SARFAESI 2002 prevails over Transfer of Property Act 1882: A Critical Analysis of Celir LLP V. Bafna Motors
Aryaditya Chatterjee
5th semester B.A.LL.B. (Hons.), School of Law (Christ Deemed to be University), Bangalore.
On 21st September, 2023, the Supreme Court of India (SC) in the case of Celir LLP v Bafna Motors (Mumbai) Pvt. Ltd & Ors. (2023) ibclaw.in 105 SC changed the position of law declaring that Section 13(8) of SARFAESI, 2002 prevails over Section 60 of Transfer of Property Act, 1882. The court held that as per the amended section of 13(8) of SARFAESI Act, the borrower will only be able to redeem property before sale notice under Rule 9(1) of SARFAESI is issued by the secured creditor to the borrower. The court held that previously as per the unamended provision under Section 13(8) of SARFAESI Act, the borrower had the right to redeem the property till the date of actual sale of the property. However, as per the amended provision under Section 13(8) of SARFAESI, the borrower can only redeem his mortgaged property before the sale notice under Rule 9(1) SARFAESI is issued by the secured creditor to the borrower and the provisions of TPA Act will not apply in this case because SARFAESI Act is a Special Enactment which will prevail over the General Act. This article aims to conduct a historical analysis of “Redemption of Mortgage under SARFAESI Act” through analysis of the Celir LLP V Bafna Motors and the objective of the amended Section 13(8) of SARFAESI.
Analysis of Celir LLP V Bafna Motors
The major issue that the Supreme Court dealt with was whether to give precedence to Section 13(8) of the SARFAESI ACT, 2002 over Section 60 of the Transfer of Property Act, 1883. A plain reading of Section 60 of the TPA Act will denote a simple understanding of the “Right of the Mortgagor to Redeem his Mortgaged Property”. Section 60 states that once the principal money has become due, the mortgagor has a right on payment or tender of the mortgage-money, to require the mortgagee to deliver the mortgage property or the title deeds of the property to the mortgagor. In simple words, it means once the mortgagor pays up his dues, the mortgagee has to transfer the mortgaged property or the documents of the mortgaged property to the mortgagor. The principle laid down by the Supreme court in Narandas Karsondas states that the mortgagor’s right to redeem the mortgage property will be extinguished only after the completion of sale by registered sale deed. In India, whenever a borrower takes loan from a secured creditor, he has to deposit the title deeds of the property which is mortgaging. Now, upon default and declaration of the borrower’s account as Non-Performing Asset (NPA), the Secured Creditor issues a 13(2) demand notice to recover the dues from the defaulter. If the defaulter does not pay the dues within 60 days, then Secured Creditor can issue a Sale Notice to the borrower and sell the mortgaged property through Public Auction. However, an analysis of Section 13(8) of the SARFAESI Act, 2002 is required in the contemporary context to understand the redemption of mortgage under Section 13(8) of SARFAESI Act, 2002.
Pre and Post Amendment of Section 13(8) of the SARFAESI Act, 2002
The issue faced by Supreme Court was till what time, the borrower could redeem his mortgaged property because under the unamended Section 13(8) of the SARFAESI Act, 2002 the sale of secured asset is to be confirmed specifically by the secured creditor and not by an authorised officer. So long as the sale is not confirmed by the secured creditor, the transfer of the secured asset does not become effective. The borrower has the right to redeem the property at any time before the date on which the property is transferred to the auction purchaser by the confirmation of the sale by the secured creditor. This principle was also held to be true in the judgment delivered by the Andhra Pradesh High Court in Finlease Securities Ltd v Indian Overseas Bank. Later in Dwarika Prasad v State of Uttar Pradesh, the Supreme Court considered the unamended Section 13(8) of the SARFAESI Act, 2002 and held that the right to redemption is not lost until there is complete transfer through a registered instrument. However, amended Section 13(8) of the SARFAESI Act, 2002 states that if any amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any before the date of the publication of notice for the public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets. The position of law was changed because before the amendment of Section 13(8) of SARFAESI, a borrower could stop the sale of his secured asset before the date fixed for sale or transfer of the secured asset. It is pertinent to mention that SARFAESI Act, 2002 is a special enactment and Transfer of Property Act, 1882 is a general enactment. Post amendment of Section 13(8) of the SARFAESI Act, 2002, it can very clearly be ascertained that the provision is not in consonance with the Transfer of Property Act,1882 which is general enactment.
Analysis of Section 35 and 37 of The SARFAESI Act, 2002
In such a scenario, it is important to mention Section 35 and 37 of the SARFAESI Act, 2002. Section 35 of the SARFAESI Act states that provisions of this act override other laws and Section 37 states that the provisions of the act shall not be in derogation of any other law for the time being in force. However, if a closer reading is done of Section 35 of the SARFAESI Act, 2002, then it clearly states that the act overrides other laws but Section 37 is contradictory in nature in nature wherein it is stated that the act should not be in derogation of any other law for the time being in force. The Supreme Court answered this “Question Law” through its judgment in Madras Petrochem (2017) ibclaw.in 63 SC wherein it held that if a literal interpretation of Section 35 is done then it will override each and every law. However, this could have not been the intention of the Parliament that’s why if a harmonious interpretation is done of Section 35 and 37 of the SARFAESI Act, 2002, then the provisions of the Act will only prevail that are inconsistent therewith.
Observations of the Court in Celir V Bafna Motors
The court observed that as per the amended Section 13(8) of SARFAESI Act, the borrower will only be able to redeem property before sale notice under Rule 9(1) is issued by the secured creditor to the borrower. It held that previously as per the unamended provision under Section 13(8) of SARFAESI Act, the borrower had the right to redeem the property till the date of actual sale of the property. However, as per the amended provision under Section 13(8) of SARFAESI, the borrower can only redeem his mortgaged property before the sale notice under Rule 9(1) is issued by the secured creditor to the borrower and the provisions of TPA Act will not apply in this case because SARFAESI Act is a Special Enactment which will prevail over the General Act.
Conclusion
The Supreme Court’s decision may be a sigh of relief for the secured creditors wherein they will not be interrupted by the borrower after issuance of sale notice. However, the borrower’s rights are taking a major hit due to amended Section 13(8) of SARFAESI Act,2002. It is pertinent to mention that a person spends a fortune to buy a property and in such an instance if that property is taken away without him having the reasonable time to redeem it, then such an act goes against the principles of natural justice. The intention of the SARFAESI Act, 2002 is to facilitate due recovery process in an efficient manner. However, if the borrower is paying his dues before the sale of the property still the dues are recovered but, in a case if the borrower is not able to pay the dues before the sale notice, then his right to redemption is extinguished. However, in both the scenarios the recovery of the dues is taking the same amount of duration before the amendment to Section 13(8) of the SARFAESI ,2002 was introduced. Thus, the amendment to Section 13(8) of the SARFAESI seems unnecessary because the duration taken to recover the dues remains the same but the right to redeem the property of the borrower is severely curtained.
