BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 10/08/2007 CORAM THE HONOURABLE MR. JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR. JUSTICE P.R.SHIVAKUMAR W.A.(MD)No.145 of 2007 W.A.(MD)No.146 of 2007 and M.P(MD)Nos.1+1 and 2+2 of 2007 K. Chidambara Manickam, No.2/37, Maravar Mela Street, Alanganeri (Post),3 Thachanallur Via, Tirunelveli. ... Appellant in both W.As Vs Shakeena, W/o. P.Shahul Hameed, No.18-A, A9, 4th Main Road, Maharaja Nagar, Tirunelveli - 11. ... First Respondent in W.A.No.145 of 2007 P.Shahul Hameed, S/o. Pakkir Mohideen Rowther, No.18-A, A9, 4th Main Road, Maharaja Nagar, Tirunelveli - 11. ... First Respondent in W.A.No.146 of 2007 Bank of India, rep. By its Branch Manager Palayamkottai, Tirunelveli - 627 002. B. Jagathkumar, Authorised Officer, Bank of India, Coimbatore Zone, 324, Oppanakara Street, Coimbatore - 1. ... Respondents 2 and 3 in both W.As PRAYER Appeals filed under Clause 15 of the Letters Patent against the orders of the learned single Judge dated 09.03.2007 made in W.P(MD)Nos.634 and 635 of 2006. !For Appellant ... Mr. AR. L. Sundaresan Senior Counsel for M/s. AL. Ganthimathi ^For Respondents ... Mr. R.S.Ramanathan for R-1 Mr. F.B.Benjamin George for R-2 and R-3 :JUDGMENT
(Judgment was delivered by P.D.DINAKARAN, J.)
These writ appeals have been preferred by the appellant against the common
order dated 09.03.2007 of the learned Single Judge made in W.P.(MD)Nos.634 and
635 of 2006.
2. Brief facts, sans unnecessary details, leading to the filing of these
writ appeals are stated herein under:-
2.1. The first respondent in both the writ appeals, who have obtained a
loan of Rs.10,00,000/- each from the second respondent/bank, are hereinafter
referred to as “borrowers”. As they defaulted in repayment, the second
respondent/bank issued notices dated 19.10.2004 and 01.12.2004 under Section
13(2) of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for brevity, “SARFAESI Act”) to the
borrowers, calling upon them to discharge the loan within sixty days.
2.2. As the borrowers have not complied with the said demand, the second
respondent/Bank, alleging that as on 31.10.2004, a sum of Rs.10,72,483/- was due
from each of them, directed the borrowers to discharge the loan amounts with
interest at the rate of 11.75% per annum within a period of sixty days. In
replication, the borrowers by representations dated 10.12.2004 and 30.12.2004
requested the second respondent/bank to consider their case for one time
settlement. The borrowers invoking Section 17 of the SARFAESI Act filed
S.A.Nos.21 and 22 of 2005 before the Debts Recovery Tribunal II, Chennai,
challenging the said notices issued by the second respondent/Bank, but the same
were dismissed on 28.09.2005.
2.3. In view of the default in discharging the loans by the borrowers, the
second respondent/bank, exercising its powers under Section 13(4) of the
SARFAESI Act issued the impugned notice dated 14.11.2005 informing the borrowers
that constructive possession of the secured assets were taken over by them on
09.02.2005 and the same would be brought for sale after the expiry of 30 days
from that date, by way of public auction.
2.4. In the absence of any headway by the borrowers in repayment, the
third respondent, who is the authorised officer of the second respondent bank,
brought the property for public auction on 19.12.2005.
2.5. On 02.01.2006, the borrowers, however, approached the second
respondent/bank and deposited three cheques for a total sum of Rs.25,21,445/- to
discharge the amount due and payable in respect of the notices issued to them.
The second respondent/Bank, by informing the borrowers that the secured assets
have already been sold and the sale was to be confirmed on or before 17.01.2006,
returned the cheques on 04.02.2006.
2.6. The borrowers filed I.A.Nos.13 and 14 of 2006 for condoning the delay
in filing petitions to restore S.A.Nos.21 and 22 of 2005 and also filed
petitions to restore S.A.Nos.21 and 22 of 2005 and for stay of the confirmation
of the auction sale. The Debts Recovery Tribunal II, Chennai, by an order dated
10.01.2006, recording the submission of the second respondent/bank that the
auction purchaser had paid the entire sale consideration and sale certificate
was issued to him on 06.01.2006, dismissed the applications of the borrowers
with liberty to pursue their remedies.
2.7. The borrowers, thereafter, sent a lawyer’s notice dated 13.01.2006 by
enclosing a Demand Draft for a sum of Rs.25,00,000/- drawn in favour of the
second respondent/bank. The second respondent bank, after receiving the demand
draft, without setting aside the sale, sent another notice dated 18.01.2006 to
the borrowers, directing them to remove the articles found in the secured assets
within three days.
