Right to redemption under SARFAESI

Supreme Court

 Published on August 23, 2019

Subros and Associates

By Sandeep Suri, Advocate

The apex court was recently dealing with the proposition of WHAT IS A VALID TENDER TO A BANK under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), Section 13(8). In the said case the loanee claimed a  Right of redemption based on the Stand that they had "attempted" to exercise their right of redemption by depositing an aggregate sum of Rupees 25 Lacs in 2005 and 4th January, 2006, in the account of the father of appellant No. 2, followed by issuing cheque(s) in the aggregate sum of Rs. 25,21,446/- on 2nd January, 2006, and once again offering the amount by demand drafts in the sum of Rs.25,06,250/- on 18th January, 2006, none of the above could be treated as a valid tender. The Apex Court has opined that Firstly, 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.  Similarly, on the second occasion the appellants attempted to pay in the form of cheque(s) issued on 2nd January, 2006, however, as per the terms and conditions for grant of loan payment by cheque(s) was not permissible.  Thus, the respondent bank was not obliged to accept the amount in the form of cheque(s), 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.

 Affect Of Registration Of Sale Deed

Further under consideration wa the affect of registration of sale deed by auction purchaser and subsequent sale after dismissal of the writ by the High court and before the filing of the SLP before.  The Writ appeals filed by the loanee were disposed by the Division Bench of the High Court of Madras on 10th August, 2007. Auction purchaser got the sale certificate registered on 18th September, 2007. On 5th October, 2007 he transferred the property by a registered sale deed to third party.  Special leave petitions came to be filed only on 13th October, 2007. There was no interim injunction prohibiting Auction purchaser from registering the sale certificate or transferring the suit property, operating against him after the decision of the Division Bench of High Court . In fact, the impugned judgment was not even carried in appeal before this Court by the appellants until 18th September, 2007.  Order of status quo was passed by the Apex Court only on 23rd November, 2007. The apex court held 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. Since 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 - auction purchaser - and the appellants had made (unsuccessful) attempts to exercise their right of redemption by offering the outstanding dues to the respondent bank.  The contention pursued before the High Court by the appellants, therefore, has now become unavailable.       

The court further held that appellants have, in law, lost their option to exercise right of redemption, consequent to registration of the sale certificate and their failure to pay the dues to the secured creditors before that date. Loanee-Appellants took no steps, whatsoever, to pay the outstanding dues to the respondent bank by way of a valid tender nor moved any formal application before the High Court after filing of the writ petitions to permit them to deposit the requisite amount either in the concerned loan accounts or in the court. That was not done even until the disposal of the writ petitions by the Single Judge or during the pendency of the writ appeals before the Division Bench and until the disposal thereof vide the impugned judgment.  Even the legal notice sent by the appellants to the respondent bank, in no way expresses unambiguous commitment of the appellants to exercise their right of redemption.  Appellants, for reasons best known to them, have not chosen to deposit the amount in the loan accounts or attempted to seek permission of the Court to deposit the same in Court , immediately after filing of writ petitions or for that matter until the registration of the sale certificate.  In this backdrop, it was 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. 

It further held that, a fortiorari, it must follow that the appellants have failed to exercise their right of redemption in the manner known to law, muchless until the registration of the sale certificate - No relief can be granted to the appellants, assuming that the appellants are right in contending that as per the applicable provision at the relevant time (unamended Section 13(8) of the 2002 Act), they could have exercised their right of redemption until the registration of the sale certificate - which, indisputably, has already happened on 18th September, 2007 . Therefore, it is not possible to countenance the plea of the appellants to reopen the entire auction process. Thus understood, their right of redemption in any case stood obliterated on 18th September, 2007.               

While referring to Section 13(8) (as amended) and the Right of redemption, the court while dealing with the Registration of the sale certificate which happened on 18th September, 2007 in reference to the amended Section 13(8) of the 2002 Act which has come into force w.e.f. 1st September, 2016, held that the same will now stare at the face of the appellants.  As per the amended provision, stringent condition has been stipulated that the tender of dues to the secured creditor together with all costs, charges and expenses incurred by him shall be at any time before the "date of publication of notice" for public auction or inviting quotations or tender from public or private deed for transfer by way of lease assessment or sale of the secured assets.  That event happened before the institution of the subject writ petitions by the appellants, amended Section 13(8) would also create problems for redemption.

The Court held that the loanee had not exercised its right of redemption unequivocally nor had made any valid tender. 

(Extracted from 2019 SCeJournal 1021, SHAKEENA versus BANK OF INDIA , decided 20.08.2019)

Sandeep Suri (BE (Electronics), LLB, Chevening Scholar (London)), Advocate

Subros and Associates, Solicitors and Advocates

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