Case Summary of CELIR LLP v. Bafna Motors (Mumbai) Pvt Ltd

Case Title: Celir LLP v. Bafna Motors (Mumbai) (P) Ltd 2023 SCC OnLine SC 1209

Court: Supreme Court of India

Bench: Three bench judges

Date of Judgement: 21.09.2023

Relevant provisions: Section 13(8) of the SARFAESI Act, 2002

Introduction:

The Celir LLP v Bafna Motors (Mumbai) Ltd 2023 case addresses a pivotal question under the SARFEASI Act, 2002 i.e. when does a borrower’s right to redeem a mortgaged asset come to an end? Prior to the 2016 amendment, Section 13 (8) allowed borrowers to redeem their property anytime before the actual sale of the transfer of the secured asset, as interpreted in the Mather Varghese v. M. Amritha Kumar (2014) case. The provision was borrower centric and this caused significant issues of delayed payments by the borrowers, even after the auction procedure had begun. Hence, 2016 amendment introduced a stricter timeline- limiting redemption period of borrowers before publication of the auction notice. The Celir LLP case affirms this legislative shift hence making a significant shift from borrower-centric approach to reinforcing the primacy of statutory timelines over equitable considerations.^[1]

Brief Facts:

• In 2017, the borrower availed a lease rental discounting loan of Rs 100/- crores from The Union Bank of India. To secure this loan the borrower mortgaged a land and also provided personal guarantee.
• Upon default by both the borrower and the guarantor, the bank issued a demand notice under Section 13(2) of the SARFAESI Act, 2002. The borrower challenged this notice before the Debt Recovery Tribunal (DRT), Mumbai.
• The bank meanwhile initiated recovery proceedings and multiple auctions to sell the mortgaged property. In the ninth auction in June 2023, Celir LLP (appellant) emerged as the highest bidder with offer of Rs 105.5 crores/-.
• The bank confirmed the sale, and the appellant deposited 25% of the bided amount.
• Subsequently, the borrower sought to redeem the mortgage by filing an application to the DRT and also a writ petition under Section 226 in the Bombay High Court.
• While these proceedings were pending the appellant submitted the rest 75% of the amount to the bank.
• In front of the Bombay High Court, the borrower offered to pay Rs 129/- crores to redeem the mortgaged land as under Section 60 of the Transfer of Property Act, 1882. The bank accepted this offer.
• The High Court of Bombay accepted the writ petition if the borrower pays the amount pledged. The borrower paid the agreed amount with “no due certificate” granted
• Aggrieved by the High Court’s decision, the appellant filed a civil appeal before the Supreme Court.^[2]

Issues:

What is the legal extent of a borrowers right to redeem a mortgaged property during auction proceeding under the SARFAESI Act, 2022?

Arguments Contested:

 Appellant:

The appellant contested that the amended Section 13(8) of SARFAESI Act, 2002 holds that the right of the mortgager to redeem back the land is lost after upon publication of auction notice by bank under Rule 9 of Security Interest (Enforcement) Rules, 2002. They argued that the bank had accepted the sale of the land to the appellant hence had duty to issue a sale certificate for the same and was estopped from consenting to the pleas of the borrower.

Respondent:

The respondent believed that the writ petition to the Supreme court was pointless since he had already paid the amount he pledged as instructed by the high court and also had the “no-dues certificate” issued.^[3]

High Court Proceeding-

The borrower filed a writ petition seeking a direction to allow redemption of the mortgaged property, expressing willingness to pay Rs. 129/- crores. The reason for approaching the High Court was the apprehension that the DRT might reject its plea for rejection. Although the bank initially opposed redemption before the DRT, it changed its stand during the High Court proceedings and agreed to accept redemption, likely influenced by the higher offer of Rs. 129/- crores from the borrower compared to the auction purchaser’s bid of Rs. 105.05/- crores. The auction purchaser m\, who was impleaded as a party in the writ petition, opposed the borrowers request. The High Court, noting the agreement between the bank and the borrower, allowed the writ petition and granted the borrower time to pay the dues by 31.08.2023. It also directed that if the borrower made the payment the title deeds be returned, and if it failed, the sale in favour of the auction purchaser would stand confirmed.

Aggrieved by this decision, the auction purchaser filed an appeal before the Supreme Court.^[4]

Judgement–

The honourable bench of the Supreme Court held that the amended provision of Section 13(8) of the SARFAESI Act, the right of redemption of mortgaged extinguishes on issuance of auction notice. The court held that since paid to pay the full outstanding dues before the auction notice was published s required under Section 13(8) of the SARFAESI Act, the right to redeem the mortgaged property by borrower was legally extinguished.

The court over turned the Bombay High Court’s and directed the appellant to deposit an additional Rs 23.95/- crores within a week’s time.^[5]

Precedent referred:

• Sri Sai Annadhatha Polymers v. Canara Bank 2018 SCC OnLine Hyd 178
• V.V. Prasad Rao Gupta v. SBI 2021 SCC OnLine TS 328

Statutes referred:

• Section 13(8) of SARFAESI Act, 2002

This section deals with the borrowers right to redeem the secured assets. The borrower can redeem the asset by repaying the dues and expenses incurred by the secured creditor any time before the date of publication of the auction notice or inviting tenders to purchase the asset. If the borrower tenders the whole amount before such publication, then no further publication of auction or selling of the asset will be allowed.