2.8. Contending that when the borrowers had paid the entire loan amount,
the second respondent/bank cannot proceed with taking of possession of the
secured assets, the borrowers filed W.P(MD)Nos.634 and 635 of 2006 for issue of
Writ of Certiorarified Mandamus to call for the records of the respondent in
respect of the auction of their properties held in pursuance to the auction
notice dated 14.11.2005, to quash the same and to direct the second and third
respondents to receive the amount paid by them.
2.9. The second and third respondents filed a detailed common counter
denying the case of the borrowers.
2.10. The appellant herein, who is the auction purchaser, got himself
impleaded as 3rd respondent in both the writ petitions and contested the case
pleading his right over the properties purchased in the public auction.
2.11. Learned Single Judge, after hearing the counsel on either side,
accepting the argument of the learned counsel for the borrowers that, the
borrowers, by exercising their right of redemption under Section 60 of the
Transfer of Property Act, have approached the second respondent for repayment of
entire loan dues before the completion of the sale by registration of sale
documents, allowed the writ petitions, as prayed for. Hence, these writ appeals.
3. We have heard Mr.AR.L.Sundaresan, learned Senior Counsel appearing for
the appellant/auction purchaser, Mr.R.S.Ramanathan, learned counsel appearing
for the first respondents/borrowers and Mr. F.B.Benjamin George, learned counsel
appearing for respondents 2 and 3/the secured creditor.
4.1. Mr.AR.L.Sundaresan, learned senior counsel appearing for the
appellant submits that the borrowers, having invited a conditional order from
Debts Recovery Tribunal II, Chennai directing them to pay a sum of Rs.1,50,000/-
for staying all further proceedings pursuant to notice under Section 13(2) of
the SARFAESI Act, have not complied with the order and allowed the applications
to be dismissed on 28.09.2005 for non-prosecution, are not liable to maintain
the writ petitions.
4.2. The learned senior counsel for the auction purchaser/appellant,
contends that when there is no provision under the SARFAESI Act empowering the
secured creditor, either to cancel or set aside the sale certificate already
issued to the auction purchaser, the further course open to the borrowers is to
file an appeal before the Tribunal as provided under SARFAESI Act and therefore,
when there is an effective alternative remedy available under SARFAESI Act, the
writ petitions themselves are not maintainable.
4.3. The next submission of the learned senior counsel for the appellant
is that once the borrowers failed to pay or tender the entire dues to the second
respondent/bank before the date fixed for sale, viz., 19.12.2005, and allowed
the second respondent to proceed with the sale as per the provisions contained
in sub-section (8) of Section 13 of the SARFAESI Act, it is not open to them to
seek for cancellation or setting aside of the sale certificates issued to the
appellant/auction purchaser on 06.01.2006 by approaching the secured creditor,
who has no power under the Act to cancel such sale certificate already issued,
at a belated stage and therefore, the prayer of the borrowers is liable to be
rejected.
4.4. It is the further contention of the learned senior counsel that the
provision contained in Section 13(8) of the SARFAESI Act is not in derogation of
Section 60 of the Transfer of Property Act as the validity of the said provision
of SARFAESI Act has been upheld by the Supreme Court in the decision in Mardia
Chemicals Limited vs. Union of India – 2004 (4) SCC 311 and therefore, if the
contention of the borrowers is accepted, it would defeat the entire object for
which SARFAESI Act was enacted by the Parliament. Argued that if the sale
certificates issued to the bona fide purchasers in the public auction as per the
provisions of the law are sought to be cancelled at a belated stage, it would
cause great prejudice to those who have invested huge sums for purchasing the
properties in public auction and the very purpose of auctioning would become
redundant.
4.5. The learned senior counsel for the appellant has submitted that if
the dues of the secured creditor together with all costs, charges and expenses
incurred are tendered to the secured creditor before the date fixed for sale or
transfer, under Section 13(8) of the SARFAESI Act, the secured asset shall not
be sold or transferred by the bank or financial institutions and no further
steps shall be taken in that regard. In this case, the borrowers have failed to
discharge their liability in full before the date fixed for sale, and therefore,
the second respondent/bank brought the property for public auction on
19.12.2005, the sale was confirmed in favour of the highest bidder, sale
certificate was issued on 06.01.2006 and thus, the sale has become absolute and
complete.
4.6. The learned senior counsel further submitted that the appellant was
the highest bidder in the public auction, whose bid was accepted and he has also
paid the entire sale consideration within the time stipulated and the sale
certificate was also issued to him. Once the sale certificate was issued, the
registration of sale is only a formality and it cannot be contended that the
sale or transfer has not been effected and once the sale certificate is issued,
there is no provision under the SARFAESI Act to set aside the sale and the sale
would become final and is binding on the parties.
