Mortgagor's Right Of Redemption Prevails Over Auction Purchaser's Claim Of Title: Calcutta High Court

The court said once the borrower exercises the right of redemption by clearing the dues before the transfer of the secured asset, the auction purchaser cannot claim an indefeasible right over the property.

A single bench of Justice Ajay Kumar Gupta made the observation in proceedings arising out of an auction conducted by UCO Bank under the SARFAESI Act for sale of a mortgaged property. It observed:

“There is no doubt, under the law that an auction purchaser has a right upon participation in the bidding process and being declared as successful bidder. However, this right is not absolute, and it cannot take away the mortgagor's right of redemption as provided in Transfer of property Act,1872. A similar right is also conferred under section 13 (8) of the SARFAESI Act, and these rights cannot be impaired once they have exercised their right conferred on them.”

Gajanan Highrise Pvt Ltd, a real estate company, had participated in the auction pursuant to a possession-cum-sale notice dated December 13, 2009 and was declared the highest bidder with a bid of Rs. 70 lakhs. The company deposited 25 percent of the bid amount initially and paid the entire balance consideration on April 7, 2010, seeking issuance of a sale certificate.

Before the sale certificate could be issued, the borrower and guarantors repaid the entire dues of the secured creditor. UCO Bank then released the mortgaged property back to the borrower. Aggrieved by the bank's conduct, Gajanan Highrise alleged collusion and criminal misconduct on the part of bank officials to return the mortgaged property and challenged the closure of criminal proceedings in the lower court.

Examining the statutory framework, the court noted that Section 13(8) of the SARFAESI Act expressly preserves the borrower's right to redeem the secured asset by tendering the dues at any time before transfer. It said such right is also rooted in the Transfer of Property Act, which recognises redemption as a substantive and valuable right of the mortgagor.

The court held that the bank was legally bound to release the property upon full repayment and that no sale could be completed in favour of the auction purchaser thereafter.

Finding the dispute to be purely civil in nature, the court declined to interfere with the lower court's decision and upheld the actions taken in accordance with the recovery framework.

For Petitioner: Advocate Pratyush Patwari

For Opposite Party: Advocates Shiv Shankar Banerjee, Siddtharth Chamria

For State: A.P.P. Faria Hossain with Advocates Mousumi Sarkar, Md. Adil Badr