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M. Rajendran & Ors. vs M/s KPK Oils and Proteins India Pvt. Ltd. & Ors.

Not available · 2025 INSC 1144Decided 22 Sept 2025
Not available
Justice J.B. Pardiwala

Background

A company (the "borrowers") took a cash-credit facility and a term loan from a bank in 2016, secured by a mortgage over land created by two guarantors. The loan account was declared a non-performing asset in 2019, and after issuing the statutory notices required under the SARFAESI Act, the bank auctioned the mortgaged property in February 2021. The appellants (auction purchasers) won the auction, paid the full sale price, and received a Sale Certificate in March 2021. The borrowers then belatedly tried to pay off the outstanding dues (partly before, but substantially after, the auction) and challenged the sale before the Debt Recovery Tribunal (DRT) and later the Madras High Court, which, relying on the Supreme Court's earlier decision in Mathew Varghese v. Amritha Kumar: quashed the Sale Certificate and allowed the borrowers to redeem the mortgage, treating the right of redemption as surviving until the "fall of the hammer."

Decision Breakdown

The Supreme Court held that the High Court erred in applying Mathew Varghese, because that decision interpreted the pre-2016 (unamended) version of Section 13(8) of the SARFAESI Act. After the 2016 amendment, the provision was substantially reworded, and the Court held that a borrower's statutory right to redeem the mortgaged property by tendering the full outstanding dues (with costs and charges) is available only "before the date of publication of notice for public auction", not up to the actual sale or registration of the sale certificate. Once the auction notice is published, the secured creditor is free to proceed with the sale, and the borrower loses the right to stop it by paying up later. The Court undertook a detailed legislative and textual analysis of Section 13(8) and the SARFAESI Rules to clarify this timeline and resolve conflicting High Court views on the point. Applying this to the facts, since the borrowers' payments came after the auction notice/auction itself, their right of redemption had already lapsed, so the Sale Certificate in favour of the auction purchasers was valid. Both appeals were allowed and the Madras High Court's judgment was set aside; the Court also flagged the ambiguity in Section 13(8) versus the SARFAESI Rules to the Ministry of Finance for legislative correction.

Lesson Learnt

Under the SARFAESI Act (as amended in 2016), a defaulting borrower/guarantor can save mortgaged property from a bank auction only by clearing the full outstanding dues before the auction notice is published, paying up afterward, even before the sale is finally registered, will not undo a bank auction or defeat a genuine auction purchaser's rights.

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

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