5.1. The learned counsel for the borrowers has submitted that even prior
to the issuance of the sale certificate to the appellant herein on 06.01.2006,
the borrowers have sent three cheques for Rs.25,21,246/- on 02.01.2006 to the
second respondent bank, but by letter dated 02.01.2006, the second respondent
bank stating that the mortgaged property was sold in the auction and the
highest bidder has paid 25% of the amount and the mortgaged property will be
transferred to the successful bidder immediately after the payment of the
remaining amount, returned the cheques on 04.01.2006, and the same is in
contravention to the provisions of Section 13(8) of the SARFAESI Act.
5.2. The further contention of the learned counsel for the borrowers is
that under Section 13(8) of the SARFAESI Act, if the dues of the second
respondent together with all costs, charges and expenses incurred are tendered
to them before the date fixed for sale or transfer, the secured asset shall not
be sold or transferred by the bank or financial institutions to the asset
reconstruction company and no further steps shall be taken in that regard.
Learned counsel for the first respondent took a firm stand that the words
employed in Section 13(8) of the SARFAESI Act that “…..for sale or
transfer….” and “…..Sold or transfer…” indicate that even though auction
was over and sale certificate was issued, till the transfer of possession is
effected by registration, the dues of the secured creditor together with all
costs, charges and expenses incurred by him are tendered has to be accepted by
the second respondent/bank. But, even though the first respondent tendered three
cheques for a sum of Rs.25,21,246/- on 02.01.2006, the second respondent/bank
returned the cheques and therefore, the sale in favour of the appellant herein
cannot be contended as valid.
5.3. The learned counsel for the borrowers further argued that the right
of redemption which is embodied in Section 60 of the Transfer of Property is
available to the mortgagor unless it has been extinguished by the act of the
parties. It cannot be held that the mortgagor lost the right of redemption just
because the property was put to auction. The mortgagor has a right to redeem
unless the sale of the property was complete by registration in accordance with
the provisions of the Registration Act. He added that even if there is some
difference regarding amount, it cannot be said that right of redemption of
property is completely lost. He has also placed reliance upon the decision
reported in MARDIA CHEMICALS LIMITED v. UNION OF INDIA (2004 (4) S.C.C. 311) and
NARANDAS KARSONDAS v. S.A.KAMTAM AND ANOTHER (1977 (3) S.C.C. 247).
5.4. The learned counsel for the borrowers further contends that when they
approached the second respondent/bank and deposited three cheques for a total
sum of Rs.25,21,445/- to discharge the amount due and payable, the second
respondent/ bank informed the borrowers that the mortgaged property has already
been sold and the sale was to be confirmed and returned the cheques on
04.02.2006, and this act of the second respondent/bank is arbitrary,
unreasonable, amounts to unjustified enrichment and is opposed to equity,
justice and good conscience.
6.1. Learned counsel appearing for respondents 2 and 3 has submitted that
the borrowers have obtained various loans from the second respondent/bank, but
they have defaulted in repayment. Hence, the second respondent/bank issued
notice dated 19.10.2004 under Section 13(2) of the SARFAESI Act, calling upon
the borrowers to discharge the loan amount within a period of sixty days. Since
the borrowers have not complied with the said notice, the second respondent/bank
exercising its powers under Section 13(4) of the SARFAESI Act took possession
of the property on 09.02.2005 and issued another notice dated 14.11.2005,
calling upon the borrowers to pay the arrears within 30 days, failing which the
property would be brought for auction. On 14.11.2005, the second respondent/bank
issued necessary advertisement in newspapers fixing the auction date as
19.12.2005 in terms of Rule 9 of the Security Interest (Enforcement) Rule 2002
(hereinafter referred to as “the Rules”). The respondents 2 and 3, therefore,
followed the procedure contemplated under law.
6.2. The learned counsel for respondents 2 and 3 has submitted that the
provisions of SARFAESI Act, as per Section 35, shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force and by virtue of Section 13(4) read with Section 13(6),
the mortgaged assets shall vest with the bank free from all encumbrances. He has
also placed reliance upon the decision reported in TRANSCORE v. UNION OF INDIA
(2006 (5) C.T.C. 753).
6.3. The learned counsel for respondents 2 and 3 has submitted that the
borrowers, challenging the possession notice dated 09.02.2005, by invoking
Section 17 of the SARFAESI Act filed S.A.Nos.21 and 22 of 2005 before the Debts
Recovery Tribunal II, Chennai which were subsequently dismissed on 28.09.2005.
The auction was held on 19.12.2005, in which the appellant has offered highest
amount of Rs.42,51,000/-, which was accepted and he paid 25% and on 04.01.2006,
he paid the entire balance amount and on 06.01.2006, sale certificate was issued
to him. He added that the borrowers sent three cheques for a sum of
Rs.25,27,446/- on 02.01.2006. As the mortgaged property was sold in the auction
and the highest bidder paid 25% of the amount, the second respondent/bank
returned the cheques to the borrowers. With regard to the Demand Draft for a
sum of Rs.25 lakhs sent by the borrowers along with a lawyer’s notice dated
13.01.2006, learned counsel for respondents 2 and 3 has submitted that the same
was received by them only on 17.01.2006 i.e., after the confirmation of sale
made on 06.01.2006, however the same was not encashed.
