SARFAESI Act | Supreme Court : Amended Section 13(8) Applies To Loans Sanctioned Before 2016 If Default Occurred Afterwards | Notes Conflict Between Section 13(8) And Rules Governing Borrower’s Right Of Redemption | Calls On Government To Amend
Kiran Raj
The Supreme Court Division Bench of Justice J.B. Pardiwala and Justice R. Mahadevan, on September 22, observed an inconsistency between Section 13(8) of the SARFAESI Act, 2002 and Rules 8 and 9 of the Security Interest (Enforcement) Rules regarding the borrower’s right of redemption after the 2016 amendment. The matter arose from a Madras High Court decision which had annulled a sale certificate issued to auction purchasers and permitted borrowers to redeem the mortgaged property by repaying dues even after publication of an auction notice. The Supreme Court clarified that under the amended Section 13(8), the borrower’s right of redemption ends once the auction notice is issued. The Court held that this amendment applies not only to loans granted after its commencement but also to loans obtained earlier, so long as default occurred after September 1, 2016. Since the account was declared non-performing in December 2019 and the auction notice issued in January 2021, the amended law was found to govern the case.
The litigation stemmed from proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). The borrowers, M/s KPK Oils and Proteins India Pvt. Ltd., had obtained credit facilities from a secured creditor bank in January 2016. The facilities were secured by mortgage over immovable property.
The loan account functioned until December 2019, when the bank classified it as a non-performing asset (NPA). Following this declaration, the secured creditor exercised its statutory rights under Section 13 of the SARFAESI Act. In January 2021, the bank issued a sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, bringing the mortgaged property to auction.
The appellants in the present appeals were the successful auction purchasers. They deposited the sale consideration of ₹1.25 crore, and a sale certificate was issued in their favour.
The borrowers challenged these steps before the Madras High Court. Their primary contention was that since the loan had been sanctioned prior to the 2016 amendment to Section 13(8) of the SARFAESI Act, their right of redemption continued under the unamended provision. They argued that until actual transfer of the secured asset by a registered instrument, they retained the statutory right to redeem the property by tendering repayment of the dues.
The bank and auction purchasers resisted this position. They submitted that after September 1, 2016, the amended Section 13(8) curtailed the right of redemption to the stage prior to publication of a sale notice. Since the account was declared NPA in December 2019 and the auction notice was issued in January 2021, the amended provision governed the matter.
The Madras High Court, however, accepted the borrowers’ argument. In its order, it set aside the sale certificate issued to the auction purchasers and directed the bank to refund the sale consideration with 9% interest. It further directed that upon such repayment, the loan account would be treated as closed and the mortgage discharged. In effect, the High Court permitted the borrowers to redeem the secured property long after the publication of the sale notice.
The auction purchasers, aggrieved by the quashing of their sale certificate, preferred the present appeals before the Supreme Court.
The principal issues framed before the Supreme Court were:
- Whether the 2016 amendment to Section 13(8) applies to loans sanctioned prior to its commencement where default and classification as NPA occurred afterwards.
- Whether the continued existence of Rules 8 and 9, which allow redemption until transfer by registered deed, was inconsistent with the amended Section 13(8).
The Court stated: “Section 13(8) as amended by Act 44 of 2016 restricts the right of redemption to a stage prior to the publication of the notice of sale.”
Addressing the borrowers’ submission, the Court declared: “The contention of the borrowers that the unamended Section 13(8) would govern their rights merely because the loan was availed prior to September 1, 2016 cannot be accepted.”
It emphasized the true point of reference: “The determinative factor is the date of default and the declaration of the account as a non-performing asset. In the present case, this event occurred in December 2019, well after the amendment came into force.”
The Court elaborated that if the account is declared as an NPA after September 1, 2016, the amended provision applies, irrespective of when the loan was initially sanctioned. Recording the error of the High Court, it observed: “The High Court erred in applying the unamended Section 13(8) solely on the ground that the loan had been sanctioned prior to the amendment. What is relevant is the point in time when the account was declared a non-performing asset.”
The Bench held the principles of statutory interpretation: “A remedial statute applies to pending proceedings and such application may not be taken to be retrospective if application is to be in future with reference to a pending cause of action.”
On the nature of the SARFAESI Act, it stated: “SARFAESI Act is a remedial statute intended to deal with the problem of pre-existing loan transactions which need speedy recovery.”
The right of redemption was described as statutory: “As held in Narandas Karsondas and L.K. Trust, the right of redemption is not a contractual right, but rather a statutory right.”
The Court identified an inconsistency: “There is a serious anomaly between the amended provision contained in Section 13(8) of the Act and the relevant Rules which continue to envisage a right of redemption up to the date of transfer by way of a registered instrument.”