• Section 60 of the Transfer of Property Act, 1882

This section deals with the right of the mortgager to redeem the mortgaged property. The mortgager can reclaim the land by repaying the mortgaged debt to the mortgagee. This right can be exercised by paying the amount at the correct time and place hence the mortgagee becomes liable to return back the property.

Ratio Decedendi:

• The honourable court held that the borrowers right of redemption under Section 13(8) of the SARFAESI Act, 2002 stands extinguished upon the publication of the auction notice. Post the 2016 amendment, the borrower must tender the entire dues before such publication; failure to do so results in a complete loss of the right to redeem the mortgaged property.
• The court further clarified that Section 60 of the Transfer of Property Act is inapplicable in the post-amendment SARFAESI framework due to the overriding effect of Section 35 of the SARFAESI Act. Once the auction sale is confirmed and the purchaser has paid the full consideration, the secured creditor cannot entire into a private settlement with the borrower.
• The sanctity of public auctions must be preserved, and judicial interference should be minimal and only in exceptional cases.^[6]

Obiter Dicta:

• The court held that once the auction is confirmed, the bank has no authority to enter into a private settlement with the borrowers.
• The court reaffirmed that public auctions must be treated as sacrosanct and should only be disturbed under exceptional circumstances.
• The honourable Supreme Court held that the High Court erred in exercising jurisdiction under Article 226 when the borrower had an adequate remedy under Section 17 of the SARFAESI Act.

Conclusion:

Celir LLP v Bafna Motors (Mumbai) Pvt. Ltd. has become a landmark precedent on the limits of the borrowers right to redemption, the right of auction purchasers, and the binding effect of the completed auction sales under the SARFAESI Act. The case contributed to providing a clear distinction between SARFAESI Act’s framework from Section 60 of the Transfer of Property Act, which traditionally allowed redemption until the sale was complete. It brings commercial certainty, clarity and discipline in the enforcement of secured assets, particularly protecting third party right during auction process and protecting auction purchasers from post-notice litigation.

Hence it can reasonably be argued that, amended Section 13 (8) creates an exception to the general redemption available under Section 60 of the Transfer of Property Act. Given the overriding effect given to SARFAESI Act through Section 35, this special provision takes precedence. Practically speaking, it makes little difference to understand whether the two provisions are in harmony or conflict. In either scenario the outcome remains the same, once the lender publishes the auction notice under Section 13 of the SARFEASI Act, the borrower loses the right to redeem the secured property if dues have not been paid before that point.

[1] “REDEMPTION OF SECURED ASSETS UNDER SECTION 13(8) OF SARFAESI ACT, 2002 | TaxTMI” (TaxTMI, March 27, 2024) https://www.taxtmi.com/article/detailed?id=12461

[2] Fox Mandal, “Celir LLP v. Bafna Motors Mumbai Pvt Ltd and Ors.” (Fox Mandal, October 6, 2023) https://www.foxmandal.in/News/borrowers-right-of-redemption-extinguishes-on-publication-of-auction-notice/

[3] Chakraborti R, Agarwal S and Mohan A, “ERGO Analysing Development Impacting Business: Celir LLP v. Bafna Motors – SC Holds That a Mortgagor’s Righ…” (Lexology, October 9, 2023) https://www.lexology.com/library/detail.aspx?g=a4582a91-4c08-4fd3-add2-6a4b2334c513

[4] Indulia B, “Right of Redemption and the Amended Section 13(8), SARFAESI Act – Celir LLP v. Bafna Motors (Mumbai) (P) Ltd.: A Case Comment | SCC Times” (SCC Times, December 16, 2023) https://www.scconline.com/blog/post/2023/12/12/right-of-redemption-and-the-amended-section-138-sarfaesi-act-celir-llp-v-bafna-motors-mumbai-p-ltd-a-case-comment/

[5]  Co K&, “Celir LLP v Bafna Motors – SC Holds That a Mortgagor’s Right of Redemption Extinguishes on Issue of Notice of Auction Under the SARFAESI ACT” (Khaitan & Co) https://www.khaitanco.com/thought-leaderships/Celir_LLP_v_Bafna_Motors_SC_Holds_That_a_Mortgagors_Right_of_Redemption_Extinguishes_on_Issue_of_Notice_of_Auction_Under_the_SARFAESI_ACT

[6] Indulia B, “Right of Redemption and the Amended Section 13(8), SARFAESI Act – Celir LLP v. Bafna Motors (Mumbai) (P) Ltd.: A Case Comment | SCC Times” (SCC Times, December 16, 2023) https://www.scconline.com/blog/post/2023/12/12/right-of-redemption-and-the-amended-section-138-sarfaesi-act-celir-llp-v-bafna-motors-mumbai-p-ltd-a-case-comment/