CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS

Citation: [2023] 13 S.C.R. 53, [2023] 13 S.C.R. 54, 2023 INSC 838

Court: Supreme Court of India

Bench: DR. DHANANJAYA Y. CHANDRACHUD, CJI AND J. B. PARDIWALA, J.

Judgment text

SUPREME COURT OF INDIA CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS. Civil Appeal Nos. 5542 - 5543 of 2023 [2023] 13 S. C. R. 53 : 2023 INSC 838 CASE DETAILS CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. LTD. & ORS. (Civil Appeal Nos. 5542 - 5543 of 2023) SEPTEMBER 21, 2023 [DR. DHANANJAYA Y. CHANDRACHUD, CJI AND J. B. PARDIWALA, J. ] HEADNOTES Issues for consideration: The present appeals by the appellant-auction purchaser were against the judgment passed by the High Court by which it allowed the writ petition filed by respondent no. 1-borrowers and directed the respondent no. 3-Bank to permit the borrowers to redeem the mortgage of the secured asset after the auction proceedings had attained finality. The questions for consideration were:- 1. Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the alternative remedy available to the Borrowers had already been availed of. 2.

Whether the confirmation of sale by the Bank under Rule 9(2) of the Security Interest (Enforcement) Rules, 2002 invests the successful auction purchaser with a vested right. 3. What is the impact of the amended Section 13(8) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) on the Borrowers' right of redemption in an auction conducted under the SARFAESI Act. What is the effect of amendment to Section 13(8) of the SARFAESI Act read with Section 60 of the Transfer of Property Act, 1882. 4. Whether a Bank after having confirmed the sale under Rule 9(2), can withhold the sale certificate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower. 53 54 SUPREME COURT REPORTS [2023] 13 S. C. R. 5. Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act. 6.

Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction. Till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act. Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) - s. 17 - Constitution of India - Art. 226 - Exercise of writ jurisdiction u/ Art. 226 of the Constitution when alternative remedy u/s. 17 of SARFAESI Act already availed by the borrower - If justifi ed.

Held: The Supreme Court has time and again, reminded the High Courts that they should not entertain petition under Article 226 of the Constitution if an eff ective remedy is available to the aggrieved person under the provisions of the SARFAESI Act - In the present case, the High Court was not justifi ed in exercising its writ jurisdiction under Article 226 of the Constitution more particularly when the borrowers had already availed the alternative remedy available to them under s. 17 of the SARFAESI Act. [Paras 92, 105] Security Interest (Enforcement) Rules, 2002 - r. 9(2) - Whether the confi rmation of sale by the Bank under r. 9(2) invests the successful auction purchaser with a vested right. Held: The confi rmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right to obtain a certifi cate of sale of the immovable property in form given in appendix (V) to the Rules i. e.

, in accordance with Rule 9(6) of the SARFAESI. [Para 105] Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) - ss. 13(8) and 35 - Transfer of Property Act, 1882 - s. 60 - Impact of amended s. 13(8) of SARFAESI Act on the Borrowers' right of redemption in an auction conducted under the SARFAESI Act - Eff ect of amendment to s. 13(8) of SARFAESI Act r/w s. 60 of the Transfer of Property Act, 1882. Mortgage - Right of redemption of mortgage. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 55 LTD. & ORS. Held: 1.

In accordance with the unamended Section 13(8) of the SARFAESI Act, the right of the borrower to redeem the secured asset was available till the sale or transfer of such secured asset - The borrower's right of redemption did not stand terminated on the date of the auction sale of the secured asset itself and remained alive till the transfer was completed in favour of the auction purchaser, by registration of the sale certifi cate and delivery of possession of the secured asset - However, the amended provisions of Section 13(8) of the SARFAESI Act, make it clear that the right of the borrower to redeem the secured asset stands extinguished thereunder on the very date of publication of the notice for public auction under Rule 9(1) of the Rules of 2002 - In eff ect, the right of redemption available to the borrower under the present statutory regime is drastically curtailed and would be available only till the date of publication of the notice under Rule 9(1) of the Rules of 2002 and not till the completion of the sale or transfer of the secured asset in favour of the auction purchaser.

[Para 105] 2. The SARFAESI Act is a special law containing an overriding clause in comparison to any other law in force - Section 60 of the Transfer of Property Act, 1882, is a general law vis-a-vis the amended Section 13(8) of the SARFAESI Act which is special law - The right of redemption is clearly restricted till the date of publication of the sale notice under the SARFAESI Act, whereas the said right continues under Section 60 of the Act 1882 till the execution of conveyance of the mortgaged property - The SARFAESI Act is a special law of recovery with a paradigm shift that permits expeditious recovery for the banks and the fi nancial institutions without intervention of Courts - Similarly, Section 13(8) of the SARFAESI Act is a departure from the general right of redemption under the general law i. e.

the Act 1882 - Further, the legislature has in the objects and reasons while passing the amending Act specifi cally stated "to facilitate expeditious disposal of recovery applications, it has been decided to amend the said Acts.... " - Thus, while interpreting Section 13(8) vis-à-vis Section 60 of the Act 1882, an interpretation which furthers the said object and reasons should be preferred and adopted - If the general law is allowed to govern in the manner as sought to be argued by the borrowers, it will defeat the very object and purpose as well as the clear language of the amended Section 13(8) - In the light of clear inconsistency between Section 13(8) of the SARFAESI Act and Section 60 of the Act 1882 the former special enactment overrides the latter general enactment in light of Section 35 of the SARFAESI Act - Thus, the right of redemption of mortgage is available to the borrower under the SARFAESI 56 SUPREME COURT REPORTS [2023] 13 S. C. R.

Act only till the publication of auction notice and not thereafter, in light of the amended Section 13(8). [Paras 64 and 68] Security Interest (Enforcement) Rules, 2002 - r. 9(2) and r. 9(6) - Whether a Bank after having confi rmed the sale under r. 9(2), can withhold the sale certifi cate u/r. 9(6) and enter into a private arrangement with a borrower. Held: The Bank after having confi rmed the sale under Rule 9(2) of the Rules of 2002 could not have withhold the sale certifi cate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower. [Para 105] Constitution of India - Art. 226 - Scope u/Art. 226, to apply equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act - Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act).

Held: The High Court under Article 226 of the Constitution could not have applied equitable considerations to overreach the outcome contemplated by the statutory auction process prescribed under the SARFAESI Act. [Para 105] The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - s. 13(8) - Interpretation of. Auction - Auction process under the SARFAESI Act. Auction - Public Auction - Sanctity of - Courts ought to be loath in interfering with auctions.

