Welcome to the SARFAESI Newsletter for May 2025. This edition highlights significant recent legal developments under the (Securitisation and Reconstruction of Financial Asset and Enforcements of Security Interest) 2002 (“Act”) and related financial statutes. We explore key rulings, including DRAT & High Court decision on the power of the District Magistrate Under Section 14 of the Act, Right of Redemption of the Borrower in case of Subsequent Sale, Availability of Alternate remedy under CICRA, Power of Redemption after issuance of Sale Certificate and Position of the lender once the Secured Asset is sold.
Adjudicating power of the district magistrate:
1. Sri Mukul Sarkar Vs. Punjab National Bank and Ors.
A question arose as to the powers the Adjudicating Authority while adjudicating an Application filed Under Section 14 of the SARFAESI Act, 2002?
The DRAT held that the District Magistrate has no adjudicating powers rather in passing an order under Section 14 of the SARFAESI Act, 2002. The DRAT further held that the District Magistrate performs Ministerial act exercising his ministerial power while passing an order Under Section 14 of the SARFAESI Act, 2002. The DRAT while passing the said order has placed reliance on the judgment of The Hon'ble Apex Court in Balakrishna Rama Tarle -vs- Phoenix ARC Private Limited & Others and observed that the role of the District Magistrate was simply to assist the secured creditor in taking possession of the secured asset and not to consider repayments made by the borrower.
Right to redemption of the borrower on subsequent sale:
2. Cholamandalam Investment and Finance Company Ltd and Anr Vs. Linaj Addhya and Ors.
A question arose while adjudicating whether it is mandatory to issue a 30-day notice to the borrower on subsequent sale under Rule 8(6) of Security Interest (Enforcement) Rules, 2002?
The Debt Recovery Appellate Tribunal held that even in the case of subsequent sale, Authorised Officer is required to issue 30 days' notice under Rule 8(6) and thereafter 15 days' notice under Proviso attached to Rule 9(1). The Appellate Tribunal also observed that Rule 8(6) remains unchanged and thereunder, the authorized officer must necessarily serve upon the borrower a notice of 30 days for the sale of the immovable secured asset.
There is no avenue to explore recourse to arbitration, till such remedy under section 21(3) is availed & exhausted:
3. Reserve Bank of India Vs. P.V.R.S. Mani Kumar and Ors.
A question arose as to whether Arbitration clause can be invoked when alternative remedy is available under Credit Information Companies Regulation Act, 2005, (CICRA)?
The Hon'ble High Court after analysing the various provisions of CICRA held that since, Section 21 of the Act provides for alteration of credit information file and credit report, and offers an alternate of efficacious remedy of amendments/alteration prior to resort to arbitration, triggering of Section 18 of the CICRA for Arbitration proceedings would be only applicable after exhausting the available remedies provided in the CICRA. The Court further observed that the legislative intent conferred upon CICRA, would reveal that the maintenance of credit information of a person is intended as a measure of protection against future borrowings by that person.
No relief for mortgage can be granted once the auction sale & sale certificate have been upheld:
4. Swati Patel Vs. Bank of India and Ors.
A question arose as to whether the borrower has right to claim the redemption of the mortgage after issuance of sale certificate?
The Hon'ble Madras High Court observed that the mortgagor's right of redemption is to be exercised by the payment or tender to the mortgagee at the proper time and at the proper place of the mortgage money and when it is extinguished by the act of the parties, the act must take shape and observe the formalities prescribed by law. The Court further observed that if the mortgagee exercises its right to auction the mortgaged property and after receipt of the auction money and adjusting the total amount due, pay the balance surplus money to the mortgagor and the mortgagor accepts the same, the said act of the parties extinguishes the right of the mortgagor to redeem the mortgage. The Court further observed that in another proceedings, the coordinate Division Bench has already upheld the actions of the bank in issuance of sale certificate, no relief for redemption of mortgage can be granted.
Position of lender once secured asset is sold:
5. Canara Bank v. The State of Madhya Pradesh and Ors.
A question arose whether a lender could seek assistance of the District Magistrate under Section 14 of the Act, after secured property has been sold in an auction?
The Madhya Pradesh High Court observed that since the secured assets have already been sold by way of auction and the sale certificates have been issued based on the symbolic possession, therefore, now the lender is no more secured creditor or the property in question is not a secured asset. The auction purchaser has become the owner of the property which was mortgaged with the lender and the auction purchaser may take recourse available under the law to get the possession of the property. Therefore, the lender cannot seek assistance under Section 14 of the Act to evict the borrower from the possession.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
