Borrower Cannot Redeem Mortgaged Property After Sale Certificate Under Pre-2016 SARFAESI: Madhya Pradesh HC

Holding that a borrower cannot reclaim mortgaged property after issuance of a sale certificate under the unamended SARFAESI regime, the Jabalpur Bench of the Madhya Pradesh High Court dismissed writ petitions challenging auction proceedings initiated by Bank of India.

A Division Bench of Justices Vivek Rusia and Pradeep Mittal clarified that the equitable principle of “once a mortgage, always a mortgage” operates only until the right of redemption is lawfully extinguished.

The case arose from recovery proceedings under the SARFAESI Act, 2002 against R&R Oil Mills, a partnership firm that had availed an overdraft facility by mortgaging certain properties. After default, the Bank issued a demand notice under Section 13(2) on March 4, 2009, took possession under Section 13(4), and conducted a public auction on February 24, 2010. The highest bidder deposited Rs 28 lakh.

The borrowers later deposited Rs 24 lakh towards settlement of the remaining dues and secured release of the unsold properties. However, the borrowers challenged the sale, asserting that although an auction had been scheduled for February 10, 2010, none was held on that date and that the later transaction was in effect a private treaty conducted without complying with the Security Interest (Enforcement) Rules, 2002.

They argued that the Bank had violated mandatory safeguards under the SARFAESI Act, the 2002 Rules, Section 60 of the Transfer of Property Act, 1882, and Article 300A of the Constitution. Relying on Supreme Court rulings, they contended that the right of redemption survives until execution and registration of a sale deed, and since no registered deed was executed, their right continued.

The Bank maintained that a lawful auction was conducted on February 24, 2010, that the petitioners were aware of it, and that communications had been issued to the auction purchaser regarding issuance and registration of the sale certificate. It further submitted that the borrowers never challenged the auction before the Debts Recovery Tribunal within the prescribed limitation period.

Accepting the bank's stand, the court found that the borrowers had knowledge of the auction and settled the account after the auction purchaser deposited the bid amount. “These facts clearly show that the auction of the disputed property was within the knowledge of the petitioners from the very beginning,” the Bench observed.

On maintainability, the Court held that allegations regarding procedural non-compliance involved disputed questions of fact. “Such disputed questions of fact cannot be adjudicated in the exercise of writ jurisdiction,” it stated.

Turning to redemption, the Bench noted that since the proceedings were initiated prior to the 2016 amendment to the SARFAESI Act, the unamended provision applied. Under that regime, the borrower retains the right of redemption only until issuance of the sale certificate.

As the sale certificate had already been issued in favour of the auction purchaser, the Court held that “the right of redemption stands closed upon the issuance of the sale certificate.”

It rejected the contention that non-registration of the sale certificate kept the redemption window open, noting that a sale certificate issued upon confirmation of sale does not require compulsory registration.

Emphasising that the petitioners had failed to approach the Debts Recovery Tribunal within limitation, the Court held that the auction proceedings had attained finality and could not be reopened in writ jurisdiction.

The court accordingly dismissed the writ petitions and directed the Bank to hand over the sale certificate to the legal heirs of the auction purchaser, and to take necessary steps to facilitate its registration, if they choose to have it registered, in accordance with law.

For Petitioners: Senior Advocate Ramesh Kumar Verma with Advocates Ram Murti Tiwari, Munish Saini for Petitioners;

For Respondent: Advocates Rajesh Maindiretta and Avinash Gupta