2015 (1) TMI 463 - HC - Companies Law

Redemption of immovable secured asset - Whether under sub-section (8) of Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 a borrower is permitted to redeem the immovable secured asset after the secured asset was sold but before the confirmation of sale by the secured creditor under the Security Interest (Enforcement) Rules, 2002 - Held that - though the bid amount was accepted by the authorized officer, it does not amount to confirmation by the secured creditor and the bank has the right to cancel/modify the sale before confirmation of the same. An auction purchaser derives title on confirmation of sale only. Though the above case arises under the provisions of Transfer of Property Act and deals with lease, the proposition can be made applicable to the cases arising under the Securitization Act as well. Even according to the respondent-banks, a sale certificate is not required to be registered nor were the banks required to execute a registered sale deed after the sale was confirmed by the banks and merely a sale certificate was required to be issued. It is the appellant who is insisting for registration of a sale deed. In the case before the Supreme Court, the sale was confirmed by the Court in favour of the purchaser and a sale certificate was issued. Be that as it may, in the present case, though the appellant has become the highest bidder and paid the amount, the sale was not confirmed by the banks i.e. the secured creditor which is mandatory and a pre-condition as per the terms and conditions of tender notification. Therefore, in the absence of confirmation of sale by the banks, as required under Rule 9(6), the appellant derives no title to the property in question. It is only on confirmation of the sale by the respondent- banks the property vests in the appellant. Proceedings initiated by the borrower before the DRT are without jurisdiction, needless to state that against the sale proceedings of the authorized officer, the borrower has a right to approach the DRT under Section 17 of the Act. In the instant case, as already held, the sale is not confirmed by the secured creditor and the borrower has approached the DRT on 3.4.2012 and the Tribunal issued directions giving liberty to the borrower to pay the amounts within five weeks which have been complied with by the borrower. Therefore, it cannot be said that the proceedings before the DRT are without jurisdiction. The DRT is well within its competence to take up the matter. - Securitization Act, a borrower has the right to redeem the property under sub-section (8) of Section 13 of the Act at any time before the date the property is transferred to the auction purchaser by confirmation of sale by the secured creditor as required under sub-rule (6) of Rule 9 of the Rules. - Decided against Appellant.

Issues Involved:
1. Whether a borrower is permitted to redeem the immovable secured asset after the secured asset was sold but before the confirmation of sale by the secured creditor under the Security Interest (Enforcement) Rules, 2002.
2. The validity of the auction purchaser's claim for execution of the sale deed and damages due to delay.
3. The jurisdiction and authority of the Debt Recovery Tribunal (DRT) in the proceedings.

Detailed Analysis:

Issue 1: Redemption of Secured Asset Before Confirmation of Sale
The primary question was whether under sub-section (8) of Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitization Act), a borrower can redeem the immovable secured asset after it was sold but before the confirmation of sale by the secured creditor. The court noted that the borrower, M/s Sruthi Builders Private Limited, had become a non-performing asset, leading to the auction of its secured asset. Despite the auction purchaser, M/s India Finlease Securities Ltd., being the highest bidder and paying the bid amount, the borrower sought redemption by paying the dues before the confirmation of sale by the secured creditor.

The court emphasized that sub-section (8) of Section 13 allows redemption "at any time before the date fixed for sale or transfer." This provision permits two contingencies for redemption: before the date fixed for sale and before the date fixed for transfer. The court concluded that the borrower retains the right to redeem the property until the sale is confirmed by the secured creditor, which involves a formal confirmation and issuance of a sale certificate as per Rule 9(6) of the Security Interest (Enforcement) Rules, 2002.

Issue 2: Auction Purchaser's Claim for Execution of Sale Deed and Damages
The auction purchaser argued that the creditor banks, having received the total bid amount, should not have accepted any payment from the borrower post-auction. The court, however, held that the acceptance of the bid was subject to the outcome of the proceedings before the Debt Recovery Tribunal (DRT). The learned single Judge awarded damages of Rs. 5.00 lakhs to the auction purchaser for the delay caused by the proceedings, to be paid by the creditor banks and the borrower in equal proportion. The court upheld this decision, noting that the auction purchaser's claim for execution of the sale deed was premature as the sale was not confirmed by the secured creditor.

Issue 3: Jurisdiction and Authority of the Debt Recovery Tribunal (DRT)
The DRT had permitted the borrower to redeem the secured asset by discharging the debt due to the respondent banks. The auction purchaser's request to be impleaded in the DRT proceedings was rejected. The court affirmed the DRT's jurisdiction, stating that the borrower has the right to approach the DRT under Section 17 of the Securitization Act against the sale proceedings initiated by the authorized officer. The DRT's directions allowing the borrower to pay the dues and redeem the property were within its competence.

Conclusion:
The court held that under the Securitization Act, a borrower has the right to redeem the property under sub-section (8) of Section 13 at any time before the property is transferred to the auction purchaser by confirmation of sale by the secured creditor. The appeal by the auction purchaser was dismissed, affirming the borrower's right to redemption before the sale confirmation and upholding the DRT's jurisdiction in the matter.

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