Right of Redemption Under SARFAESI Act Survives Until Issuance of Sale Certificate: Punjab & Haryana High Court

Case Overview

Case Name: Pal Alloys & Metal India Private Limited and others Vs Allahabad Bank and others
Court: Punjab and Haryana High Court
Writ Petition: CWP No. 6402 of 2019 (O&M)
Date of Order: 23/12/2021

Background and Key Facts

The dispute in this case arose from credit facilities extended by Allahabad Bank to Pal Alloys & Metal India Private Limited (Petitioner No. 1), with its Directors (Petitioners No. 2 and 3) serving as personal guarantors. As security, the Directors' residential property at House No. 758, Sector 14, Urban Estate, Faridabad was mortgaged to the Bank, along with hypothecation of stock, plant, and machinery.

When the loan account was classified as a Non-Performing Asset (NPA) on 31.10.2017, the Bank issued a demand notice dated 23.11.2017 under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act), demanding repayment of ₹2,62,98,047.72.

Subsequently, an application under Section 14 of the SARFAESI Act was filed before the District Magistrate, Faridabad, which was allowed on 14.06.2018, authorizing the Bank to take physical possession of the residential property.

Sequence of Events Leading to the Writ Petition

Despite the petitioners' repeated attempts to arrange payment — including submitting written undertakings to repay dues — the Bank took physical possession of the property on 14.02.2019. During proceedings in a connected writ petition (CWP No. 565 of 2019), the second petitioner appeared before the Court and tendered two demand drafts of ₹25 lakhs each (totalling ₹50 lakhs), which were handed over to the Bank's counsel.

However, an auction notice dated 22.02.2019 was issued by the Bank proposing to auction the residential property on 28.03.2019.

The petitioners asserted that they had paid:

  • ₹30 lakhs in July 2018
  • ₹50 lakhs on 25.02.2019
  • Total paid: ₹80 lakhs

They additionally undertook to deposit a further ₹70 lakhs by 15.04.2019 and the remaining balance of ₹105 lakhs by 15.05.2019, and filed the present writ petition challenging the auction notice.

The Auction and Subsequent Developments

On 28.03.2019, the auction proceeded and Respondents No. 2 and 3 emerged as the highest bidders, quoting Rs. 3,12,00,000/-, depositing 25% of the bid amount (Rs. 78,50,000/-). The Bank, on 29.03.2019, confirmed them as the highest bidders and directed deposit of the remaining 75% by 12.04.2019, while expressly noting that the sale was subject to the outcome of the pending writ petition.

On the same date — 29.03.2019 — the petitioners deposited ₹1.75 crore in a no-lien account and notified the Bank accordingly. An application (CM No. 5896-CWP-2019) was thereafter moved to restrain confirmation of the sale. On 12.04.2019, the Court directed that the sale shall not be confirmed until the next date of hearing.

The auction purchasers subsequently deposited the full bid amount of Rs. 3,12,00,000/- by 01.06.2019. However, no sale certificate was issued by the Bank, as the matter remained sub judice before the High Court.

The Court identified three core questions for adjudication:

  1. Until what point in time can a mortgagor exercise the right of redemption, in light of the amendment to Section 13(8) of the SARFAESI Act?
  2. Whether the petitioners were entitled to relief?
  3. If yes, what relief should be granted?

Section 60 of the Transfer of Property Act, 1882

The foundational provision governing a mortgagor's right of redemption is Section 60 of the Transfer of Property Act, 1882, which states:

"At any time after the principal money has become due, the mortgagor has a right, on payment or tender, at a proper time and place, of the mortgage-money, to require the mortgagee (a) to deliver to the mortgagor the mortgage-deed and all documents relating to the mortgaged property which are in the possession or power of the mortgagee, (b) where the mortgagee is in possession of the mortgaged property, to deliver possession thereof to the mortgagor, and (c) at the cost of the mortgagor either to re-transfer the mortgaged property to him or to such third person as he may direct, or to execute and (where the mortgage has been effected by a registered instrument) to have registered an acknowledgment in writing that any right in derogation of his interest transferred to the mortgagee has been extinguished: PROVIDED that the right conferred by this section has not been extinguished by the act of the parties or by decree of a court."

This provision establishes the fundamental protection available to every mortgagor — the right to reclaim mortgaged property upon payment of dues — and it can only be extinguished through the act of the parties themselves or by a court decree.

Evolution of Judicial Interpretation: Key Precedents

I. Pre-SARFAESI Era: Constitutional Recognition of Redemption Rights

In Murarilal v. Devkaran, AIR 1965 SC 225, a Constitution Bench of the Supreme Court was confronted with a mortgage deed containing a stipulation that if repayment was not made within 15 years, the mortgagee would become the absolute owner of the property. The Constitution Bench firmly rejected such a stipulation, holding that the equitable doctrine of redemption prevails over any clog placed upon it through contractual terms, and that:

"...in dealing with mortgage transactions unfair, unjust or oppressive stipulations unreasonably restricting the mortgagor's right to redeem, the Court would be justified in refusing to enforce such stipulations and that the paramount character of the equity of redemption requires recognition..."

This ruling established that the equity of redemption enjoys a paramount character that cannot be contractually whittled down.

In Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247, the Supreme Court took the matter further, holding that: