The Supreme Court has delivered a significant judgment clarifying borrower rights under the SARFAESI Act, 2002, reinforcing the legal certainty of bank property auctions.
In its ruling, a bench comprising Justices J.B. Pardiwala and R. Mahadevan held that once a secured creditor issues an auction notice for a mortgaged property, the borrower loses the right to redeem the property. Furthermore, after the bank or financial institution issues the Sale Certificate to the auction purchaser, the borrower’s rights are completely extinguished, granting the buyer absolute ownership.
Background: Prior to the 2016 amendment of Section 13(8) of the SARFAESI Act, borrowers could redeem their property at any time before the sale was completed. This provision often led to prolonged litigation, delaying loan recovery and creating uncertainty for buyers at auctions.
In 2016, Parliament amended Section 13(8), stipulating that a borrower could only redeem the property before the auction notice is published, aiming to eliminate ambiguities and prevent delays.
Case in Point: The ruling arose from a dispute involving KPK Oils and Proteins India Pvt Ltd., whose mortgaged property had been put up for auction. The Madras High Court had earlier canceled the auction in favor of the borrower. The Supreme Court overturned this decision, confirming that the rights of the auction purchaser are protected under law.
Implications:
Banks and financial institutions can now execute auctions without fear of last-minute legal interventions by borrowers.
Auction purchasers are assured of full ownership upon receipt of the Sale Certificate.
The judgment strengthens enforcement of secured loans, discouraging borrowers from exploiting legal loopholes to delay recovery.
Timeline of Borrower Redemption Rights:
Before 2016: Borrowers could redeem the property anytime before sale completion, leading to delays.
2016 Amendment: Redemption allowed only before auction notice publication.
Supreme Court 2025 Ruling: Redemption ends once auction notice is issued; post Sale Certificate, borrowers have no rights, and buyers gain absolute ownership.
In simple terms: Once an auction notice is published under SARFAESI Act, the borrower loses the right to reclaim the property. Buyers, on the other hand, acquire full and final ownership once the Sale Certificate is issued.
This landmark ruling is expected to bring greater clarity and confidence to the auction process under the SARFAESI framework.
resource
https://indiankanoon.org/doc/47367203/
https://www.ptinews.com/story/national/borrowers-can%E2%80%99t-redeem-property-after-publication-of-auction-notice-under-sarfaesi-sc/2939326
https://www.advocatekhoj.com/library/judgments/announcement.php?WID=19457
https://www.livelaw.in/supreme-court/sarfaesi-act-supreme-court-flags-inconsistency-between-s138-act-rules-on-borrowers-redemption-right-urges-govt-to-amend-304749
https://lawtrend.in/borrowers-right-to-redeem-property-extinguishes-on-date-of-auction-notice-publication-amended-sarfaesi-act-applies-to-alive-claims-supreme-court