The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was introduced by the Government of India to help banks and financial institutions recover loans without going through lengthy court proceedings. Under this law, if a borrower defaults on repayment and the loan becomes a non-performing asset (NPA), the secured creditor (bank or financial institution) is empowered to take possession of the borrower’s secured assets, such as mortgaged property, and sell them to recover dues.
One important safeguard for borrowers under the Act is the right of redemption. This means that even if the bank takes steps to recover the property, the borrower has a chance to repay the outstanding amount and reclaim ownership. Initially, under the unamended Section 13(8) of the SARFAESI Act, borrowers had the right to redeem their property by paying all dues at any stage up to the final sale of the secured asset. In other words, even after the bank had issued an auction notice, borrowers could come forward, settle the dues, and prevent the sale from going through.
However, this position changed after the amendment to Section 13(8) in 2016. The amendment narrowed down the borrower’s right of redemption by specifying that the dues, along with costs and charges, must be paid before the date of publication of the public auction notice. Once the auction notice is published, the borrower loses the right to redeem the mortgaged property. This change was intended to bring clarity and certainty to the recovery process, as earlier borrowers often exercised redemption rights at the last moment, creating complications, delaying auctions, and discouraging potential bidders.
The Supreme Court, in the case of Celir LLP vs Bafna Motors (2023), interpreted the amended Section 13(8) and confirmed that the borrower’s right of redemption stands extinguished on the date of publication of the auction notice. The Court held that after publication of the notice under Rule 8(6) read with Rule 9(1) of the SARFAESI Rules, 2002, the borrower cannot stop the sale process by offering to pay dues. The Court further emphasized that the secured creditor is bound to give the borrower a clear 30-day notice under Rule 8(6) before publishing the auction notice, so that the borrower has a fair opportunity to redeem the property within that time.
This interpretation means that once an auction notice is published, the borrower cannot ask for relief by offering repayment or even by proposing a One-Time Settlement (OTS). Moreover, if an auction is successful, a third-party right is created in favour of the purchaser, which cannot be disturbed by later redemption attempts.
In practice, this amendment and Supreme Court ruling provide stronger protection to banks and ensure smoother auction processes, while still balancing borrower rights by giving them a fixed period of notice to clear their dues. For bank officials, it is important to strictly follow the procedure: (1) issue the 30-day notice to the borrower under Rule 8(6), (2) only after expiry of that period, publish the auction notice under Rule 9(1), and (3) avoid accepting redemption requests after publication of the auction notice. If any contrary direction is received from a court or tribunal, the matter must be referred to the bank’s Litigation Management Cell for proper handling.