INTRODUCTION
The concept of equity of redemption lies at the heart of mortgage law. It represents the borrower’s right to reclaim mortgaged property upon repayment of dues before the mortgage is finally foreclosed. While SARFAESI enables secured creditors to enforce security interests without court intervention, this right of redemption operates as a substantive check on arbitrary foreclosure.
Over time, courts in India have fortified this right, treating it not merely as a procedural privilege but as a statutory safeguard of the borrower’s proprietary interests. Recent judgments of the Supreme Court, particularly in Celir LLP v. Bafna Motors (2023), have substantially clarified the contours of this right and resolved long-standing confusion surrounding Section 13(8) of the SARFAESI Act.
NATURE AND IMPORTANCE OF THE EQUITY OF REDEMPTION
A. Statutory Basis
Although commonly referred to as “equity of redemption”, the borrower’s right to redeem mortgaged property in India is not an equitable right, but a statutory right expressly codified under Section 60 of the Transfer of Property Act, 1882. This right endures until it is legally extinguished and cannot be curtailed by contractual clauses. Any covenant that restricts or prevents redemption is treated as a “clog on the equity of redemption” and is routinely struck down by courts.
B. Judicial Emphasis on Borrower Protection
Courts have consistently recognized that the right of redemption embodies a principle of natural justice. Historically, the judiciary has been wary of permitting secured creditors to foreclose the borrower’s rights without affording reasonable opportunity to redeem, particularly in cases where harsh contractual terms or procedural irregularities are involved.
EQUITY OF REDEMPTION UNDER SARFAESI: SECTION 13(8)
Section 13(8) of the SARFAESI Act occupies a critical position in balancing the rights of the borrower, secured creditor, and auction purchaser. A sale of secured assets under SARFAESI results in final foreclosure of the borrower’s right of redemption. However, Section 13(8) expressly preserves this right up to the point of publication of the auction notice or invitation for sale, ensuring that borrowers retain the right to regularize defaults before the enforcement process becomes irreversible.
KEY JUDICIAL DEVELOPMENTS
A. Shakeena v. Bank of India (AIR Online 2019 SC 2031)
In Shakeena, the Supreme Court reiterated that the borrower may redeem secured assets at any time before the date of publication of the sale notice by tendering the outstanding dues, along with all costs and expenses incurred by the secured creditor.
However, once the sale certificate is registered, and the borrower fails to discharge the dues prior to such registration, the Court held that the right of redemption is extinguished. In the facts of that case, the borrower attempted to redeem only after registration of the sale certificate, and thus was held to have lost the statutory right.
B. Persistent Confusion in Judicial Interpretation
Prior to 2023, conflicting decisions had caused uncertainty about the exact point at which the right of redemption stood extinguished. Notably:
- Mathew Varghese v. M. Amritha Kumar
- S. Karthik v. N. Subhash Chand
These decisions had suggested that redemption remained open until the sale certificate was actually registered.
This created ambiguity regarding whether confirmation of sale, issuance of sale letter, or mere bidding was sufficient to foreclose the right.
THE SUPREME COURT’S CLARIFICATION IN CELIR LLP V. BAFNA MOTORS (2023 SCC ONLINE SC 1209)
The Supreme Court in Celir LLP undertook a detailed examination of Section 13(8) of SARFAESI vis-à-vis Section 60 of the Transfer of Property Act. The case arose from an order of the Bombay High Court allowing the borrower to redeem the mortgaged asset even after confirmation of the auction sale and issuance of a sale confirmation letter.
A. Central Holding
The Supreme Court emphatically held:
The borrower’s right of redemption exists only till the publication of the auction notice under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.
Accordingly, once the auction notice is published, the right under Section 60 TPA or Section 13(8) SARFAESI no longer survives.
B. Overruling of Earlier Precedents
In the process, the Court expressly overruled the earlier interpretation in:
- Mathew Varghese v. M. Amritha Kumar
- S. Karthik v. N. Subhash Chand
These earlier decisions held that redemption continued until registration of the sale certificate, which the Supreme Court now considers incorrect in the context of SARFAESI’s special statutory framework.
C. Protection of Third-Party Auction Purchasers
The Celir LLP judgment places significant emphasis on the rights of bona fide auction purchasers, noting that once the auction process has been formally initiated, they acquire enforceable expectations which cannot be unsettled by a late attempt at redemption.
CONCLUSION
The evolution of jurisprudence on the equity of redemption under SARFAESI has culminated in a clearer understanding of the rights of all stakeholders. With Celir LLP v. Bafna Motors, the Supreme Court has finally resolved ambiguities surrounding Section 13(8):
- The borrower retains the right of redemption only until the publication of the auction notice.
- After publication, the secured creditor may proceed without fear of later interference.
- Auction purchaser rights are protected against belated redemption claims.
- Earlier judgments extending redemption until registration of the sale certificate now stand overruled.
This clarification provides welcome certainty and aligns the enforcement framework with SARFAESI’s objective of swift and predictable recovery, while still preserving the borrower’s statutory right to redeem within a clearly defined window.
Leave a comment