Written by Shaurya Shrestha Awasthi, The author is a law student pursuing BA.LLB from National University of Study and Research in Law, Ranchi.
Once a mortgage always a mortgage. A mortgage is, by its very nature and essence, redeemable. It is part and parcel of the thing itself. Section 60 of the Transfer of Property Act, 1882 provides for the statutory right of redemption to the mortgagor. As per it, right of redemption is available till the mortgage survives and the same can only be extinguished by the act of parties or a decree of the court. However, an amendment made to Section 13(8) of the SARFAESI Act, 2002 controversially restraints the borrower's/mortgagor's right of redemption. Recently, the Hon'ble Supreme Court in the case of Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. & Ors. held that as per the amendment made to Section 13(8) of the SARFAESI Act, the right of redemption of the borrower is extinguished once the auction notice is published by the mortgagee. Such an interpretation significantly curtails the mandate of Section 60 of the Transfer of Property Act, 1882. It attempts to make the right to redeem of no practicable use. The author through the present blog tries to emphasize upon the potential errors made by the Apex Court while coming to such a conclusion as well as harmonize the legislative intent enshrined under Section 13(8) of the SARFAESI Act vis-a-vis Section 60 of the Transfer of Property Act, 1882.
Understanding The Judicial Rationale: Celir Llp V. Bafna Motors (Mumbai) Pvt. Ltd. & Ors.
The Hon’ble Supreme Court pronounced, based on the analysis of earlier judgments, that Section 13(8) of the SARFAESI Act has been amended to only allow the right of redemption until the date of publication of notice. Section 60 of the TPA is a general law which provides for general right of redemption. Since the SARFAESI Act is a special law, it would supersede the general law in such an instance of conflict. The Apex Court also harmoniously construed Sections 35 and 37 of the SARFEASI Act and determined that SARFAESI Act takes precedence over Section 60 of the Transfer of Property Act, 1882.
The court contends that there is a conflict between the two statutes because of the modification made to Section 13(8) of the SARFAESI Act, which contains the language “before the date of publication notice for public auction or inviting quotations or tender from public or private treaty,”. In view of such contradiction, the SARFAESI Act being a special enactment takes priority over the TPA which is the ordinary Act.
The SARFEASI Act was amended with the intention of facilitating the prompt processing of recovery applications. The Apex Court took this into account and stated that the interpretation that advances the stated goals and justifications need to be chosen and implemented. The modified Section 13(8) will be rendered useless if the general law is permitted to take precedence.
Potential Errors In Reasoning Of Apex Court: A Cause Of Concern
The reasoning enshrined by the Hon’ble Apex Court in its ruling seems to prioritize the SARFAESI Act over the application of Transfer of Property Act, 1882, instead of harmonizing both the statutes. The judgment contains certain potential errors that have been overlooked by court which are a serious cause of concern. Such potential errors have been highlighted hereunder in a chronological manner.
Firstly, the right to property, since ancient times, is considered to be one of the most precious right. It holds the stature of constitutional right within the Indian legal framework. It is regarded as a bundle of interests out of which mortgage is one such interest that is transferred to mortgagee. The mortgagor still possesses the remaining interests. The right to redemption of borrower/mortgagor thus forms part of this residuary interest. The very idea and purpose of the mortgage transaction is to effectuate security for re-payment of loan. Conversion of such a makeshift arrangement to an absolute conveyance at such an early stage i.e. on the publication of auction notice frustrates its core object.
Secondly, the true legislative import under amended Section 13(8) of the SARFAESI Act restricts and limits the right of the mortgagee to deal with the property. It does not reflect or says anything about the right to redeem of borrower. Right to redemption is not placed on the equal footing as of the limitation upon the mortgagee to deal with the property. It is something more than that. The amended provision says about the fact that if the amount of dues has been tendered by the borrower before the notice for auction is being published, then the secured creditor shall not transfer the secured asset by way of lease, assignment or sale. The possible interpretation of the said provision does not in any case provide an implication that the reverse is also true. The said provision in any way cannot be construed in the manner that if the amount of dues is not tendered before the publication of notice for auction, then the secured creditor gets absolute right to deal with the property. Such an interpretation may result in judicial overreach.
Thirdly, the Hon’ble Supreme Court erred in harmonizing Section 35 and 37 of the SARFAESI Act. The harmonization effort by restricting the meaning of the phrase “any other law for the time being in force” under Section 37 to Securities Law is incomplete without resorting to the initial phrase of Section 13 of the SARFAESI Act, i.e. “notwithstanding anything contained in Section 69 and 69A of the Transfer of Property Act, 1882.” The rule of harmonious construction provides for resorting to some middle ground in case of inconsistent provisions or statutes thereby giving meaning to all. It should not be applied in a way to make any provision or any phrase redundant.
The insertion and continuation of non-obstante clause limited to only Section 69 and 69A of the Transfer to Property Act, 1882 even after amendment reflects the legislative intent of independently applying Section 60 of the Transfer of Property Act, 1882 and is not subjugated to Section 13 of the SARFAESI Act. Thus, construing Section 35 and 37 of the SARFAESI Act without giving adequate emphasis to non-obstante clause of Section 13 of the SARFAESI Act makes it redundant.
Fourthly, upon consideration of the Statement of Objects and Reasons of SARFAESI Act, it seems to suggest that enactment majorly acts as an instrument in the hands of banks and financial institutions for a speedier recovery of dues. However, such object of the SARFAESI Act receives a huge potential blow if right to redemption of borrower is restricted only till the publication of auction notice. What would happen if the auction notice is published and attempt for the auction got failed and, in the meantime, borrower provides a better deal. In the present case also, 8 attempts for auction have been made previously but all got failed. Failure of auction, post publication of auction, is a severe impediment to the basic object with which the SARFAESI Act was enacted. Therefore, stalling the right of borrower at such an early stage with uncertainty prevailing over the attempt of auction places a huge hinderance upon the very idea of the SARFAESI Act i.e. speedier recovery of dues.
The Apex Court opined that limiting the extent of right of the borrower to redeem the secured asset will preserve the sanctity of public auction. It forbids the unscrupulous borrowers from participating in between and thwart the auction process. But such preservation of sanctity of public auction cannot be given undue emphasis if it conflicts with the very idea of the SARFAESI Act considering the practical uncertainties encircled around the auction.
An effort to harmonize both the statutes
The Apex Court in its recent judgment ‘Celir LLP v. Bafna Motors’ while interpreting the true meaning of the amended Section 13(8) of the SARFESI Act fails to provide a correct harmonious construction of both the statutes. Instead of balancing both the statues and provide for a middle ground, the Apex Court leaned in favour of the SARFAESI Act and undermined the importance of Section 60 of the Transfer of Property Act, 1882, thereby, making it redundant in nature. The rule of harmonious construction provides for resorting to some middle ground in case of inconsistent provisions or statutes thereby giving meaning to all. It should not be applied in a way to make any provision or any phrase redundant.
As aforementioned, the ruling of the Court suffers from certain potential errors, thereby making it obvious to find some middle ground for preserving the true essence of right of redemption. The interpretation of the SARFAESI Act and the Transfer of Property Act need to guarantee the preservation of the mortgagor’s entitlement to redeem the property until a registered sale certificate or transfer is made. This strategy is in line with the main objectives of the SARFAESI Act, which is to effectively collect debts while preserving the option for borrowers to redeem their properties under the protection of the Transfer of Property Act.
Understanding the SARFAESI Act’s distinct position as a specific statute intended for quick debt collection is crucial. But this recognition shouldn’t mean that the TPA’s redemption clauses are no longer applicable. Rather, a harmonic architecture would give precedence to the SARFAESI Act in order to regulate the pre-auction stage of debt collection, including the sending out of auction notifications and preliminary steps. Following the auction, the Transfer of Property Act would then take effect in the post-auction and post-sale periods, protecting the borrower’s redemption rights. Such an approach makes both the statutes to co-exist together as well as provide enough opportunity to the borrower to redeem its property.
Conclusion
The ‘Celir LLP v. Bafna Motors’ judgment fails to provide for a balanced interpretation of the SARFAESI Act and the Transfer of Property Act. While prioritizing swift debt collection under the SARFAESI Act, it’s crucial to uphold the borrower’s right of redemption as per the Transfer of Property Act. A harmonious approach entails giving precedence to the SARFAESI Act in pre-auction stages and transitioning to the Transfer of Property Act post-auction to safeguard redemption rights. This not only preserves the essence of the right of redemption but also aligns with the objectives of both statutes, fostering fairness and efficiency in debt recovery. By striking this balance, the legal framework should ensure that borrowers have sufficient opportunity to redeem their properties while enabling creditors to recover debts promptly, thus promoting a conducive environment for both parties involved in the process.
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