2019 (8) TMI 904 - SC - Indian Laws

Sale of the subject property - Conduct of public auction - declaration of highest bidder - default in repayment of loan - Non-performing assets - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. HELD THAT - The matter proceeded before the High Court for setting aside the entire auction process on the premise that the sale certificate was yet to be registered in favour of the highest bidder (respondent No.3); and the appellants had made (unsuccessful) attempts to exercise their right of redemption by offering the outstanding dues to the respondent bank. It was argued by the appellants that only upon registration of the sale certificate, the right of the borrower to redeem the mortgage would get extinguished and obliterated. There has been a paradigm shift in the rights of the parties upon registration of the sale certificate on 18th September, 2007 and also because of the registered sale deed in favour of third party on 5th October, 2007. The contention pursued before the High Court by the appellants, therefore, has now become unavailable. We find substance in the stand taken by the respondent bank that non-e of the above was a valid tender so as to extricate or discharge the appellants from their obligation to deposit the outstanding dues payable by them before the specified date. In that, the amount was allegedly deposited by them in the account of the father of appellant No.2 and not in their loan accounts as such. Unless the amount was transferred/deposited in the loan accounts of the appellants in relation to which the mortgage operated, it would not be a valid tender for paying the outstanding dues - The respondent bank, therefore, justly declined to accept the cheque(s), not being a valid tender. Even the third attempt made by the appellants was to offer demand drafts drawn in favour of or in the name of the Authorised Officer of the respondent bank and not in the name of the bank or authorising the bank to appropriate it towards the subject loan accounts. Hence, these demand drafts were rightly not accepted as a valid tender. It is not possible to countenance the stand of the appellants that they had made a valid tender to the respondent bank or that the respondent bank had mischievously or malafide rejected their offer to defeat their rights, to redeem the mortgage before registration of the sale certificate on 18th September, 2007. We do not deem it necessary to dilate further on the argument that registration of the sale certificate in relation to the auction conducted under the 2002 Act is essential. Similarly, it is not necessary to examine other grounds urged by the appellants, in light of our conclusion that the appellants have failed to make a valid and legal tender to the respondent bank before the issue of sale certificate on 6th January, 2006, muchless registration thereof on 18th September, 2007. Appeal dismissed.

Summary

Issues Involved:
1. Completion and finality of the sale under SARFAESI Act.
2. Right of redemption under the Transfer of Property Act.
3. Interplay between Sections 35 and 37 of the SARFAESI Act.

Issue-wise Detailed Analysis:

1. Completion and Finality of the Sale under SARFAESI Act:
The appellants contended that their right of redemption persisted until the sale certificate was registered, arguing that the sale was not final without such registration. The Court observed that the sale of the secured asset in public auction under Section 13(4) of the SARFAESI Act, which culminated in the issuance of a sale certificate as per Rule 9(7) of the Security Interest (Enforcement) Rules, 2003, was a complete and absolute sale for the purpose of the SARFAESI Act. The Division Bench held that the sale became final upon the issuance of the sale certificate on 6th January 2006, and registration of the sale certificate was not essential. This conclusion was supported by the precedent set in B. Arvind Kumar Vs. Govt. of India and Others (2007) 5 SCC 745, which stated that the sale certificate issued in a public auction by an authorized officer under the SARFAESI Act does not require registration under Section 17(2)(xii) of the Registration Act.

2. Right of Redemption under the Transfer of Property Act:
The appellants argued that their right of redemption under Section 60 of the Transfer of Property Act was protected by Section 37 of the SARFAESI Act. The Court, however, rejected this argument, noting that the right of redemption must be exercised before the sale is complete. In this case, the sale was deemed complete on the issuance of the sale certificate on 6th January 2006, prior to the appellants' attempts to redeem the mortgage. The Court emphasized that the right to redeem the mortgage could only be exercised before the mortgagee initiated proceedings for the enforcement of the mortgage and not thereafter.

3. Interplay between Sections 35 and 37 of the SARFAESI Act:
The appellants contended that their right of redemption under the Transfer of Property Act was not overridden by the SARFAESI Act due to Section 37, which states that the provisions of the SARFAESI Act are in addition to and not in derogation of any other law. The Court, however, clarified that Section 35 of the SARFAESI Act, which contains a non-obstante clause, overrides any inconsistencies with other laws, including the Transfer of Property Act. The Court concluded that the SARFAESI Act, being a special act aimed at expeditious recovery of debts, takes precedence over other laws, and the provisions of Sections 35 and 37 must be read conjointly to achieve the objective of the SARFAESI Act without defeating its purpose.

Conclusion:
The Supreme Court dismissed the appeals, holding that the appellants had failed to exercise their right of redemption in the manner prescribed by law before the registration of the sale certificate on 18th September 2007. The Court found no merit in the appellants' contention that the sale was incomplete without registration of the sale certificate and upheld the finality of the sale upon issuance of the sale certificate. The Court also rejected the appellants' request to exercise plenary powers under Article 142 of the Constitution of India, as the appellants had lost their right of redemption by failing to pay the dues to the secured creditors before the registration of the sale certificate.