This, it cautioned, was problematic: “This inconsistency is capable of generating unnecessary litigation and creates uncertainty in the enforcement of security interests.”
Turning to the Final Conclusion the Court recorded its concerns:
“During the course of hearing, it was brought to our notice that third party rights were being attempted to be created over the secured asset by the borrower, to the prejudice and detriment of the auction purchaser herein, in order to bypass the sanctity of the auction conducted and in a blatant disregard of the dignity of the proceedings before this Court.”
The Bench issued a strong warning: “We make it abundantly clear that if any third party rights have been created over the said secured asset, the same would be non-est in view of this judgment. If at all we come to learn about any obstruction or resistance in handing over of the possession of the secured asset to the auction purchaser herein, either at the behest of the borrower or anyone else, we will proceed to take the strictest of actions against such person.”
It placed the legislation in context: “The RDBFI Act was the first legislative enactment that came into force in 1993. It was brought in order to facilitate expeditious recovery of debts by the bank, in order to ensure adequate liquidity and an overall healthy growth-oriented economy.”
The Bench recounted: “However, due to the continuing rise in number of non-performing assets and a pathetically poor rate of loan recovery, the SARFAESI Act was enacted. The SARFAESI Act was envisioned as a watershed legislation and a panacea to the failure of the existing legislation in addressing the major problems that were being faced by banks and financial institutions in India with respect to the recovery of bad debts, by introducing enforcement of debt without intervention of courts through securitisation and asset reconstruction, a need highlighted by several committees.”
Reflecting on its 23-year existence, the Court lamented: “It has been almost twenty-three years since the SARFAESI Act has remained in force. It is indeed very sad to note that even after these many years procedural issues such as the one involved in the case at hand, have continued to plague the legislation.”
The Court then observed: “Despite a catena of amendments, the glaring anomaly that we have come across in respect of Section 13(8) of the SARFAESI Act and Rules 8 and 9 of the SARFAESI Rules persists. The same renders the very mandate of the provision otiose.”
It noted: “We are, however, at our wit’s end to note how the ill-wording of Section 13(8) of the SARFAESI Act has resulted in a glaring inconsistency between the aforesaid provision and the SARFAESI Rules framed in lieu thereof. It is unfortunate that the ambiguities within the statutory provisions of the SARFAESI Act and Rules thereunder have left the interests of secured creditors and auction purchasers high and dry. The interpretative deadlock between the provision and the rules has single handedly resulted in a huge mess insofar as enforcement of security interest is concerned, giving birth to an endless pipeline of litigation clogging the specialized forums of the DRT and DRAT, that are expected to expeditiously decide matters of recovery of debt.”
Finally, it urged legislative reform: “We humbly urge the Ministry of Finance to take a serious look at these provisions and bring about necessary changes, before it is too late in the day.”
The Supreme Court concluded: “In the result, both the appeals succeed and are hereby allowed. The impugned judgment and order passed by the High Court is hereby set aside. The pending applications if any shall stand disposed of.”
“The Registry shall forward one copy each of this judgment to all the High Courts across the country and also to the Principal Secretary, Ministry of Finance and the Principal Secretary, Ministry of Law & Justice.”
Advocates Representing the Parties
For Petitioner(s): Mr. K. S. Mahadevan, Adv. Ms. Swati Bansal, Adv. Mr. R. Rangarajan, Adv. Mr. Aravind Gopinathan, Adv. Mr. Avanish Pandey, Adv. Mr. Sohan Lal Adak, Adv. Mr. Rajesh Kumar, AOR Ms. Praveena Gautam, AOR Mr. Pawan Shukla, Adv. Ms. Tissy Annie Thomas, Adv. Ms. Akanksha Tyagi, Adv.
For Respondent(s): Mr. Huzefa Ahmadi, Sr. Adv. Mr. S. Gowthaman, AOR Ms. Promila, Adv. Mr. Deepak Reddy, Adv. Mr. S. Thananjayan, AOR Mr. K. S. Mahadevan, Adv. Ms. Swati Bansal, Adv. Mr. R. Rangarajan, Adv. Mr. Aravind Gopinathan, Adv. Mr. Avanish Pandey, Adv. Mr. Sohan Lal Adak, Adv. Mr. Rajesh Kumar, AOR Ms. Praveena Gautam, AOR Mr. Pawan Shukla, Adv. Ms. Tissy Annie Thomas, Adv. Ms. Akanksha Tyagi, Adv
Case Title: M. Rajendran & Ors. v. M/s KPK Oils and Proteins India Pvt. Ltd. & Ors.
Neutral Citation: 2025 INSC 1137
Case Number: Civil Appeal No. 12174 of 2025 (with Civil Appeal No. 12175 of 2025)
Bench: Justice J.B. Pardiwala, Justice R. Mahadevan