7. We have carefully considered the rival submissions of the learned
counsel for the appellant and the respondents.
8. The core and primal points that arise and require to be answered in
these appeals are that:
(i) Whether the sale of the secured asset in public auction as per Section
13(4) of SARFAESI Act, which ended in issuance of a sale certificate as per Rule
9(7) of the Security Interest (Enforcement) Rules, 2003 (in short “the Rules”)
is a complete and absolute sale for the purpose of SARFAESI Act or whether the
sale would become final only on the registration of the sale certificate?
(ii)Whether the action of the second respondent in not accepting the amounts
paid by the borrowers and not cancelling the sale certificate before the
registration of the sale is in derogation of Section 60 of the Transfer of
Property Act, in view of the Section 37 of SARFAESI Act? and
(iii) Whether Section 35 of the SARFAESI Act has the effect of overriding
Section 37 of the SARFAESI Act?
9.1. Before delving deep into the issues to be decided, it would be
relevant to say about the object and purpose for which SARFAESI Act was enacted
by the Parliament.
9.2. The prime propellant for the promulgation has been, of course, the
worrisome state of the financial sector, where the snag of bad debt has almost
snowballed into a crisis. The SARFAESI Act, however, also aims to smoothen the
debts recovery process by enabling secured creditors to resort to self-help in
certain specified circumstances. The SARFAESI Act is arguably the last in the
set of measures that the Government has initiated over the past few years for
curbing the evil of non-performing assets (NPAs), as the amnesty scheme
announced for settlement, the setting up of Debts Recovery Tribunals, etc.
failed to provide any comprehensive solution.
9.3. SARFAESI Act is enacted to regulate securities and reconstruction of
financial assets and enforcement of security interest and for matters connected
therewith. The Act enables the Banks and Financial Institutions to realise long
term assets, manage problems of liquidity, asset liability mismatch and to
improve recovery of debts by exercising powers to take possession of securities,
sell them and thereby reduce non-performing assets by adopting measures for
recovery and reconstruction. The Act further provides for setting up of asset
reconstruction companies which are empowered to take possession of secured
assets of the borrower including the right to transfer by way of lease,
assignment or sale. The said Act also empowers the said asset reconstruction
companies to take over the management of the business of the borrower.
9.4. The Constitutional validity of SARFAESI Act has been upheld in the
case of MARDIA CHEMICALS LIMITED v. UNION OF INDIA (2004 (4) S.C.C. 311). In the
said judgment, the Supreme Court has held that in cases where the Secured
Creditor has taken action under Section 13(4), it would be open to any person,
including the borrower to file an appeal under Section 17 of the Act.
9.5. Taking note of the fact that liquidity of finances and flow of money
is essential for any healthy and growth oriented economy, that law should not be
in derogation of the rights which are guaranteed to the people under the
Constitution, that the procedure should be fair, reasonable and valid, and
keeping in mind the above owed object of the SARFAESI Act, we proceed to deal
with the points raised for consideration.
10.1. Point (i): Whether the sale of the secured asset in public auction
as per Section 13(4) of SARFAESI Act, which ended in issuance of a sale
certificate as per Rule 9(7) of the Rules is a complete and absolute sale for
the purpose of SARFAESI Act or whether the sale would become final only on the
registration of the sale certificate.
10.2. In this case, admittedly, the notices under Section 13(2) of the Act
were issued to the borrowers on 19.10.2004 and on 01.12.2004 requiring them to
pay the outstanding dues within 60 days. As the borrowers did not settle the
dues, sale notices, as provided under Section 13(4) of the Act, were issued on
14.11.2005 stating that constructive possession of the secured assets was taken
over by the second respondent/ secured creditor on 09.02.2005 and also informing
that to realise the dues the secured assets would be brought for sale after
expiry of 30 days from the date thereof. It is not disputed that the said
notices were received by the borrowers and the sale was held on 19.12.2005.
10.3. It is the case of the borrowers that even prior to the issuance of
the sale certificate to the appellant herein on 06.01.2006, they have sent three
cheques for Rs.25,21,246/- on 02.01.2006 to the second respondent/bank, which
were returned on 04.01.2006, which is in contravention to the provisions of
Section 13(8) of the SARFAESI Act. For better appreciation of the said
contention, Section 13(8) of SARFAESI Act needs extraction and it reads as
under.-
“Section: 13(8): If the dues of the secured creditor together with all costs,
charges and expenses incurred by him are tendered to the secured creditor at any
time before the date fixed for sale or transfer, the secured asset shall not be
sold or transferred by the secured creditor, and no further step shall be taken
by him for transfer or sale of that secured asset.”