Held: As per the amended Section 13(8) of the SARFAESI Act, once the borrower fails to tender the entire amount of dues with all cost & charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the Rules of 2002 - It is the duty of the courts to zealously protect the sanctity of any auction conducted - The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confi dence and participation in the same - Any other interpretation of the amended Section 13(8) will lead to a situation where multiple redemption off ers would be encouraged by a mischievous borrower, the members of the public would be dissuaded and discouraged CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 57 LTD. & ORS.

from in participating in the auction process and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the SARFAESI Act - Thus, it is in the larger public interest to maintain the sanctity of the auction process under the SARFAESI Act. [Paras 86, 87 and 88] Equity - Law and Equity - Relationship. Held: Equity cannot supplant the law - Equity has to follow law, if the law is clear and unambiguous. [Para 104] LIST OF CITATIONS AND OTHER REFERENCES Concern Readymix, rep. by its Proprietor, Smt. Y. Sunitha v. Authorised Offi cer, Corporation Bank and Anr. 2018 SCC OnLine Hyd 783; M/s Pal Alloys and Metal India Private Limited & Ors. v. Allahabad Bank & Ors. 2021 SCC OnLine P&H 2733; Amme Srisailam v. Union Bank of India, Regional Offi ce, Guntur, rep. by its Region Head & Deputy General Manager, Andhra Pradesh & Ors. , W. P. No. 11435 of 2021 (Decision of Telangana High Court dated 17. 08. 2022) - held not correct law.

Sai Annadhatha Polymers & Anr. v. Canara Bank rep. by its Branch Manager, Mandanapalle 2018 SCC OnLine Hyd 178; K. V. V. Prasad Rao Gupta v. State Bank of India 2021 SCC OnLine TS 328 - held correct law. Mathew Varghese v. M. Amritha Kumar and Ors. , (2014) 5 SCC 610 : [2014] 2 SCR 736; Shakeena and Anr. v. Bank of India and Ors. (2021) 12 SCC 761 : [2019] 11 SCR 341; S. Karthik & Ors. v. N. Subhash Chand Jain & Ors. , (2022) 10 SCC 641 - explained. Varimadugu OBI Reddy v. B. Sreenivasulu & Ors. (2023) 2 SCC 168; Authorised Offi cer State Bank of India v. C. Natarajan and Anr. 2023 SCC OnLine SC 510; Narandas Karsondas v. S. A. Kamtam and Another (1977) 3 SCC 247 : [1977] 2 SCR 341; Embassy Hotels Private Ltd. v. Gajraj and Company & Ors. (2015) 14 SCC 316 : [2014] 14 SCR 603; Maharashtra University of Health Sciences v. Satchikitsa Prasarak Mandal (2010) 3 SCC 786 : [2010] 3 SCR 91; National Spot Exchange Ltd. v. Anil Kohli, Resolution Professional for Dunar Foods Ltd.

(2022) 11 SCC 761; Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. (2004) 4 SCC 311 : [2004] 3 SCR 982; Madras Petrochem Ltd. & Anr. v. Board for Industrial and Financial Reconstruction & Ors. (2016) 4 SCC 1 : [2016] 11 SCR 419; L. K. Trust v. EDC Limited and Others (2011) 6 SCC 780 : [2011] 7 SCR 569; Dwarika Prasad v. State of Uttar Pradesh (2018) 5 58 SUPREME COURT REPORTS [2023] 13 S. C. R. SCC 491 : [2018] 3 SCR 29; Allokam Peddabbayya & Anr. v. Allahabad Bank & Ors. (2017) 8 SCC 272 : [ 2017] 8 SCR 121; Arce Polymers Pvt. Ltd. v. Alpine Pharmaceuticals Pvt. Ltd. & Ors. (2022) 2 SCC 221; M. D. Frozen Foods Exports Private Limited & Ors. v. Hero Fincorp Limited (2017) 16 SCC 741 : [2017] 13 SCR 800; Vishal N. Kalsaria v. Bank of India & Ors. (2016) 3 SCC 762 : [2016] 1 SCR 419; Valji Khimji and Company v. Offi cial Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Ors. (2008) 9 SCC 299 : [2008] 12 SCR 1; K. Kumara Gupta v.

Sri Markendaya and Sri Omkareswara Swamy Temple & Ors. (2022) 5 SCC 710; Eva Agro Feeds Private Limited v. Punjab National Bank & Anr. 2023 SCC OnLine SC 1138; United Bank of India v. Satyawati Tondon & Ors. (2010) 8 SCC 110 : [2010] 9 SCR 1; Commissioner of Income Tax & Ors. v. Chhabil Dass Agarwal (2014) 1 SCC 603; Phoenix ARC Private Limited v. Vishwa Bharati Vidya Mandir & Ors. (2022) 5 SCC 345; Sadashiv Prasad Singh v. Harendar Singh & Ors. (2015) 5 SCC 574 : [2014] 1 SCR 249 - referred to. OTHER CASE DETAILS INCLUDING IMPUGNED ORDER AND APPEARANCES CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5542-5543 of 2023. From the Judgment and Order dated 17. 08. 2023 of the High Court of Judicature at Bombay in CWP No. 9523 of 2023 and IA(ST) No. 21706 of 2023. Appearances: Mukul Rohatgi, Neeraj Kishan Kaul, Sr. Advs. , Mahesh Agarwal, Rishi Agrawala, Ankur Saigal, Ms. Anwesha Padhi, Chirag Nayak, Robin Fernandes, Ms. Diksha Rai, Kunal Mehta, Ms. Ira S. Mahajan, Ms.

Roopali Lakhotia, E. C. Agrawala, Advs. for the Appellant. Shyam Divan, Nikhil Nayyar, Sr. Advs. , Omkar Kanegaonkar, Shreeyash Uday Lalit, Devashish Godbole, Anuj Joglekar, Ishaan George, Abhinav Aggarwal, Krishnagopal Abhay, Ms. Runjhun Garg, Himanshu Vats, Advs. for the Respondents. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 59 LTD. & ORS. JUDGMENT / ORDER OF THE SUPREME COURT JUDGMENT J. B. PARDIWALA, J. For the convenience of the exposition, this judgment is divided in the following parts: A. Factual Matrix........................................................................ 3-10* B. Submissions on behalf of the Appellant .............................. ......... 10-13* C. Submissions on behalf of the Borrowers............................. .......... 13-23* D. Questions of Law falling for the determination of the Court ........................................................................................... 23-24* E.

Legislative History and Scheme of the SARFAESI Act.................. .................................................................................... 24-45* F. Redemption of Mortgage under Section 60 of the Transfer of Property Act, 1882 ............................................................................ 45-49* G. Redemption of Mortgage under the SARFAESI Act...................... ............................................................................... 49-68* H. Eff ect of the Amendment to Section 13(8) of the SARFAESI Act... .................................................................................................. 69-80* I. Why the decision of the Telangana High Court in the case of Amme Srisailam v. Union Bank of India, Regional Offi ce, Guntur, rep. by its Region Head & Deputy General Manager, Andhra Pradesh & Ors. , W. P. No. 11435 of 2021, is not a good law?

