The Supreme Court of India ("Supreme Court") recently clarified its stance on the borrower's right of redemption in Sanjay Sharma v. Kotak Mahindra Bank Ltd. The Supreme Court ruled that borrower's right of redemption can only be exercised until the notice for the sale of the mortgaged property is published under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. Prior to the 2016 amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"), borrowers retained the right to redeem the property until its actual sale or transfer. However, post-amendment, this right is curtailed at the publication of the sale notice.
Facts of the Case
The brief facts of the case are that one Champa Bhen Kundia was the original owner of a property in Old Rajinder Nagar, New Delhi. The basement of the said property was also transferred multiple times vide unregistered documents and the said property was finally in possession of Raj Kumar Vij i.e., Respondent No.2. In the meantime, Champa Bhen Kundia also secured a loan from Associated India Financial Services in the year 2001 who later assigned the loan to Kotak Mahindra Bank. Following a loan default, the bank initiated SARFAESI proceedings, culminating in a public auction in December 2010.
The appellant, an auction purchaser, acquired the secured asset through a public auction conducted by Kotak Mahindra Bank Limited ("Respondent No. 1/Kotak") under SARFAESI provisions. A sale certificate for the secured asset was issued to the appellant on 27 December 2010. However, Respondent No. 2, relying on an unregistered agreement to sell and other documents, contested the auction, claiming ownership of the property. Respondent No. 2 also invoked the right of redemption under Section 13(8) of the SARFAESI Act. After prolonged litigation across various forums, including the Debt Recovery Tribunal ("DRT") and the Hon'ble Delhi High Court, the matter reached the Supreme Court.
Issue
The primary question was whether Respondent No. 2, relying on unregistered documents, had the right to redeem the mortgaged property after the issuance of the sale certificate.
Findings:
- Unregistered Documents
The Supreme Court emphasized the requirements under Section 54 of the Transfer of Property Act, 1882 (TP Act) to validate Respondent No. 2's claim. According to the TP Act, the sale of tangible immovable property is valid only if executed through a registered instrument. The documents relied upon by Respondent No. 2, including an agreement to sell dated 23 April 2001, were unregistered. Therefore, unregistered sale deeds cannot convey or transfer ownership as required under Section 54 of the TP Act.
The Supreme Court also observed that the neither the Respondent No. 1 nor the appellant (auction purchaser) were aware of sale of tangible immovable property. Moreover, Respondent No. 1 or Appellant could not have anticipated Respondent No. 2's claim since the unregistered documents were not publicly available for the Respondent No. 1 and Appellant to conduct due diligence.
- Right of Redemption under Section 13(8) of SARFAESI
The Court clarified that, post the 2016 amendment, the borrower's right of redemption is extinguished upon the publication of a public auction notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002. Previously, the redemption right extended until the completion of the sale or transfer. The Court also noted that Respondent No. 2 was given ample opportunity to redeem the mortgage but Respondent No. 2 failed to act on it.
MHCO Comment
This judgment reinforces the importance of registering sale deeds to secure legal ownership of immovable property. It underscores the strengthened legal framework for property transactions in India, safeguarding bona fide auction purchasers from potential misuse of redemption rights by borrowers or mortgagors. The ruling serves as a vital precedent, ensuring clarity and fairness in property dealings by auction sales. This article was released on 24 January 2025.
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