SARFAESI Rules Do Not Speak Of Any Separate Or Distinct Notice Of Sale Required To Be Issued By Secured Creditor: Supreme Court
The Supreme Court observed that the Rules are concerned with a single composite “notice of sale”, and the only distinction between the said Rules, is the manner in which the said “notice of sale” has to be given, on the basis of which relevant rule or rules are applicable, as the case may be.
Justice J.B. Pardiwala, Justice R. Mahadevan, Supreme Court
The Supreme Court held that Rule(s) 8(6), the Proviso thereto, Rule 8(7) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 (SARFAESI Rules) do not speak of any separate or distinct notice of sale that is required to be issued by the secured creditor for the transfer of the secured asset.
The Court held thus in Civil Appeals preferred against the Judgment of the Madras High Court, which allowed a Writ Petition and quashed the Sale Certificate in favour of Auction Purchasers.
The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “Rule(s) 8(6), the Proviso thereto, Rule 8(7) and Rule 9(1) of the SARFAESI Rules do not speak of any separate or distinct notice of sale that is required to be issued by the secured creditor for the transfer of the secured asset by way of lease, assignment or sale in accordance with any of the methods enumerated in Rule 8(5). … The different manner in which the notice of sale has to be served, caused, published, affixed, uploaded as stipulated in Rule(s) 8(6) and 8(7) of the SARFAESI Rules, do not constitute separate notices of sale by themselves, they are part and parcel of one single composite intended “notice of sale” of the secured asset by the secured creditor, by any of the mode of sale listed in Rule 8(5).”
The Bench added that the said Rules are concerned with a single composite “notice of sale”, and the only distinction between the said Rules, is the manner in which the said “notice of sale” has to be given, on the basis of which relevant rule or rules are applicable, as the case may be.
Advocate K.S. Mahadevan appeared on behalf of the Appellants while Advocate Huzefa Ahmedi appeared on behalf of the Respondents.
Brief Facts
The Appellants were the Auction Purchasers and the Respondents Nos. 1 to 4 were the Borrowers. Respondent No. 5 was the Bank. The borrowers availed cash credit facilities in 2016 from the Bank to the tune of Rs. 5 crores and a term loan of Rs. 30 lakhs. An equitable mortgage was created over various immovable properties vide the Memorandum of Deposit of Title Deeds for the purpose of securing the repayment of the credit facilities. The Respondent Nos. 3 and 4 were the son and daughter in law respectively of the Respondent No. 2 who had executed guarantees to secure repayment of credit facilities availed by KPK Oils Limited i.e., Original Borrowers. In 2019, the borrower’s action was classified as a Non-Performing Asset (NPA) by the Bank due to default in repayment of the outstanding dues. Resultantly, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for the outstanding dues.
Thereafter, the Bank issued a notice under Section 13(4) of SARFAESI Act, seeking to take over the possession of the secured asset. The Possession Notice was also published in two newspapers and this was challenged before the Debts Recovery Tribunal (DRT). In 2021, the Bank issued an Auction Sale Notice in accordance with Rule 8 read with Rule 9 of the SARFAESI Rules, which was also challenged. The Appellants participated and successfully bid and then deposited the entire sale consideration. Subsequently, the Bank issued a Sale Certificate and the DRT dismissed the challenge by the borrowers. Without availing alternative remedy of Appeal before the Appellate Tribunal, the borrowers went to the High Court, which allowed their Writ Petition. Being aggrieved, the Appellants approached the Apex Court.
Court’s Observations
The Supreme Court in view of the above facts, noted, “… the stipulation under Rule 9(1) of a thirty-days gap between the date of publication of notice of sale and the date of actual sale does not impute a distinct characteristic to the public notice in the newspaper in contrast to the notice of sale that is served to the borrower. As is evident from Appendix IV-A to the SARFAESI Rules, the public notice of sale in newspaper as-well the notice of sale served to the borrower are one and the same, for the purpose of Rule 9(1).”
The Court said that the embargo enshrined under Rule 9(1), that no sale, in the first instance shall take place before the expiry of thirty-days, would be reckoned from the date of issuance of the “notice of sale”, which would include both the public notice of sale in the newspaper and the service thereof to the borrower, whichever is later.
“Under Rule 8(6) read with Rule 9(1) both the notice of sale can be served as-well as published in the newspaper, simultaneously on the same date. All that is required under Rule 9(1) is that thirty-day gap is maintained between when the notice of sale is served, affixed and published, whichever is later, as the case may be, till the date of actual sale”, it explained.
The Court enunciated that when the sale is through obtaining quotation or private treaty, then as per Rule 8 and 9 of the SARFAESI Act, there is no requirement of publication of notice for such sale and in such circumstances, the expression “before the date of publication” used in the amended Section 13(8) is frustrated, insofar as the sale is being through invitation of quotations or private treaty.
“The language couched in the provision of Section 13(8) makes no distinction between what mode or manner of sale is adopted by the secured creditor, insofar as the application of the said provision is concerned”, it added.
The Court further observed that for the purpose of the amended Section 13(8) of the SARFAESI Act, the expression “before the date of publication” used therein, has to be construed to refer and mean the publication of a valid “notice of sale” for the secured asset, although such publication may vary depending upon the mode of sale chosen by the secured creditor.
The Court clarified that if any third party rights have been created over the secured asset, the same would be non-est in view of this Judgment and if at all there is any obstruction or resistance in handing over of the possession of the secured asset to the auction purchaser, either at the behest of the borrower or anyone else, the Court will proceed to take the strictest of actions against such person.
“It has been almost twenty-three years, since the SARFAESI Act has remained in force. It is indeed very sad to note that even after these many years procedural issues such as the one involved in the case at hand, have continued to plague the legislation”, it remarked.
Conclusion
The Court also took note of the glaring anomaly in respect of Section 13(8) of the SARAFESI Act and Rule(s) 8 and 9 of the SARFAESI Rules that persists.
“The same renders the very mandate of the provision otiose. … We are, however, at our wit’s end to note how the ill-wording of Section 13(8) of the SARFAESI Act has resulted in a glaring inconsistency between the aforesaid provision and the SARFAESI Rules framed in lieu thereof. It is unfortunate that the ambiguities within the statutory provisions of the SARFAESI Act and Rules thereunder have left the interests of secured creditors and auction purchasers high and dry”, it concluded.
The Court, therefore, urged the Ministry of Finance to take a serious look at these provisions and bring about necessary changes, before it is too late in the day.
Accordingly, the Apex Court allowed the Appeals, set aside the High Court’s Judgment, and directed the Registry to forward one copy each of the Judgment to all the High Courts across the country and also to the Principal Secretary, Ministry of Finance and the Principal Secretary, Ministry of Law & Justice.
Cause Title- M. Rajendran & Ors. v. M/S KPK Oils And Protiens India Pvt. Ltd. & Ors. (Neutral Citation: 2025 INSC 1137)
Appearance:
Appellants: AORs Rajesh Kumar, Praveena Gautam, Advocates K.S. Mahadevan, Swati Bansal, R. Rangarajan, Aravind Gopinathan, Vijay Balu S B, Pawan Shukla, Tissy Annie Thomas, and Rohan Bansla.
Respondents: AORs S. Gowthaman, S. Thananjayan, Rajesh Kumar, Praveena Gautam, Advocates Huzefa Ahmedi, K. S. Mahadevan, Swati Bansal, R. Rangarajan, Aravind Gopinathan, Vijay Balu S B, Pawan Shukla, Tissy Annie Thomas, and Rohan Bansla.
