The Bombay High Court clarified that the transfer of ownership of the secured asset in case of a statutory sale under SARFAESI takes place upon the issuance of the sale certificate, which cannot be altered by the amendment to Section 13(8) of the SARFAESI, and it merely advances the date of extinguishment of the right of redemption available to a borrower.
The Court therefore ruled that loss of the right of redemption does not tantamount to the loss of ownership rights, and the extinguishment of the right of redemption will not affect ownership rights in the secured asset.
Since the sale conducted under the provisions of the SARFAESI Act in the present case was not completed, as the interim moratorium imposed under Section 96 of the IBC stayed all proceedings in respect of any debt of the borrowers, during the intervening period, viz., from the date of confirmation of sale till the issuance of the sale certificate, the Court held that payments of the balance six tranches by the petitioner was wrongly accepted by the bank, and resultantly, the petitioner would neither become the owner of the secured asset, nor could claim entitlement to the possession of the same.
The Division Bench comprising Justice R.I. Chagla and Justice Farhan P. Dubash observed that only if the entire payment is made to the secured creditor can the sale certificate be issued, and if the sale certificate is not issued, prior to the coming into force of the moratorium, the sale is not complete.
In the present case, the Bench found that barring the first two tranches of payment, the entire balance of six tranches of payment was made by the petitioner and received by the bank after the imposition of the interim moratorium.
Therefore, the Bench observed that once the interim moratorium under Section 96 of the SARFAESI Act is in force, a secured creditor cannot receive the balance payment from the successful purchaser. Thus, if the interim moratorium kicks in post confirmation of the sale but before the balance payment is made, the only outcome is that there is no transfer of ownership of the secured asset in favour of the successful purchaser.
This being the case, the Bench concluded that if there is any legal embargo in completing the sale, the successful purchaser cannot claim any ownership rights. Moreover, the interim moratorium under Section 96 of the SARFAESI Act is much wider than that under Section 14 of the IBC.
Briefly, the case involves a dispute over a residential flat in Navi Mumbai. The key parties are the original owners (the Borrowers), the bank that provided the loan (Union Bank of India), and the company that purchased the flat at an auction (the Petitioner). A couple, Vandana and Ravindra Chaudhari (the Borrowers), took financial facilities from Union Bank of India, using their residential flat as collateral. After they defaulted on their payments, the bank classified their account as a non-performing asset (NPA).
Later, to recover its dues, the bank initiated the proceedings under the SARFAESI Act and issued an auction sale notice for the flat. In the said auction, the petitioner was declared the successful purchaser with a bid of Rs. 9.12 crores. However, before the full payment was completed from the side of the petitioner, one of the original owners filed for personal insolvency under the Insolvency and Bankruptcy Code, 2016 (IBC), which automatically triggered an ‘interim moratorium’.
Despite the moratorium being in effect, the petitioner paid the remaining six tranches of the auction amount, which was accepted by the bank and a final sale certificate was issued. Since the bank was unable to hand over physical possession of the flat to the petitioner due to the legal restrictions imposed by the moratorium, the petitioner approached the High Court, seeking an order to compel the bank to deliver possession of the property.
Case Distinguished:
Celir LLP v. Bafna Motors (Mumbai) (P) Ltd [(2024) 2 SCC 1]
Appearances:
Senior Advocate G.S. Hegde, along with Advocates P.M. Bhansali, Arafat Siddique, and Juhi Pandey, for the Petitioner
Advocates Shrirang Katneshwarkar, Gajendra Rajput, and Shubham Kahite, for the Respondent
Senior Advocate Naushad Engineer, along with Advocates Sharad Bansal and Yohann Limathwalla, as Amicus Curiae