................................................................................................... 80-93* J. Sanctity of Public Auction................................................... ........... 93-97* K. Exercise of Extraordinary Jurisdiction by the High Court under Article 226 of the Constitution in SARFAESI matters....... ......... 97-103* *Ed. Note: The pagination as per the original Judgment. 60 SUPREME COURT REPORTS [2023] 13 S. C. R. L. Conduct of the Bank........................................................... 103-108* M. Summary of the Final Conclusion................................... 108-111* 1. Since the issues raised in both the captioned appeals are same, the parties are also the same and the challenge is also to the self-same judgment and order passed by the High Court those were taken up for hearing analogously and are being disposed of by this common judgment and order. 2.

For the sake of convenience, we clarify that the appellant herein is an auction purchaser, the respondent No. 1 is the Borrower, the respondent No. 2 is the Guarantor and the respondent No. 3 is the Bank (Secured Creditor). 3. These appeals are at the instance of an auction purchaser left high and dry by the respondents herein and is directed against the common judgment and order passed by the High Court of Judicature at Bombay in Writ Petition No. 9523 of 2023 with Interim Application (ST) No. 21706 of 2023 (for impleadment) by which the High Court allowed the writ petition fi led by the borrowers and thereby directed the Bank to permit the borrowers to redeem the mortgage of the secured asset more particularly after the auction proceedings attained fi nality. FACTUAL MATRIX 4. It appears from the materials on record that the borrowers had availed credit facility from the Bank on 03. 07. 2017.

Accordingly, the Bank sanctioned Lease Rental Discounting (for short, 'the LRD') credit facility to the tune of Rs. 100 crore in favour of the borrower with the respondent No. 2 standing as a guarantor. Out of the total amount sanctioned, the amount of Rs. 65 crore was adjusted against the then existing LRD facility granted by the previous bank and for the balance amount of Rs. 35 crore a security in the form of a simple mortgage was created over a parcel of land admeasuring 16200 sq. metres having buildings and ancillary structures on it at plot Nos. D-105, D-110 and D-111 respectively situated at the Trans Thane Creek Industrial Area MIDC Village Shirwane, Thane, Belapur Road, Nerul, Navi Mumbai, Thane, Maharashtra in lieu of the sanctioned credit. *Ed. Note: The pagination as per the original Judgment. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 61 LTD. & ORS. [J. B. PARDIWALA, J. ] 5.

The borrower defaulted in repayment of the loan amount and accordingly the loan account was declared as a Non-Performing Asset (NPA). 6. The Bank issued a demand notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short, 'the SARFAESI Act') for repayment of the principal amount along with interest, cost, charges, etc. As on 30. 04. 23, an aggregate sum of Rs. 123. 83 crore was due and payable by the borrower to the Bank. 7. Owing to the failure of the borrower & the guarantor in repaying the outstanding amount referred to above, the Bank proceeded to take measures for possession of the secured asset under the provisions of the SARFAESI Act. The Bank decided to put the secured asset to auction. It appears that between April 2022 & June 2023, the Bank attempted eight auctions but all failed. 8. In the meantime, the borrowers preferred a Securitization Application being SA No.

46 of 2022 before the Debt Recovery Tribunal-I, Mumbai (for short, "DRT") inter alia challenging the demand notice issued under Section 13(2) of the SARFAESI Act and also for quashing of the sale notice dated 25. 03. 22 in respect of the secured asset. It is not in dispute that the said application as on date is still pending before the DRT. 9. It appears that the borrowers informed the Bank that they were trying to sell the secured asset but were not getting good off ers. The borrowers informed the Bank that the maximum they might be able to fetch from the sale of the secured asset would be around Rs. 91-92 crore and they were willing to settle the entire account by off ering such amount to the Bank. 10. The Bank decided to go for one more auction. On 14. 06. 23, the Bank published the auction notice for the 9th time for sale of the secured asset at a reserve price of Rs. 105 crore.

On publication of the auction notice, the appellant herein participated in the auction proceedings conducted on 27. 06. 23 and submitted its bid of Rs. 105. 05 crore, along with a deposit of Rs. 10. 5 crore as earnest money. 11. In the 9th auction conducted by the Bank, the appellant herein was declared as the highest bidder. The Bank on 30. 06. 2023 vide its email sent a "Sale Confi rmation Letter" to the appellant, declaring him as the highest bidder / H1 in the auction of the secured asset and called upon 25% of the bid amount by 01. 07. 23 and the balance amount on or before 15. 07. 23. The email is reproduced below: - "admin@mstcauction. com SALE CONFIRMATION LETTER (Property-UBINMUMSAM2888) To: Mac, Cc: samvmumbai@unionbankofindia. bank, ibapiop@ mstcauction. com CELIR LLP Date: 30-06-2023: C-708 teerth technospace 7th fl oor Sr no 103 baner Pune 411045 INDIA Date: 30. 06. 2023 Time: 06:36 PM Dear Sir / Madam, Your Bid of amount Rs. 1050500000. for the property ID No.

UBINMUMSAM2888 during online auction held on e-BKRAY portal on Date: 30-06-2023, is accepted as highest bid and accordingly you have been declared H1 bidder for the said property. In terms of Sale Notice issued under the provisions of SARFAESI Act, you are required to deposit 25% of the Bid amount, which comes to Rs. 262625000. Including 10% of reserve price as EMO amount, which has been deducted from your Global EMO Wallet, immediately, but not later than 01-07-2023. In case 01. 07. 2023 is a holiday, payment should be made within the next working day at concerned branch of Bank in account No. 087021980050000. Further, you are required to deposit the balance amount of Rs. 787875000, being 75% of entire bid amount within 15 days i. e. on or before 15. 07. 2023 at Concerned Branch of Bank in account No. 087021980050000.

Please be informed that in case you fail to deposit due amount by scheduled dates, sale shall be cancelled and any amount deposited by you related to this bid, shall be forfeited. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 63 LTD. & ORS. [J. B. PARDIWALA, J. ] Authorized offi cer Name of Authorized Offi cer: Sidharath S. Mhade Name of Bank: UNION BANK OF INDIA Contact No. or AO: 898-518779 e-Mail to or AO: samvmumbai@unionbankofi nida. bank (This mail is from Authorized Offi cer and being generated through computer system, hence needs no signature)" 12. On 01. 07. 2023, the appellant deposited 25% of the total bid amount (minus the earnest money deposit). In the wake of such development, the borrowers fi led an Interim Application No. 2339 of 2023 on 04. 07. 2023, titled Redemption Application in S. A. No. 46 of 2022 before the DRT-I, Mumbai for redemption of the mortgage in respect of the secured asset by payment of the total outstanding sum of Rs 123. 83 crore (approx.

) on or before 31. 08. 23. 13. On 27. 07. 23, the appellant herein deposited the balance sum of the total bid amount which was duly received and accepted by the Bank. On the very same day, the redemption application referred to above was also heard by the DRT-I. The redemption application was opposed by both the appellant herein as well as the Bank. The DRT after hearing the parties at length, reserved orders to be pronounced on 02. 08. 23. 14. While the parties were awaiting for the DRT to pass appropriate an on order on the redemption application, the borrowers went to the High Court and fi led the Writ Petition No. 9523 of 2023, seeking directions to the Bank to permit them to redeem the mortgage of the secured asset. 15.