(emphasis supplied)
10.4. Sub-section (8) of Section 13 of the Act gives an opportunity to the
borrowers to redeem the property given in security to the secured creditor by
paying the dues on or before the date fixed for sale, in the instant case, on or
before 19.12.2005, and if the payment is made, the secured creditor shall not
proceed with the sale or transfer. But, in the case on hand, the borrowers did
not come forward to settle the dues on or before 19.12.2005, viz., the date
fixed for sale. The borrowers approached the secured creditor, by way of three
cheques to the value of 25,21,446/- only on 02.01.2006, i.e., after the sale was
confirmed and therefore, got concluded by the authorised officer in favour of
the appellant, who is the highest bidder and therefore, the secured creditor
rightly returned those cheques on 04.01.2006 stating that the sale was already
over and sale certificate alone was to be issued, which would be done shortly.
Subsequently, the sale certificate came to be issued by the third
respondent/authorised officer on 06.01.2006 as per sub-rule (7) of Rule 9 of the
Rules.
10.5. When the matter stood thus, on 13.01.2006, the borrowers sent a
letter dated 13.01.2006 to the authorised officer, enclosing a demand draft for
Rs.25,00,000/- drawn in favour of the second respondent/Bank and requested the
authorised officer to set aside the sale certificate. However, the authorised
officer refused to accept the demand drafts and returned the same stating that
sale certificate had already been issued and there is no scope for setting aside
or canceling the sale certificate. Thereafter, the borrowers have approached
this Court seeking to quash the auction notice dated 14.11.2005 and for a
consequential direction to receive the amount paid by the borrowers towards the
loan account and release the properties from the mortgage.
10.6. For an in depth analysis of this point, some additional relevant
facts need emphasis. On issuance of notices under Section 13(2) of the Act, the
borrowers approached the Debts Recovery Tribunal under Section 17 of the Act.
The Tribunal, as a pre-condition to stay the said notices, directed the
borrowers to pay a sum of Rs.1,50,000/- in each case and as the borrowers failed
to pay the amount, the petitions filed by them were dismissed by the Tribunal.
Thereafter, the borrowers did not pursue the matter further before the Tribunal.
Later, when the sale was completed, the borrowers again approached the Tribunal
to restore the original petitions dismissed for default along with petitions to
condone the delay and when the matter came up before the Tribunal on 10.01.2006,
the Tribunal dismissed the petitions filed by the borrowers recording the
statement of the second respondent/Bank that sale has already completed and sale
certificate was issued to the highest bidder/appellant herein. At this stage,
instead of filing an appeal before the Appellate Tribunal, the borrowers have
come before this Court by way of filing writ petitions, seeking the relief
referred supra.
10.7. At the outset, it is to be stated that nothing survives in the
notice dated 14.11.2005 to adjudicate, as, on the date of filing of the writ
petitions, the entire proceedings under Section 13(4) of the Act have come to an
end and become final, by issuance of sale certificate under sub-rule (7) of Rule
9 of the Rules on 06.01.2006. The writ petitions have been prepared and signed
by the parties only on 19.01.2006. In such circumstances, the proper course for
the borrowers would be to prefer an appeal before the Appellate Tribunal against
the order of the Tribunal dated 10.01.2006 under the provisions of the SARFAESI
Act. The borrowers, however, have approached this Court invoking Article 226 of
the Constitution of India.
10.8. The learned Single Judge, accepting the argument of the learned
counsel for the borrowers that though they have sent three cheques for
Rs.25,21,246/- on 02.01.2006 i.e. prior to the issuance of sale certificate on
06.01.2006, the second respondent has returned those cheques, in contravention
of sub-section (8) of Section 13 of the Act on the ground that sale was already
over and confirmation of the same was to be made shortly, allowed the writ
petitions.
10.9. In our considered view, the borrowers should have approached the
secured creditor or the authorised officer before the date fixed for sale and
not after the sale, as provided under sub-section (8) to Section 13 of the
SARFAESI Act. As discussed earlier, only if the borrowers approach the secured
creditor or the authorised officer before the date fixed for sale or transfer
and tender or pay all the dues to the secured creditor, the Section creates a
bar on the secured creditor or authorised officer to proceed further with the
proposed sale or transfer. In this case, admittedly, the date fixed for the
sale was 19.12.2005. But, even according to the version of the borrowers, they
approached the secured creditor only on 02.01.2006. In such circumstances, the
contention of the learned counsel for the borrowers is without any basis and
contrary to the provisions contained in sub-section (8) of Section 13 of the
Act.
10.10. The contention of the learned senior counsel appearing for the
appellant/auction purchaser is that once sale certificate is issued to the
auction purchaser after accepting his bid and confirming the sale on him, as per
the provisions of the Act and Rules, the auction purchaser becomes the absolute
owner of the property and all the rights in relation to that property vest with
the auction purchaser and no registration is required as the sale certificate
has been issued by the authorised officer of the secured creditor in the
proceedings under SARFAESI Act.
