction had been completed. The appellant, an auction purchaser, argued against this ruling, asserting that the borrowers' right to redemption was extinguished after the auction notice, as provided under Section 13(8) of the SARFAESI Act. The borrowers had initially defaulted on a Rs. 100 crore loan, which led the bank, as the secured creditor, to declare the loan a Non-Performing Asset (NPA) and conduct multiple auction attempts, culminating in a final auction where the appellant was the highest bidder.


The Court’s examination centred on whether borrowers could still invoke the right of redemption post-auction and whether the High Court’s writ jurisdiction was appropriate given the alternative statutory remedy available under Section 17 of the SARFAESI Act. The Court emphasized that under the amended Section 13(8), a borrower’s right to redeem is indeed curtailed upon the issuance of the auction notice. Consequently, once the auction reaches finality and a sale certificate is due, any further claims of redemption conflict with the SARFAESI Act’s aim of expediting debt recovery and maintaining auction integrity.


The judgment highlighted that, despite the Transfer of Property Act’s provision allowing redemption rights until sale finalization, the SARFAESI Act, as a special law, prevails in foreclosure situations, thus limiting the general right to redemption. The Supreme Court clarified that writ jurisdiction should not be invoked where effective statutory remedies exist. It held that the auction purchaser acquires a vested right to the sale certificate once the bank confirms the sale, further stressing that the bank must promptly issue this certificate to uphold auction finality.


Ultimately, the Supreme Court set aside the High Court’s order, dismissing the appeals and affirming that the borrower’s redemption rights are terminated once the auction notice is issued, ensuring that the statutory mechanisms under the SARFAESI Act remain the primary route for debt recovery. This decision underscores the legislative intent to streamline recovery processes while balancing the rights of all parties in secured asset enforcement.


Mr. Mukul Rohatgi and Mr. Neeraj Kishan Kaul, Senior Advocates represented the Appellant.


Mr. Shyam Divan and Mr. Nikhil Nayyer, Senior Advocates appeared for the borrowers.


 

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