The writ petition was fi led on the premise that the borrowers had strong apprehension that the DRT may reject their redemption application and the entire matter would become infructuous more particularly, the Bank having accepted the entire amount from the appellant herein of the total bid. 16. Before the High Court, the borrowers expressed their willingness to pay a total sum of Rs. 129 crore for redeeming the mortgage by 31. 08. 23. The Bank which had earlier opposed the plea for redemption of mortgage before the DRT for some good reason expressed its willingness before 64 SUPREME COURT REPORTS [2023] 13 S. C. R. the High Court to accept the off er of the borrowers. The Bank perhaps got lured by the fact that the borrowers were paying almost Rs. 23. 95 crore more than what was paid by the appellant herein and Rs. 5 crore more than the outstanding amount. 17.

It also appears that the appellant herein having come to know about such writ petition fi led in the High Court preferred Interim Application (ST) No. 21706 of 2023 for being impleaded in the writ petition. 18. The writ petition along with interim application was heard by the High Court and vide its impugned judgment and order dated 17. 08. 2023 allowed the writ petition and permitted the borrowers to redeem the mortgage of the secured asset subject to payment of Rs. 25 crore on the same day and the balance amount of Rs. 104 crore on or before 31. 08. 2023, failing which the sale of secured asset in favour of the appellant herein would be confi rmed. 19. The operative part of the impugned order passed by the High Court reads thus: "(a) The Petitioner shall hand over a sum of Rs. 25 crores to the Respondent Bank today. In compliance with this direction, Mr. Khandeparkar has handed over three Demand Drafts in the sum of Rs.

10 crores, 10 crores and 5 crores respectively to the learned Advocate appearing on behalf of the Respondent Bank which is duly acknowledged by him. The Bank is entitled to encash these Demand Drafts and appropriate the sum of Rs. 25 crores towards the outstanding dues of the Petitioners. (b) The balance amount of Rs. 104 crores shall be paid by the Petitioners to the Respondent Bank on or before 31st August 2023 in the designated account below: - Union Bank of India Stressed Asset Management Branch, Mumbai IFSC UBIN0908703 A/c. No. 087021980050000 (c) If the amount of Rs. 104 crores are paid in the said account on or before 31st August 2023, the same shall be appropriated by the Respondent-Bank towards the dues of the Petitioners. The Bank CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 65 LTD. & ORS. [J. B. PARDIWALA, J.

] shall then return the original title deeds of the secured asset to the Petitioners, execute all such documents for cancellation of mortgage, and issue a 'No Dues Certifi cate' to the Petitioners. (d) Mr. Shinde, the learned Advocate appearing for the Respondent- Bank, has brought to our attention that out of the entire amount of Rs. 105. 05 crores deposited by the Auction Purchaser, the RespondentBank has appropriated the sum of Rs. 63,50,45,000/- towards the loan amount of the Petitioners. We therefore direct that the Respondent-Bank shall reverse this entry and immediately keep the entire amount of Rs. 105. 05 crores [deposited by the auction purchaser] in a No Lien interest bearing account. If the Petitioners pay the balance amount of Rs. 104 crores to the Respondent Bank by 31st August 2023, then the Respondent-Bank shall refund the amount of Rs. 105. 05 crores deposited by the Auction Purchaser together with accrued interest on or before 7th September 2023.

(e) In the event the balance amount of Rs. 104 crores are not paid by the Petitioners to the Respondent-Bank on or before 31st August 2023, the Respondent Bank shall then be entitled to appropriate the money from the No Lien interest bearing account towards the dues payable by the Petitioners and the sale of the secured asset shall be confi rmed in favour of the Auction Purchaser and a sale certifi cate shall be issued in their favour. All formalities in relation to registration of that certifi cate shall also be done by the Respondent-Bank and the Auction Purchaser. (f) In light of this order, Mr. Khandeparkar has stated that, nothing would survive in Securitization Application No. 46 of 2022 and/or the Interim Applications fi led therein and seeks leave to withdraw the same within a period of one week from today. The said statement is accepted as an undertaking given to the Court.

It is needless to clarify that even if the Petitioners do not withdraw the Securitization Application, the same shall stand dismissed in light of this order and the Petitioners will not be permitted to litigate any further with the Respondent Bank in relation to the secured asset. In other words, if the Petitioners default in making the balance payment of Rs. 104 crores to the Respondent Bank by 31st August 2023, the Auction 66 SUPREME COURT REPORTS [2023] 13 S. C. R. Purchaser shall get the secured asset free from litigation. As per the statement made by Mr. Khandeparkar, and which is accepted as an undertaking given to the Court, if the Petitioners default in making the balance payment of Rs. 104 crores by 31st August 2023, physical, vacant, quiet, and peaceful possession of the secured asset shall be handed over to the Auction Purchaser on or before 5th September 2023. " 20.

It appears that during the pendency of the present appeals, the borrowers transferred the balance amount of Rs. 104 crore on 26. 08. 2023 to the Bank in terms of the impugned order passed by the High Court. With the transfer of the amount of Rs. 104 crore, the Bank issued a "No Dues Certificate" on 28. 08. 23. On the very same day, the borrowers entered into an Agreement of Assignment of Leasehold Rights with a third-party viz. M/s Greenscape I. T. Park LLP for the transfer of leasehold rights in the secured asset and the said agreement was registered before the Joint Sub Registrar, Thane 8 vide Registration No. 19286 of 2023. 21. Being aggrieved and dissatisfied with the aforesaid order passed by the High Court, the appellant is here before this Court with the present appeals. SUBMISSIONS ON BEHALF OF THE APPELLANT 22. Mr. Mukul Rohatgi, the learned Senior Counsel and Mr. Neeraj Kishan Kaul, the learned Senior Counsel appearing for the appellant made the following submissions: a.

The writ petition filed by the borrowers before the High Court was not maintainable in view of the alternative remedy available to them under Section 17 of the SARFAESI Act and more particularly when such alternative remedy had already been availed by the borrowers. b. The High Court ought not to have entertained the writ petition on the ground that although the auction proceedings had attained finality and the appellant herein was declared as the successful highest bidder yet the bank was getting more amount as offered by the appellant compared to the sale bid. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 67 LTD. & ORS. [J. B. PARDIWALA, J. ] c. Mere apprehension on the part of the litigant that an adverse order might be passed by a forum which was already looking into the issue cannot be a ground to invoke the extraordinary jurisdiction under Article 226 of the Constitution. d.

