Borrowers Can't Redeem Property After SARFAESI Notice Publication: SC

New Delhi- The Supreme Court on Monday held borrowers cannot redeem property after publication of auction notice as purchasers acquire indefeasible rights once sale certificate is issued by creditor banks and financial institutions under the SARFAESI Act.

A bench of Justices J B Pardiwala and R Mahadevan rued the fact that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) was enacted in 2002 to protect banks and financial, but certain ambiguities in its Section 13(8) and a few rules had prolonged litigations.

The top court also held that the 2016 amendment to Section 13(8) of the SARFAESI Act, which extinguishes a borrower's right of redemption once the secured creditor publishes an auction notice, will apply even to loans taken before the amendment came into force if the default occurred after September 1, 2016.

Writing 140-page judgement, Justice Pardiwala said,“We humbly urge the Ministry of Finance to take a serious look at these provisions and bring about necessary changes, before it is too late in the day.”

The bench went on,“It has been almost twenty-three years since the SARFAESI Act has remained in force. It is indeed very sad to note that even after these many years procedural issues such as the one involved in the case at hand, have continued to plague the legislation.”

The bench noted it came across“glaring anomaly” in respect of Section 13(8) of the SARAFESI Act and Rule(s) 8 and 9 of the SARFAESI Rules.

“We are, however, at our wit's end to note how the ill-wording of Section 13(8) of the SARFAESI Act has resulted in a glaring inconsistency between the aforesaid provision and the SARFAESI Rules framed in lieu thereof. It is unfortunate that the ambiguities within the statutory provisions of the SARFAESI Act and Rules thereunder have left the interests of secured creditors and auction purchasers high and dry. The interpretative deadlock between the provision and the rules has single handedly resulted in a huge mess...,” it said.

The top court directed a copy of its verdict to be shared with all high courts besides the principal secretaries of the Ministry of Finance and the Ministry of Law & Justice.

Referring to amended provision, the bench said, it“extinguishes” the right of redemption of the borrower in the event he fails to repay his dues and redeem the asset before publication of the auction notice.

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