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Celir LLP vs Bafna Motors (Mumbai) Pvt. Ltd. & Ors.

Civil Appeal · 2023 INSC 838Decided 21 Sept 2023
Civil Appeal Nos. 5542-5543 of 2023
Dr. Dhananjaya Y. Chandrachud · J.B. Pardiwala · Manoj Misra

Background

The borrowers had taken a Rs 100-crore loan from Union Bank of India against a mortgaged industrial property in Navi Mumbai, and defaulted, leading the Bank to declare the loan a bad debt (NPA) and attempt to auction the property under the SARFAESI Act. After eight failed auctions, a ninth auction succeeded, and Celir LLP was declared the highest bidder at Rs 105.05 crore, paying the full amount as required. Only after Celir had paid in full did the borrowers rush to the Debt Recovery Tribunal seeking to "redeem" (buy back) the mortgaged property by paying off the outstanding dues, and, fearing that plea would fail, also filed a writ petition directly in the Bombay High Court. The High Court allowed the borrowers to redeem the mortgage by paying Rs 129 crore (more than what Celir had bid), directing the Bank to return Celir's money with interest if the borrowers paid up, which they did, prompting Celir, the auction purchaser who had already paid the entire bid amount and been declared the winning bidder, to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court allowed Celir's appeals and set aside the High Court's order, holding that the High Court should not have entertained a writ petition at all when the borrowers already had an alternative statutory remedy under Section 17 of the SARFAESI Act (which they had, in fact, already invoked before the Tribunal). More importantly, the Court clarified the law on redemption of a mortgaged property under the SARFAESI Act: after Parliament's 2016 amendment to Section 13(8), a borrower's right to redeem the property is extinguished the moment the bank publishes the auction notice, not, as under the older law, only after the sale is fully completed and registered in the purchaser's name. Since the Bank had already confirmed the sale to Celir under the auction rules, Celir had a vested legal right to receive the sale certificate, and the Bank could not lawfully bypass that by privately striking a better deal with the borrowers. The Court held that a High Court's equitable powers under Article 226 cannot be used to override the clear statutory scheme and finality of a public auction, and it disapproved several High Court rulings that had taken a contrary view. It ordered the Bank to refund the borrowers' Rs 129 crore and directed that, upon Celir paying a small balance amount, it must receive its sale certificate for the property.

Lesson Learnt

Once a bank auctions a mortgaged property and confirms the sale to the highest bidder under the SARFAESI Act (as amended in 2016), the original borrower's right to buy back the property by repaying the loan ends at the auction-notice stage: a bank cannot later strike a private, better-value deal with the defaulting borrower to undo a completed public auction, and courts will protect the auction purchaser's vested rights over such after-the-fact arrangements.

Official source (sci.gov.in)View Judgment (PDF)

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