The High Court failed to consider that in view of the amended provision of Section 13(8) of the SARFAESI Act, the right of redemption of mortgage stood extinguished upon publication of the auction notice. If the Borrower is permitted to redeem the mortgage at the very last moment, more particularly even after payment of entire amount by the auction purchaser, then no auction would ever attain fi nality and indirectly, the borrower is given indefi nite time to repay the outstanding amount. e. The High Court failed to appreciate an important fact that the Bank had already confi rmed the sale of the secured asset to the appellant and as such the appellant had a vested right to the secured asset. Once the sale was confi rmed, the Bank in accordance with Rule 9(2) read with Rule 9(6) of the Security Interest (Enforcement) Rules, 2002, ("Rules of 2002") was under a legal obligation to issue a sale certifi cate to the appellant.

The Bank could not have consented before the High Court to the borrowers' plea of redemption. f. The High Court committed a serious error of law in considering the equities in favour of the borrowers unmindful of the fact that equity follows the law. g. In the last, Mr. Rohatgi submitted that his client is ready and willing to make good the entire amount of Rs. 129 crore by depositing Rs. 23. 95 crore with the Bank, in addition to the amount of Rs. 105. 05 already deposited with the Bank. h. With a view to fortify the aforesaid submissions reliance was placed on the following decisions: i) United Bank of India v. Satyawati Tondon & Ors. , (2010) 8 SCC 110; ii) Varimadugu OBI Reddy v. B. Sreenivasulu & Ors. , (2023) 2 SCC 168; iii) Valji Khimji and Company v. Offi cial Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Ors. , (2008) 9 SCC 299; iv) Authorised Offi cer State Bank of India v. C. Natarajan and Anr. , 2023 SCC OnLine SC 510; and v) Sadashiv Prasad Singh v.

Harendar Singh & Ors. , (2015) 5 SCC 574. SUBMISSIONS ON BEHALF OF THE BORROWERS 23. Mr. Shyam Divan, the learned Senior Counsel and Mr. Nikhil Nayyer, the learned Senior counsel appearing for the borrowers made the following submissions: a. That after the impugned order was dictated in the open court on 17. 8. 2023 and subsequently uploaded on the website of Bombay High Court on 26. 8. 2023, the following developments took place: (i) The borrowers transferred an amount of Rs. 104 Crores to the Union Bank of India vide RTGS, having UTR No. HDFCR52023082882894716. (ii) This was followed by the Respondent No. 3, i. e. , Union Bank of India issuing a No Dues Certifi cate dated 28. 08. 2023 thereby acknowledging that the borrowers do not owe any further amount to the Bank and releasing the personal guarantees as well.

(iii) Further, after the No Dues Certifi cate was issued by the Bank, the borrowers executed a registered Deed of Release in favour of the Tata Motors Financial Solutions Limited registered with the Joint Sub Registrar, Thane 8 having registration No. 19283/2023, whereby the second charge that the Tata Motors Finance Solutions Limited had on the second property came to be released, pursuant to payment of Rs. 15 Crore (Rs. 10 Crore on 18. 08. 2023 and Rs. 5 Crore on 22. 08. 2023 ), which came to be duly acknowledged by the Tata Motors Finance Solutions Limited. (iv) Following this, the borrowers have also entered into a registered Agreement of Assignment of Leasehold Rights for the transfer of leasehold rights in the secured asset with M/s Greenscape L. T. Park LLP on 28. 8. 2023, which came to be registered before the Joint Sub Registrar, Thane 8 having registration No. 19286/2023. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 69 LTD. & ORS. [J. B. PARDIWALA, J. ] b.

Since there has been full compliance of the Impugned Order by the borrowers herein as well as the Bank, the appeals have essentially become infructuous. c. The only issue which remains is the refund of the amount deposited by the appellant herein. This is an issue between the appellant and the Bank and the borrowers have no reason to come in the way of the refund of the amount to the appellant herein. d. There is a specifi c direction issued by the High Court that the Respondent Bank shall immediately keep the entire amount of Rs. 105. 05 crore (deposited by the Auction Purchaser/appellant herein) in a "No Lien Interest Bearing Account" and if the borrowers pay the balance amount of Rs. 104 crore to the Respondent Bank by 31. 8. 2023 (which it has), then the Respondent Bank shall refund the amount of Rs. 105. 05 Crores deposited by the Auction Purchaser together with the accrued interest on or before 7. 9. 2023. e.

The High Court correctly interpreted Section 13(8) of the SARFAESI Act. The right of redemption is nowhere mentioned in the SARFAESI Act and in such circumstances, Section 60 of the Transfer of Property Act, 1882 (for short, 'the Act 1882') should be looked into. Section 60 of the Act 1882 has been interpreted to reserve the right of mortgagor to redeem the property till the stage of the same being conveyed /transferred to a third party. f. The aforesaid interpretation is discernible from the decision of this Court in the case of Narandas Karsondas v. S. A. Kamtam and Another reported in 1977 (3) SCC 247, wherein it has been held that: "34. The right of redemption which is embodied in Section 60 of the Transfer of Property Act is available to the mortgagor unless it has been extinguished by the act of parties.

The combined eff ect of Section 54 of the Transfer of Property Act and Section 17 of the Indian Registration Act is that a contract for sale in respect of immovable property of the value of more than one hundred rupees without registration cannot extinguish the equity of redemption. In India it is only on execution of the conveyance and registration of transfer of the mortgagor's interest by registered instrument that the mortgagor's right of redemption will be extinguished. The conferment of power to sell without intervention of 70 SUPREME COURT REPORTS [2023] 13 S. C. R. the Court in a Mortgage Deed by itself will not deprive the mortgagor of his right to redemption. The extinction of the right of redemption has to be subsequent to the deed conferring such power. The right of redemption is not extinguished at the expiry of the period. The equity of redemption is not extinguished by mere contract for sale. 35.

The mortgagor's right to redeem will survive until there has been completion of sale by the mortgagee by a registered deed. In England a sale of property takes place by agreement but it is not so in our country. The power to sell shall not be exercised unless and until notice in writing requiring payment of the principal money has been served on the mortgagor. Further Section 69(3) of the Transfer of Property Act shows that when a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale. Therefore, until the sale is complete by registration the mortgagor does not lose right of redemption. " (Emphasis supplied) g. The aforesaid position has also been echoed in the case of Mathew Varghese v. M. Amritha Kumar and Ors.

, (2014) 5 SCC 610, wherein this Court held that upon a combined reading of Sections 60 and 54 respectively of the Act 1882 with Section 17 of the Registration Act, 1908, it can be concluded that the extension of the right of redemption comes much later than the sale notice. h. Although the decision in Mathew Varghese (supra) was prior to the 2016 amendment to the SARFAESI Act, yet its applicability has been held valid even after the amendment of the said Act. A Division Bench of the High Court of Telangana in the case of Concern Readymix, rep. by its Proprietor, Smt. Y. Sunitha v. Authorised Offi cer, Corporation Bank and Anr.

, reported in 2018 SCC OnLine Hyd 783 has held after juxtaposing the amended and unamended provisions of Section 13(8) of the SARFAESI Act, with respect to the right of redemption available to the Mortgagor that the amended Section 13(8) of the SARFAESI Act only puts a restriction on the right of the mortgagee to deal with the property and does not speak in express terms about the equity of redemption available to the mortgagor. It was further held that the danger of interpreting Section 13(8) as though CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 71 LTD. & ORS. [J. B. PARDIWALA, J.

