The Supreme Court in M. Rajendran & Ors. v. M/s KPK Oils and Proteins India Pvt. Ltd. & Ors., 2023 INSC 1137, pointed out a major mismatch in the SARFAESI Act with respect to the redemption rights of borrowers. The Court identified a blatant contradiction between Section 13(8) of the SARFAESI Act, 2002 (as amended in 2016), and Rules 8 and 9 of the SARFAESI Rules, 2002. Section 13(8), as amended, provides that once a secured creditor publishes a notice of auction in respect of mortgaged property, the borrower’s right of redemption is obliterated. In other words, the borrower loses their statutory right to pay back the debt in full and recover the secured asset, once the auction notice is published.
Conversely, there are two Rules, Rules 8 and 9, that state that even after a notice of auction was issued there would still be an opportunity for a redemption. By way of example, Rule 9(1) indicates that there must be at least 30 days from the date of publication of the notice of auction to the date of the auction itself. This suggests there appears to be a timeframe when a borrower could technically act to protect their interest. The Court noted the distinction between the statutory provision and the Rules has been a source of ongoing litigation before Debt Recovery Tribunals (DRTs) and Appellate Tribunals (DRATs) as parties typically rely on either the Act or the Rules to advance their position.
In order to remedy this, the Supreme Court held that the expression “publication of notice” found in Section 13(8) must be read consistently with the step mechanism provided in the Rules. The notice of sale must be properly published be it in the newspaper, via personal service to the borrower, posted up, or even by email and only after a proper publication occurs can the borrowers’ rights to redeem be extinguished. This reading reconciles the statutory provision and the procedural protections limited under the Rules to ensure a clearer understanding of when the borrower can take action to redeem the property.
The consequences of this ruling are significant. From the standpoint of the borrowers, they have a more restrictive period in which to act before any formal notice of auction is published and a substantial effort should be made to act quickly. At the same time, the ruling underscored the necessity of a legislative fix to remove the inconsistency between the Act and the Rules. The Court has recommended to the Government the SARFAESI Rules be reformed or the Act be amended to start having clarity on some of the issues that have turned out in courts and disputes over and over again. In conclusion, the Supreme Court’s observation reinforces the importance of legal clarity in debt recovery proceedings. While protecting the interests of secured creditors, the ruling also ensures that borrowers are made aware of their obligations and rights in a timely manner. By highlighting this anomaly, the Court has paved the way for legislative intervention, thereby promoting fairness, reducing litigation, and balancing the interests of both creditors and borrowers under the SARFAESI framework.
Case Details: M. Rajendran & Ors. v. M/s KPK Oils and Proteins India Pvt. Ltd. & Ors., 2023 INSC 1137
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Written By: Anushka Singh
Lawcutor 