10.11. The crux of the contention of the learned senior counsel for the
appellant is that after issuance of sale certificate, the borrowers, who allowed
their property being sold in public auction, cannot claim the right of
redemption placing reliance under Section 60 of the Transfer of Property Act,
which right they should have exercised before the initiation of proceedings or
before the date fixed for sale.
10.12. The learned Single Judge, agreeing with the argument advanced by
the learned counsel for the borrowers that the right of redemption which is
embodied in Section 60 of the Transfer of Property Act is available to the
mortgagor, unless it has been extinguished by the act of parties and until the
sale is complete by registration, and that the mortgagor does not lose their
right of redemption, came to the conclusion that the sale takes complete shape
only after it gets registered and it does not come to end by issuance of a sale
certificate. But, after considering the relevant provisions in the Registration
Act, 1908, we are not in agreement with the conclusion arrived by the learned
Single Judge in allowing the writ petitions.
10.13. Part-III of the Registration Act speaks of the Registration of
documents. Section 17(1) of the Registration Act enumerates the documents which
require compulsory Registration. However, Section Sub-Section (2) of Section
17 sets out the documents to which clauses (b) and (c) of sub-section 1 of
Section 17 do not apply. Clause (xii) of sub-section 2 of Section 17 of the
Registration Act reads as under:
“Section:17(2)(xii) – any certificate of sale granted to the purchaser of any
property sold by public auction by a Civil or Revenue Officer.”
10.14. A Division Bench of this Court in Arumugham, S. & 2 others v.
C.K.Venugopal Chetty & 5 others, 1994-1-L.W.491 held that the property
transferred by Official Assignee, under order of court, does not require
registration under Section 17 of the Registration Act. The Division Bench has
held as follows:
“Under Ex.D-7, the Court permitted the Official Assignee to transfer to the
guarantor the assets of the insolvent that are in excess. Being a transfer by
order of Court, the document does not require registration under S.54 of the
Transfer of Property Act, since S.2(d) of the Transfer of Property Act says that
nothing in the Act (except S.57 and Chapter IV) applies to transfers by orders
of Court. The document in question does not require registration and there was
a valid conveyance of the 2nd defendant’s 1/4th share to G.”
10.15. When the effect and validity of the sale certificate issued to a
purchaser of a property sold in public auction came up for consideration before
the Supreme Court in the recent decision in B.Arvind Kumar vs. Government of
India and Others, MANU/SC/2834/2007, the Supreme Court, after referring to
Section 17(2)(xii) of the Registration Act, held that when a property is sold
in public auction in pursuance of an order of the court and the bid is accepted
and the court confirms the sale in favour of the purchaser, the sale becomes
absolute and the title vests in the purchaser. The relevant portion of the
judgment of the Supreme Court is as under:
“10. … When a property is sold by public auction in pursuance of an order of
the court and the bid is accepted and the sale is confirmed by the court in
favour of the purchaser, the sale becomes absolute and the title vests in the
purchaser. A sale certificate is issued to the purchaser only when the sale
becomes absolute. The sale certificate is merely the evidence of such title.
It is well settled that when an auction purchaser derives title on confirmation
of sale in his favour, and a sale certificate is issued evidencing such sale and
title, no further deed of transfer from the court is contemplated or required.
In this case, the sale certificate itself was registered, though such a sale
certificate issued by a court or an officer authorized by the court, does not
require registration. Section 17(2)(xii) of the Registration Act, 1908
specifically provides that a certificate of sale granted to any purchaser of any
property sold by a public auction by a civil or revenue officer does not fall
under the category of non testamentary documents which require registration
under Sub-section (b) and (c) of Section 17(1) of the said Act. We therefore
hold that the High Court committed a serious error in holding that the sale
certificate did not convey any right, title or interest to plaintiff’s father
for want of a registered deed of transfer.”
(emphasis supplied)
10.16. In this case, the authorised officer of the secured creditor,
exercising the power conferred on him by SARFAESI Act, pursuant to the
proceedings initiated by him brought the secured assets of the borrowers for
sale in public auction, and, in view of the default in repayment of the loan,
confirmed the sale in favour of the highest bidder, the appellant herein and
issued the sale certificate on 06.01.2006.
10.17. The ratio laid down by the Division Bench of this Court in
Arumugham, S. & 2 others v. C.K.Venugopal Chetty & 5 others and the Supreme
Court in B.Arvind Kumar vs. Government of India and Others, referred supra,
squarely applies to the case on hand and we, therefore, have no incertitude to
hold that the sale which took place on 19.12.2005 has become final when it is
confirmed in favour of the auction purchaser and the auction purchaser is vested
with rights in relation to the property purchased in auction on issuance of the
sale certificate and he has become the absolute owner of the property. Further,
as held by the Division Bench of this Court in Arumugham, S. & 2 others v.
C.K.Venugopal Chetty & 5 others and the Supreme Court in B.Arvind Kumar vs.