] it relates to the right of redemption is if the payments are not made in accordance with Section 13(8), the right of redemption may get lost even before the sale is complete in all respects and that holding that the right of redemption would be extinguished at the stage of issue of notice under Rule 9(1) would tantamount to annulling the relevant provision of the Act 1882 which do not stand expressly excluded insofar as the question of redemption is concerned. The said judgment of the Telangana High Court was challenged before this Court vide SLP(C) D. No. 28967 of 2019 and the same came to be dismissed. i. The view expressed in Concern Readymix (supra) was echoed by a Division Bench of the High Court of Punjab and Haryana in the case of M/s Pal Alloys and Metal India Private Limited & Ors. v. Allahabad Bank & Ors.

, reported in 2021 SCC OnLine P&H 2733, wherein the High Court, inter alia, considered the specifi c issue "(a) till what time and date can the right of redemption of the Mortgage can be exercised by the Mortgagors / Borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act". j. While answering the aforesaid question, the Court considered the report of the Joint Committee on the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 (the Report) as well as the law laid down by this Court in Mathew Varghese (supra) and the judgment in Concern Readymix (supra), in order to determine whether the said right of redemption was available up to the date of transfer of the asset or only up to the date of publication of the sale notice. On a consideration of Section 60 of the Act 1882 as well as the judgment in Narandas Karsondas (supra), it was observed that: "62.

Thus even if the sale of secured assets is under a special statute like State Financial Corporations Act, there is no deviation from the general principle that the mortgagor's right of redemption is not extinguished till the execution of conveyance. " k. It was ultimately held as below:- "96. ... that the amended Section 13(8) of the SARFAESI Act merely prohibits a secured creditor from proceeding further with the transfer of the secured asset by way of lease, assignment or sale; a restriction 72 SUPREME COURT REPORTS [2023] 13 S. C. R.

on the right of the mortgagee to deal with the property is not exactly the same as the equity of redemption available to the mortgagor, the payment of the amount mentioned in Section 13 (8) of the SARFAESI Act ties the hands of the mortgagee (secured creditor) from exercising any of the powers conferred under the Act; that redemption comes later; extinction of the right of redemption comes much later than the sale notice; and the right of redemption is not lost immediately upon the highest bid made by a purchaser in an auction being accepted. We also hold that such a right would continue till the execution of a conveyance i. e. issuance of sale certifi cate in favour of the mortgagee. A similar view has been taken by this Bench in Hoshiarpur Roller Flour Mill Private Limited V/s Punjab National Bank (CWP No. 14440 of 2021, decided on 10. 12. 2021). 97.

It would, therefore, certainly be available to the petitioners herein before the issuance of sale certifi cate in favour of respondents No. 2 and 3. Point (a) is answered accordingly in favour of the petitioners and against the respondents. " l. The said judgment also considered and distinguished the judgment of this Court in Shakeena and Anr. v. Bank of India and Ors. , (2021) 12 SCC 761, holding that the said case did not consider the concept of redemption under Section 60 of the Act 1882. The observations in para 30 of Shakeena are in the nature of obiter dicta as in the said case the auction had concluded prior to the amendment of Section 13(8) and in any event the sale certifi cate had already been issued. Thus, the question of interpretation of Section 13(8) was not directly in issue. m.

A perusal of the Report (the report of Joint Committee on the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016), more particularly para 24, indicates that the proposed amendment to Section 13(8) of the Act was intended to deal with: - "Provisions to stop secured creditor to lease or assignment or sale in the prescribed conditions". The important thing to note is also that the report does not indicate that the Committee had considered the eff ect of Section 60 of the Transfer of Property Act, 1882, which is a general law regarding redemption of mortgage vis-a-vis the provisions of SARFAESI. CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 73 LTD. & ORS. [J. B. PARDIWALA, J. ] n.

The focus of the Committee in the said report is on the obligations of the Mortgagee to not create third party rights up to a certain time-period, but it is silent on the rights of the Mortgagor to exercise its redemption for which Section 60 of the Act 1882 is the relevant provision. o. It is further necessary to note that the non obstante clause in Section 13 specifi cally excludes only Sections 69 and 69A respectively of the Act 1882. This section does not specifi cally include the words "Notwithstanding anything contained in any other Act for the time being in force" which is the standard term used in non obstante clauses. In view thereof, the legislative intent should be interpreted to only exclude Sections 69 and 69A respectively of the Act 1882 and the same does not aff ect the applicability of Section 60 of the Act 1882. p.

Various High Courts have consistently held that the right of redemption has to be exercised in terms of Section 60 of the Act 1882 and not under Section 13(8) of the SARFAESI Act and the amendment to Section 13(8) does not aff ect or take away this right in any manner. 24. The Telangana High Court in the case of Amme Srisailam v. Union Bank of India, Regional Offi ce, Guntur, rep. by its Region Head & Deputy General Manager, Andhra Pradesh & Ors. , W. P. No. 11435 of 2021 decided on 17. 08. 2022 has referred to and relied upon on Concern Readymix (supra) and Pal Alloys (supra). The Telangana High Court in Amme Srisailam (supra) in turn has relied upon the decision of this Court in the case of S. Karthik & Ors. v. N. Subhash Chand Jain & Ors. , (2022) 10 SCC 641. The Telangana High Court in Amme Srisailam (supra) held as under: "44. Before we revert back to the facts of the present case, we may also refer to Sections 35 and 37 of the SARFAESI Act.

While Section 35 says that the provisions of the SARFAESI Act shall have eff ect notwithstanding anything inconsistent therewith contained in any other law for the time being in force, Section 37 clarifi es that provisions of the SARFAESI Act or the rules made thereunder shall be in addition to and not in derogation of any other law for the time being in force. 45. This brings us to Section 60 of the Transfer of Property Act, 1882. Section 60 says that at any time after the principal amount has become 74 SUPREME COURT REPORTS [2023] 13 S. C. R.

due, the mortgagor has a right, on payment or tender, of the mortgage money, to require the mortgagee (a) to deliver to the mortgagor the mortgage deed and all documents relating to the mortgaged property which are in possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof back to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and to have registered an acknowledgement in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished. As per the proviso, the right conferred under the aforesaid provision shall not be extinguished by any act of the parties or by decree of a Court. 46.

Therefore, on a careful application of Sections 35 and 37 of the SARFAESI Act, it is evident that the situation contemplated under Section 13(8) of the SARFAESI Act does not exclude application of Section 60 of the Transfer of Property Act, 1882. As explained by this Court in Concern Readymix (supra), a restriction on the right of the mortgagee to deal with the property post issuance of notice for public auction is not the same as the right of redemption available to the mortgagor. 47. In so far the present case is concerned, admittedly the bid amount of the petitioner was Rs. 57. 00 lakhs. Though the auction was conducted on 16. 03. 2021 and payment was made by the petitioner within the stipulated period, there is clear dispute between the parties as regards issuance of sale certifi cate by respondent Nos. 1 and 2 in favour of the petitioner. However, admittedly there is no registration of any sale certifi cate. On the other hand, the borrower had approached respondent Nos.

