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2007 (8) TMI 782 - HC - Companies LawConstitutional validity of SARFAESI Act - Sale of the secured asset in public auction - Section 13(4) of SARFAESI Act - Rule 9(7) of the Security Interest (Enforcement) Rules, 2002 - issuance of sale certificate - HELD THAT - The Constitutional validity of SARFAESI Act has been upheld in the case of Mardia Chemicals Limited v. Union of India 2004 (4) TMI 294 - SUPREME COURT . In the said judgment, the Supreme Court has held that in cases where the Secured Creditor has taken action u/s 13(4), it would be open to any person, including the borrower to file an appeal u/s 17 of the Act. Point (i) - Whether the sale of the secured asset in public auction as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Security Interest (Enforcement) Rules, 2002 ( the Rules ) is a complete and absolute sale for the purpose of SARFAESI Act or whether the sale would become final only on the registration of the sale certificate? - The crux of the contention of the learned senior counsel for the appellant is that after issuance of sale certificate, the borrowers, who allowed their property being sold in public auction, cannot claim the right of redemption placing reliance u/s 60 of the Transfer of Property Act, which right they should have exercised before the initiation of proceedings or before the date fixed for sale. The learned single Judge, agreeing with the argument advanced by the learned Counsel for the borrowers that 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 and until the sale is complete by registration, and that the mortgagor does not lose their right of redemption, came to the conclusion that the sale takes complete shape only after it gets registered and it does not come to end by issuance of a sale certificate. But, after considering the relevant provisions in the Registration Act, 1908, we are not in agreement with the conclusion arrived by the learned single Judge in allowing the writ petitions. In this case, the authorised officer of the secured creditor, exercising the power conferred on him by SARFAESI Act, pursuant to the proceedings initiated by him brought the secured assets of the borrowers for sale in public auction, and, in view of the default in repayment of the loan, confirmed the sale in favour of the highest bidder, the appellant herein and issued the sale certificate on 6-1-2006. The finding of the learned single Judge that the sale is not complete without registration of sale certificate, therefore, is not sustainable in law and the same is liable to be set aside. If the argument of the borrowers that even after the issuance of the sale certificate, prior to registration, they are entitled to redeem the property is accepted, it would make the provisions of the SARFAESI Act redundant and the very object of the SARFAESI Act enabling the Banks and Financial Institutions to realise long term assets, manage problems of liquidity, asset liability mismatch and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction would fail and would open a pandora's box for the litigations upsetting the sale confirmed in favour of the bona fide auction purchasers, who invested huge money. In view of our finding on this point, we hold that the sale of the secured asset in public auction as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Rules is a complete and absolute sale for the purpose of SARFAESI Act and same need not be registered under the provisions of the Registration Act. Point (ii) Whether the action of the second respondent in not accepting the amounts paid by the borrowers and not cancelling the sale certificate before the registration of the sale is in derogation of Section 60 of the Transfer of Property Act, in view of the Section 37 of SARFAESI Act? - HELD THATL - With great respect, we are of the view that the decision of the Supreme Court in Narandas Karsondas v. S.A. Kamtam 1976 (12) TMI 186 - SUPREME COURT , is not applicable to the facts of this case. Even as held by the Supreme Court in Narandas Karsondas v. S.A. Kamtam, the right of the mortgagor to redemption continues only till such time the sale of the property was complete by registration. In this case, our finding, following the decision of the Division Bench of this Court in Arumugham, S. v. C.K. Venugopal Chetty 1986 (8) TMI 450 - MADRAS HIGH COURT and the Supreme Court in B. Arvind Kumar v. Government of India, is that the sale in this case has become absolute and complete by the issuance of sale certificate on 6-1-2006. Further, Section 17(2)(xii) of the Registration Act, 1908 does not require registration of a sale certificate granted to any purchaser of any property sold in public auction by a civil or revenue officer and it is the finding of the Supreme Court in B. Arvind Kumar v. Government of India, referred supra, that the sale certificate issued by a civil or revenue officer in respect of a property sold in public auction does not fall under the category of non-testamentary documents which require registration under Sub-sections (b) and (c) of Section 17(1) of the Registration Act, 1908. The right to redeem the mortgage, as provided in Section 60 of the Transfer of Property Act, is, of course, a very valuable right possessed by the mortgagor. At the same time, such a right to redeem the mortgage can be exercised before it is foreclosed, or the estate is sold. It has been held that the mortgagor can adopt the course provided u/s 60 of the Transfer of Property Act only before the mortgagee has filed a suit for enforcement of the mortgage and not thereafter. In this case, as discussed, the borrowers approached the second respondent/ Bank only after initiation of the proceedings u/s 13(4) of the SARFAESI Act, and that too after the property was sold in public auction and the sale was confirmed in favour of the appellant. We, accordingly, find no irregularity or illegality in the procedure followed by respondents 2 and 3. Point (iii) Whether Section 35 of the SARFAESI Act has the effect of overriding Section 37 of the SARFAESI Act? - HELD THAT - Assuming, the right of redemption conferred under the Transfer of Property Act is protected u/s 37 of the SARFAESI Act, and independently available without reference to the registration of the sale certificate u/s 17(2)(xii) of the Registration Act, the sale already effected satisfying the conditions contemplated u/s 13(8) of the SARFAESI Act, shall, by virtue of Section 35 of the SARFAESI Act. prevail over such other rights, much less the right of redemption conferred under Transfer of Property Act, which is protected u/s 37 of the SARFAESI Act, in view of the non-obstante clause provided u/s 35 of the SARFAESI Act, because a non-obstante clause provided u/s 35 of the SARFAESI Act makes it clear that even though there are inconsistencies to such other rights conferred under any other law for the time being in force that are protected u/s 37 of the SARFAESI Act, the action initiated under the provisions of the SARFAESI Act shall have the overriding effect as per Section 35 of the SARFAESI Act, because SARFAESI Act is a Special Act which aims to accelerate the growth of economy of our country empowering the lenders, namely Nationalised Banks, Private Sector Banks and other Financial Institutions to realise their dues from the defaulted borrowers who are very lethargic in repayment of the loans borrowed by them, by exercising their right of expeditious attachment and foreclosure for the enforcement of security and therefore, Sections 35 and 37 of the SARFAESI Act have to be read conjointly to achieve the object of the SARFAESI Act, but not to defeat the same and therefore, we do not see any conflict between them. That apart, a non-obstante clause is a legislative device which is usually implied to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation of all contrary provisions, Union of India v. G.M. Kokil 2006 (11) TMI 349 - SUPREME COURT . For the reasons point (iii) is answered in affirmative. Resultantly, these appeals are allowed and the order of the learned single Judge made in W.P. is set aside and the writ petitions are dismissed.
Issues Involved:
1. Whether the sale of the secured asset in public auction as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule 9(7) of the Security Interest (Enforcement) Rules, 2002, is a complete and absolute sale for the purpose of SARFAESI Act or whether the sale would become final only on the registration of the sale certificate. 2. Whether the action of the second respondent in not accepting the amounts paid by the borrowers and not cancelling the sale certificate before the registration of the sale is in derogation of Section 60 of the Transfer of Property Act, in view of Section 37 of SARFAESI Act. 3. Whether Section 35 of the SARFAESI Act has the effect of overriding Section 37 of the SARFAESI Act. Detailed Analysis: Issue 1: Completeness and Finality of Sale The court examined whether the sale of the secured asset in a public auction, which culminated in the issuance of a sale certificate, is complete and absolute under the SARFAESI Act or if it requires registration to be final. The court noted that the borrowers did not settle the dues by the date fixed for sale (19-12-2005) and approached the secured creditor only on 2-1-2006, after the sale was confirmed. The court held that the sale became final when the sale certificate was issued on 6-1-2006, citing Section 17(2)(xii) of the Registration Act, which exempts such sale certificates from requiring registration. The court referenced the Supreme Court's decision in B. Arvind Kumar v. Government of India, which established that the sale becomes absolute upon issuance of the sale certificate, and no further registration is necessary. Thus, the court concluded that the sale was complete and absolute upon issuance of the sale certificate, and the borrowers' right of redemption was extinguished. Issue 2: Right of Redemption and Section 60 of the Transfer of Property Act The court addressed whether the second respondent's refusal to accept the borrowers' payment and cancel the sale certificate violated Section 60 of the Transfer of Property Act, given Section 37 of the SARFAESI Act. The court reaffirmed that the sale was complete and absolute upon issuance of the sale certificate, and the right of redemption under Section 60 of the Transfer of Property Act does not apply once the sale is complete. The court rejected the borrowers' reliance on Narandas Karsondas v. S.A. Kamtam, distinguishing it on the grounds that the sale certificate in this case did not require registration. The court also noted that the borrowers approached the secured creditor after the sale was confirmed, contrary to Section 13(8) of the SARFAESI Act, which requires payment before the date fixed for sale. Therefore, the court found no irregularity or illegality in the second respondent's actions. Issue 3: Overriding Effect of Section 35 of SARFAESI Act The court examined whether Section 35 of the SARFAESI Act, which provides that the Act's provisions override other laws, conflicts with Section 37, which states that the Act's provisions are in addition to other laws. The court held that Section 35's non-obstante clause ensures that the SARFAESI Act's provisions prevail over any conflicting rights under other laws, including the right of redemption under the Transfer of Property Act. The court emphasized that the SARFAESI Act is a special act aimed at expediting recovery of debts and managing non-performing assets, and its provisions should be interpreted to achieve its objectives. Consequently, the court found no conflict between Sections 35 and 37 of the SARFAESI Act, and upheld the overriding effect of Section 35. Conclusion: The court allowed the appeals, set aside the learned single judge's order, and dismissed the writ petitions. The court concluded that the sale of the secured asset was complete and absolute upon issuance of the sale certificate, the second respondent's actions did not violate the right of redemption, and Section 35 of the SARFAESI Act overrides any conflicting provisions in other laws.
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