Background:

In a significant ruling in Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. And Ors C.A. No. 5542-5543/2023 dated September 21, 2023, the Supreme Court of India, presided over by Chief Justice DY Chandrachud and Justice JB Pardiwala, addressed a crucial issue related to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). This ruling has profound implications for borrowers and banks alike.

The Case:

The case involved borrowers who had borrowed Rs. 100 crore from a bank, securing it with a mortgage on a piece of land. When they defaulted on repayment, the bank initiated proceedings under Section 13(2) of the SARFAESI Act. The borrowers tried to redeem the mortgage, but the bank proceeded with an auction of the secured asset. Ultimately, the borrowers sought legal intervention, leading to a crucial Supreme Court decision.

Key Ruling:

The Supreme Court made a pivotal determination regarding the borrower’s right of redemption. It clarified that this right gets extinguished upon the publication of the auction notice under Section 13(8) of the SARFAESI Act. In simpler terms, once the auction process begins, the borrower no longer possesses the right to redeem the property. This ruling aligns with the SARFAESI Act’s specific provisions and differs from the Transfer of Property Act, which allows redemption until property conveyance.

*Protecting Auction Process:

The Court emphasized the importance of preserving the integrity of the auction process under the SARFAESI Act. It argued that any other interpretation would undermine the confidence of participants, as they might not be aware that the borrower could redeem the mortgage even after the auction notice is issued. To prevent this, the Court asserted its duty to safeguard the sanctity of auctions and discouraged unwarranted interference.

Banks Must Adhere to the Law:

The judgment also served as a reminder that banks, just like any other entity, are bound by the law. The Court criticized the bank’s conduct in this case, highlighting the need for banks to adhere to legal provisions without placing their interests above the law. It reiterated that the legal system treats all parties equally, including banks and their officers.

High Court’s Role:

The Supreme Court clarified that High Courts should refrain from entertaining writ petitions in matters governed by the SARFAESI Act when an alternative remedy is available under the Act itself. This reinforces the importance of using the established legal avenues provided by the SARFAESI Act.

The Supreme Court’s ruling on the borrower’s right of redemption under the SARFAESI Act has significant implications for both borrowers and banks. It ensures clarity in the process by specifying when the borrower’s right to redeem the mortgage ceases. Additionally, it underscores the importance of transparency, fairness, and adherence to the law in financial transactions. This ruling reinforces the legal framework governing mortgage redemption and promotes confidence in the financial system.