1 and 2 for settlement of the loan account under OTS Scheme on 18. 03. 2021 which was recommended by second respondent on 20. 03. 2021 and was accepted by fi rst respondent on 31. 03. 2021 for an amount of Rs. 5. 10 crores, which has been paid by the borrower i. e. , third respondent. On the one hand petitioner's amount was Rs. 57. 00 lakhs which the petitioner had paid but on the other hand third respondent has paid Rs. 5. 10 crores as CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 75 LTD. & ORS. [J. B. PARDIWALA, J. ] per the OTS. Lending of money, recovery of dues and entering into OTS are all commercial decisions which are taken by the banks/ fi nancial institutions in their best interest, subject of course within the statutory framework. In this case, we have already come to the conclusion that third respondent had not lost the right of redemption upon publication of notice for auction sale.

If that be the position, then it should be left to the discretion of the secured creditor as to which course of action would be more benefi cial to it. Evidently, the OTS with the third respondent is much more benefi cial to the secured creditors i. e. , respondent Nos. 1 and 2 and as has been explained above such a course of action is not restricted or extinguished by Section 13(8) of the SARFAESI Act. xxx xxx xxx 50. Right to property is a valuable right. Though no longer a fundamental right, it is still a constitutional right. The interpretation which we have adopted subserves such a right. That apart, third respondent had not lost the right of redemption upon publication of notice for auction sale; his right of redemption would have been lost only upon the sale certifi cate getting registered which admittedly has not taken place. Therefore, the action of respondent Nos.

1 and 2 in accepting the higher OTS amount of the third respondent though after publication of notice for public auction and auction is justifi ed and cannot be faulted. " 25. In such circumstances referred to above, the learned counsel prayed that there being no merit in the present appeals, those may be dismissed. ANALYSIS 26. Having heard the learned counsel appearing for the parties and having gone through the materials on record the following questions fall for our consideration: (a) Whether the High Court was justifi ed in exercising its writ jurisdiction under Article 226 of the constitution more particularly when the alternative remedy available to the Borrowers had already been availed of? 76 SUPREME COURT REPORTS [2023] 13 S. C. R. (b) Whether the confi rmation of sale by the Bank under Rule 9(2) of the Rules of 2002 invests the successful auction purchaser with a vested right?

(c) What is the impact of the amended Section 13(8) of the SARFAESI Act on the Borrowers' right of redemption in an auction conducted under the SARFAESI Act? Or in other words, what is the eff ect of amendment to Section 13(8) of the SARFAESI Act read with Section 60 of the Act 1882? (d) Whether a Bank after having confi rmed the sale under Rule 9(2), can withhold the sale certifi cate under Rule 9(6) of the Rules of 2002 and enter into a private arrangement with a borrower? (e) Whether the High Court under Article 226, could have applied equitable considerations to override the outcome contemplated by the statutory auction process prescribed by the SARFAESI Act? (f) Whether the right of redemption of mortgage stood extinguished upon publication of notice of auction? Or in other words till what point of time the right of redemption of mortgage can be exercised in respect of secured asset under the SARFAESI Act?

(g) Whether the decisions of Telangana High Court in the case of Concern Readymix (supra) and Amme Srisailam (supra) lay down the correct position of law? LEGISLATIVE HISTORY AND SCHEME OF THE SARFAESI ACT 27. Till early 1990s, the civil suits were being fi led for recovery of the dues of banks and fi nancial institutions under the Act 1882 and the Code of Civil Procedure, 1908 (CPC). Due to various diffi culties the banks and fi nancial institutions had to face in recovering loans and enforcement of securities, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, "the Act 1993" or "the RDBFI Act"). 28. On account of lack of infrastructure and manpower, the regular civil courts were not in a position to cope up with the speed in the adjudication of recovery cases. In the light of recommendations of the Tiwari Committee the special tribunals came to be set up under the provisions of the Act 1993 CELIR LLP v.

BAFNA MOTORS (MUMBAI) PVT. 77 LTD. & ORS. [J. B. PARDIWALA, J. ] referred to above for the recovery of huge accumulated NPA of the Bank loans. 29. On the continuing rise in number of Non-Performing Assets (NPA) at banks and other fi nancial institutions in India; a poor rate of loan recovery and the failure of the existing legislation in redressing the diffi culties of recovery by banks; the Narasimham Committee I & II and Andyarujina Committee were constituted by the Government for examining and suggesting banking reforms in India. These Committees in their reports observed that one out of every fi ve borrower was a defaulter, and that due to the long and tedious process of existing frame work of law and the overburdening of existing forums including the specialised tribunals under the 1993 Act, any attempt of recovery with the assistance of court/tribunal often rendered the secured asset nearly worthless due to the long delays.

In this background the Committees thus, proposed new laws for securitisation in order to permit banks and fi nancial institutions to hold securities and sell them in a timely manner without the involvement of the courts. 30. On the recommendations of the Narasimham Committee and Andyarujina Committee, the SARFAESI Act was enacted to empower the banks and fi nancial institutions to take possession of the securities and to sell them without intervention of the court. 31. The statement of objects and reasons for which the Act has been enacted reads as under: - "STATEMENT OF OBJECTS AND REASONS The fi nancial sector has been one of the key drivers in India's eff orts to achieve success in rapidly developing its economy.

While the banking industry in India is progressively complying with the international prudential norms and accounting practices there are certain areas in which the banking and fi nancial sector do not have a level playing fi eld as compared to other participants in the fi nancial markets in the world. There is no legal provision for facilitating securitisation of fi nancial assets of banks and fi nancial institutions. Further, unlike international banks, the banks and fi nancial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with 78 SUPREME COURT REPORTS [2023] 13 S. C. R. the changing commercial practices and fi nancial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and fi nancial institutions.

Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and fi nancial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of fi nancial assets and enforcement of security interest and for matters connected therewith or incidental thereto.

The provisions of the Ordinance would enable banks and fi nancial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce nonperforming assets by adopting measures for recovery or reconstruction. " 32. This Court in Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. reported in (2004) 4 SCC 311, examined the history and legislative backdrop that ultimately led to the enactment of the SARFAESI Act as under: - "34. Some facts which need to be taken note of are that the banks and the fi nancial institutions have heavily fi nanced the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues.

For fi nancial assistance rendered to the industries by the fi nancial institutions, fi nancial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill eff ects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 79 LTD. & ORS. [J. B. PARDIWALA, J. ] enacted in 1993 but as the fi gures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing presiding offi cers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster.