Government of India and Others, referred supra, the sale certificate issued in
favour of the appellant does not require any registration in view of Section
17(2)(xii) of the Registration Act as the same has been granted pursuant to the
sale held in public auction by the authorised officer under SARFAESI Act.
10.18. The finding of the learned Single Judge that the sale is not
complete without registration of sale certificate, therefore, is not sustainable
in law and the same is liable to be set aside.
10.19. If the argument of the borrowers that even after the issuance of
the sale certificate, prior to registration, they are entitled to redeem the
property is accepted, it would make the provisions of the SARFAESI Act redundant
and the very object of the SARFAESI Act enabling the Banks and Financial
Institutions to realise long term assets, manage problems of liquidity, asset
liability mismatch and to improve recovery of debts by exercising powers to take
possession of securities, sell them and thereby reduce non-performing assets by
adopting measures for recovery and reconstruction would fail and would open a
pandora’s box for the litigations upsetting the sale confirmed in favour of the
bonafide auction purchasers, who invested huge money.
10.20. In view of our finding on this point, we hold that the sale of the
secured asset in public auction as per Section 13(4) of SARFAESI Act, which
ended in issuance of a sale certificate as per Rule 9(7) of the Rules is a
complete and absolute sale for the purpose of SARFAESI Act and same need not be
registered under the provisions of the Registration Act.
11.1. Point (ii): Whether the action of the second respondent in not
accepting the amounts paid by the borrowers and not cancelling the sale
certificate before the registration of the sale is in derogation of Section 60
of the Transfer of Property Act, in view of the Section 37 of SARFAESI Act?
11.2. To decide this point, a reference to Section 37 of SARFAESI Act,
which reads as follows, is apposite:
“Section:37 – Application of other laws not barred.– The provisions of this Act
or the rules made thereunder shall be in addition to, and not in derogation of
the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act,
1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of
1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) or any other law for the time being in force.”
(emphasis supplied)
11.3. It is the contention of the learned counsel for the borrowers that
when the provisions of SARFAESI Act are not in derogation of the other laws for
the time being in force, as per Section 60 of the Transfer of Property Act, the
borrowers being the mortgagors are entitled to the right of redemption available
to them before the sale is completed by a registered deed and in this case as
the borrowers have approached the second respondent/Bank with a demand draft for
Rs.25,00,000/- on 13.01.2006 for discharge of the loan and when the sale
certificate issued on 06.01.2006 was not registered, the second respondent
should have accepted the payment and released the mortgage and re-delivered the
possession of the property and failure to do so is against the provisions of
Section 37 of SARFAESI Act.
11.4. We have more than one reasons to reject the said contention of the
learned counsel for the borrowers.
11.5.1. Firstly, as held by us, while answering point (i) the sale in
this case has become absolute and complete on the date when the sale was
confirmed on the appellant/auction purchaser and he is vested with all the
rights in relation to the property purchased by him in the public auction on
issuance of sale certificate on 06.01.2006, i.e., prior to the date on which the
borrowers have approached the second respondent for repayment, contrary to the
provisions of Section 13(8) of the SARFAESI Act.
11.5.2. Secondly, the sale certificate issued in this case does not
require any registration as per Section 17(2)(xii) of the Registration Act, 1908
and our said view is fortified with the decisions of the Division Bench of this
Court in Arumugham, S. & 2 others v. C.K.Venugopal Chetty & 5 others and the
Supreme Court in B.Arvind Kumar vs. Government of India and Others, referred
supra.
11.5.3.1. Thirdly, it is true that the borrowers have the right of
redemption as provided under Section 60 of the Transfer of Property Act, 1882,
in view of Section 37 of SARFAESI Act and to substantiate the said stand, the
learned counsel for the borrowers relies on the decision of the Supreme Court in
Narandas Karsondas vs. S.A.Kamtam and another, (1977) 3 SCC 247 wherein it is
held that the mortgagor has a right to redemption unless the sale of the
property was complete by registration in accordance with the provisions of the
Registration Act.
11.5.3.2. With great respect, we are of the view that the decision of the
Supreme Court in Narandas Karsondas vs. S.A.Kamtam and another, referred
supra, is not applicable to the facts of this case. Even as held by the Supreme
Court in Narandas Karsondas vs. S.A.Kamtam and another, referred supra, the
right of the mortgagor to redemption continues only till such time the sale of
the property was complete by registration. In this case, our finding, following
the decision of the Division Bench of this Court in Arumugham, S. & 2 others
v. C.K.Venugopal Chetty & 5 others and the Supreme Court in B.Arvind Kumar vs.
Government of India and Others, referred supra, is that the sale in this case
has become absolute and complete by the issuance of sale certificate on
6.1.2006. Further, Section 17(2)(xii) of the Registration Act, 1908 does not
require registration of a sale certificate granted to any purchaser of any
property sold in public auction by a civil or revenue officer and it is the
finding of the Supreme Court in B.Arvind Kumar vs. Government of India and
Others, referred supra, that the sale certificate issued by a civil or revenue
officer in respect of a property sold in public auction does not fall under the
category of non-testamentary documents which require registration under Sub-
section (b) an (c) of Section 17(1) of the Registration Act, 1908.