In the present-day global economy it may be diffi cult to stick to old and conventional methods of fi nancing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the fi eld, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and the Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another Expert Committee was constituted, then alone the impugned law was enacted. Liquidity of fi nances and fl ow of money is essential for any healthy and growth-oriented economy.

But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the diff erent situations needed to be tackled and object sought to be achieved. xxx xxx xxx 36. In its Second Report, the Narasimham Committee observed that NPAs in 1992 were uncomfortably high for most of the public sector banks. In Chapter VIII of the Second Report the Narasimham Committee deals about legal and legislative framework and observed: "8. 1. A legal framework that clearly defi nes the rights and liabilities of parties to contracts and provides for speedy resolution of disputes is a sine qua non for effi cient trade and commerce, especially for fi nancial intermediation. In our system, the evolution of the legal framework has not kept pace with 80 SUPREME COURT REPORTS [2023] 13 S. C. R.

changing commercial practice and with the fi nancial sector reforms. As a result, the economy has not been able to reap the full benefi ts of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of fi nancial intermediaries.... " One of the measures recommended in the circumstances was to vest the fi nancial institutions through special statutes, the power of sale of the assets without intervention of the court and for reconstruction of assets. It is thus to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or fi nancial institutions has been attracting attention and the matter was considered in depth by the Committees specially constituted consisting of the experts in the fi eld.

In the prevalent situation where the amounts of dues are huge and hope of early recovery is less, it cannot be said that a more eff ective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of the Narasimham Committee, yet another Committee was constituted headed by Mr Andhyarujina for bringing about the needed steps within the legal framework. We are therefore, unable to fi nd much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the mounting dues.

Considering the totality of circumstances and the fi nancial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to fi nancial policy. " 33. In this regard, reference may be made to the following observations of this Court in the case of Satyawati Tondon (supra). The relevant paras are being reproduced hereunder: "1. ... With a view to give impetus to the industrial development of the country, the Central and State Governments encouraged the banks and other fi nancial institutions to formulate liberal policies for grant of loans and other fi nancial facilities to those who wanted to set up CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 81 LTD. & ORS. [J. B. PARDIWALA, J. ] new industrial units or expand the existing units.

Many hundred thousand took advantage of easy fi nancing by the banks and other fi nancial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading the civil courts to pass orders of injunction against the steps taken by banks and fi nancial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular courts could not accomplish the task of expeditiously adjudicating the cases instituted by banks and other fi nancial institutions for recovery of their dues. As a result, several hundred crores of public money got blocked in unproductive ventures. 2. In order to redeem the situation, the Government of India constituted a committee under the Chairmanship of Shri T. Tiwari to examine the legal and other diffi culties faced by banks and fi nancial institutions in the recovery of their dues and suggest remedial measures.

The Tiwari Committee noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and fi nancial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the Recovery Offi cer for expeditious execution of orders made by adjudicating bodies. " 34. Section 13 of the SARFAESI Act contains the provisions relating to the enforcement of the security interest and the manner in which the same may be done by the secured creditor without the intervention of the Court or Tribunal in accordance with its provisions, and reads as under: - "13. Enforcement of security interest.

-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classifi ed by the secured creditor as non-performing asset, then, 82 SUPREME COURT REPORTS [2023] 13 S. C. R. the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).

Provided that - (i) the requirement of classifi cation of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and (ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifi cations as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee; (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.

(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fi fteen days of receipt of such representation or objection the reasons for nonacceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.

(4) In case the borrower fails to discharge his liability in full within the period specifi ed in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-- CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 83 LTD. & ORS. [J. B. PARDIWALA, J.

] (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is suffi cient to pay the secured debt.

(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5A) Where the sale of an immovable property, for which a reserve price has been specifi ed, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any offi cer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any 84 SUPREME COURT REPORTS [2023] 13 S. C. R.

subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13. (5C) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A). (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.

(7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, fi rstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.

(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,- (i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and (ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 85 LTD. & ORS. [J. B. PARDIWALA, J. ] shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.

(9) Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of fi nancing of a fi nancial asset by more than one secured creditors or joint fi nancing of a fi nancial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent.

in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act: Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: 86 SUPREME COURT REPORTS [2023] 13 S.

C. R. Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation. -- For the purposes of this sub-section,-- (a) "record date" means the date agreed upon by the secured creditors representing not less than sixty per cent. in value of the amount outstanding on such date; (b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfi ed with the sale proceeds of the secured assets, the secured creditor may fi le an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.

(11) Without prejudice to the rights conferred on the secured creditor under or by this section, secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without fi rst taking any of the measured specifi es in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his offi cers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub- section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor. " (Emphasis supplied) 35. We are concerned in the present litigation with sub-section 8 of Section 13 of the SARFAESI Act referred to above.

Section 13(8) is in two parts; (i) it enables the borrower to exercise his right of redemption upto a particular point of time and at the same time (ii) it enables the secured creditor to exercise its power to deal or dispose off the secured asset. First, CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 87 LTD. & ORS. [J. B. PARDIWALA, J. ] by stipulating the time limit during which the borrower can tender all the dues with interest, costs and charges to the secured creditor, and secondly, by providing as to when the secured creditor can proceed to sell, auction, assign or lease the secured asset. 36. Rules 8 and 9 respectively of the Rules of 2002 prescribe the procedure and formalities to be followed for the sale of immovable secured asset as per Section 13 of the SARFAESI Act and reads as under: - "8. Sale of immovable secured assets.

- (1) Where the secured asset is an immovable property, the authorised offi cer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affi xing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper one in vernacular language having suffi cient circulation in that locality, by the authorised offi cer. (2A) All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.

(3) In the event of possession of immovable property is actually taken by the authorised offi cer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorised offi cer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before eff ecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised offi cer shall obtain valuation 88 SUPREME COURT REPORTS [2023] 13 S. C. R.

of the property from an approved valuer and in consultation with the secured creditor, fi x the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction including through e-auction mode; or (d) by private treaty. Provided that in case of sale of immovable property in the State of Jammu and Kashmir, the provision of Jammu and Kashmir Transfer of Property Act, 1977 shall apply to the person who acquires such property in the State.

(6) the authorised offi cer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being eff ected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.

(7) every notice of sale shall be affi xed on the conspicuous part of the immovable property and the authorised offi cer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include; (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price of the immovable secured assets below which the property may not be sold; CELIR LLP v. BAFNA MOTORS (MUMBAI) PVT. 89 LTD. & ORS. [J. B. PARDIWALA, J. ] (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorised offi cer considers it necessary for a purchaser to know the nature and value of the property.

(8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditors and the proposed purchaser in writing. 9. Time of sale, issue of sale certifi cate and delivery of possession, etc. -(1) No sale of immovable property under these rules, in fi rst instance shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower: Provided further that if sale of immovable property by any one of the methods specifi ed by sub-rule (5) of rule 8 fails and sale is required to be conducted again, the authorised offi cer shall serve, affi x and publish notice of sale of not less than fi fteen days to the borrower, for any subsequent sale. (2) The sale shall be confi rmed in fa