11.5.4. Fourthly, the right to redeem the mortgage, as provided in Section
60 of the Transfer of Property Act, is, of course, a very valuable right
possessed by the mortgagor. At the same time, such a right to redeem the
mortgage can be exercised before it is foreclosed, or the estate is sold. It
has been held that the mortgagor can adopt the course provided under Section 60
of the Transfer of Property Act only before the mortgagee has filed a suit for
enforcement of the mortgage and not thereafter, vide Poulose and another vs.
State Bank of Travancore, AIR 1989 Kerala 79. In this case, as discussed
earlier, the borrowers approached the second respondent/Bank only after
initiation of the proceedings under Section 13(4) of the SARFAESI Act, and that
too after the property was sold in public auction and the sale was confirmed in
favour of the appellant.
11.6. We, accordingly, find no irregularity or illegality in the procedure
followed by respondents 2 and 3.
12.1. Point (iii): Whether Section 35 of the SARFAESI Act has the effect
of overriding Section 37 of the SARFAESI Act?
12.2. A comparative study of Sections 35 and 37 of the SARFAESI Act, which
read as under, is indispensable to decide this point:
“Section:35.The provisions of this Act to override other laws.–The provisions
of this Act shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument having
effect by virtue of any such law.”
“Section:37 – Application of other laws not barred.– The provisions of this Act
or the rules made thereunder shall be in addition to, and not in derogation of
the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act,
1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of
1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) or any other law for the time being in force.”
12.3. The Apex Court has also upheld the validity of the SARFAESI Act in
the case of Mardia Chemicals Ltd. V. Union of India, 2004 (4) SCC 311, except
sub-section (2) of Section 17.
12.4. As per Section 37 of the SARFAESI Act, the provisions of this Act
shall be “in addition to” and “not in derogation of” any other law for the time
being in force. There is no ambiguity in the understanding the legislative
intent behind the framing of this section.
12.5. On behalf of the borrowers it is contended that a right of
redemption available to them before the sale is completed by way of a registered
deed under the Transfer of Property Act, a law for the time being in force, is
not taken away by the introduction of the SARFAESI Act, by virtue of Section 37
of the SARFAESI Act, as the provisions of the SARFAESI Act and the Rules framed
thereunder shall be in addition to and not in derogation of the right of
redemption conferred under the Transfer of Property Act. But, we have already
rendered a finding that the registration of sale certificate as per Section
17(2)(xii) of the Registration Act is not mandatory for the completion of the
sale pursuant to the public auction and issuance of the sale certificate under
the scheme of the SARFAESI Act. Assuming, the right of redemption conferred
under the Transfer of Property Act is protected under Section 37 of the SARFAESI
Act, and independently available without reference to the registration of the
sale certificate under Section 17(2)(xii) of the Registration Act, the sale
already effected satisfying the conditions contemplated under Section 13(8) of
the SARFAESI Act, shall, by virtue of Section 35 of the SARFAESI Act, prevail
over such other rights, much less the right of redemption conferred under
Transfer of Property Ac, which is protected under Section 37 of the SARFAESI
Act, in view of the non obstante clause provided under Section 35 of the
SARFAESI Act, because a non obstante clause provided under Section 35 of the
SARFAESI Act makes it clear that even though there are inconsistencies to such
other rights conferred under any other law for the time being in force that are
protected under Section 37 of the SARFAESI Act, the action initiated under the
provisions of the SARFAESI Act shall have the overriding effect as per Section
35 of the SARFAESI Act, because SARFAESI Act is a Special Act which aims to
accelerate the growth of economy of our country empowering the lenders, namely
Nationalised Banks, Private Sector Banks and other Financial Institutions to
realise their dues from the defaulted borrowers who are very lethargic in
repayment of the loans borrowed by them, by exercising their right of
expeditious attachment and foreclosure for the enforcement of security and
therefore, Sections 35 and 37 of the SARFAESI Act have to be read conjointly to
achieve the object of the SARFAESI Act, but not to defeat the same and
therefore, we do not see any conflict between them.
12.6. That apart, a non obstante clause is a legislative device which is
usually implied to give overriding effect to certain provisions over some
contrary provisions that may be found either in the same enactment or some other
enactment, that is to say, to avoid the operation of all contrary provisions,
vide Union of India v. G.M.Kokil, 1984 Supp. SCC 196.
12.7. For the reasons aforesaid, point (iii) is answered in affirmative.
Resultantly, these appeals are allowed and the order of the learned
Single Judge dated 09.03.2007 made in W.P(MD)Nos.634 and 635 of 2006 is set
aside and the writ petitions are dismissed. No costs. Consequently, connected
miscellaneous petitions are closed.