CELIR LLP V. BAFNA MOTORS(Mumbai Pvt.

Ltd)
-By Tarushi Singh

Abstract :
Following is a summary of the famous cases of Celir LLP and Bafna Motors (Mumbai) Pvt.
Ltd. The Supreme Court ruled that once a statute has been drafted according to the meaning
of the word, there is no interpretation. This judgment was announced by the Supreme Court
of India on 21 September 2023. The question raised in this case was about the amending
provisions of Section 13(8) of the SARFAESI Act, 2002. The right of the debtor to recover
the security. property lost on the date of publication of the public auction notice under rule
9(1 ) SARFAESI Act, 2002. The High Court had previously held that the right to collect on
the property remained until the property was delivered to the appellant by deed of sale. The
appellant filed a suit before the Supreme Court to assert his constitutional rights under Article
226 of the Constitution of India, alleging that the mortgaged property was affected at the time
of sale and the balance paid by the appellant. In view of the amendment to Section 13(8) of
the SARFAESI Act, the court held that the borrower's right of recovery is lost when the
advertisement is published.

1. PRIMARY DETAILS OF THE CASE

Case No WRIT PETITION NO. 9523
OF 2023
Jurisdiction Supreme Court of India
Case Filed on August 25, 2023
Case Decided on September 21, 2023
Judges Chief Justice D.Y.
Chandrachud, Justice J.B
Pardiwala
Legal Provisions involved Section 13(2), Section 13(4),
Section 13(8), Section 17,
Section 35 of SARFAESI Act,
2002, Section 60 of Transfer of
Property Act, 1882.
Case Summary Prepared by Tarushi Singh Kristu Jayanti
College of Law .

2. BRIEF FACTS OF THE CASE

Parties:

Petitioner: Celir LLP

Respondent: Bafna Motors

The borrower received a loan of 100 crores from Union Bank of India (Bank) in 2017,
respondent No. 2 stood as guarantor and security in the form of a simple mortgage
 constructed on the ground floor. Thane, Maharashtra ("Mortgage Property"). The loan
defaulted on payments, so the loan portfolio was considered a non-performing asset. In
case of default by the borrower and the guarantor, the bank issues a demand notice under
Section 13(2) Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act (SARFAESI Act). The total amount of the surplus was about Rs 123
crores. The bank attempted eight operations. But none of them worked. Finally, when the
bank issued its ninth auction notice, Celir LLP, an appellant from the Supreme Court,
joined the auction process and eventually emerged as the highest bidder and offered INR
105.5 shortly after that he paid 25% of the total bid amount. On the same day, the
borrower approached the Debt Recovery Tribunal (DRT) to oppose the sale of the bank,
and the borrower applied for discharge of the mortgage in the preliminary proceedings of
the DRT and commenced writ proceedings in the Hon'ble High Court Bombay under
Section. 226. of the Law. The High Court allowed the borrower to pay off the mortgaged
property if he paid INR 25 crore in one day and the balance in two weeks. If the debtor
fails to comply with the instructions of the Honourable High Court, the mortgaged
property must be sold in favor of the purchaser ("recusal order"). The impugned order
was challenged by the consumers through a special leave petition before the Supreme
Court..3. ISSUES INVOLVED IN THE CASE

Whether Right to redemption of property still remains once the Notice for the sale deed is
published or extinguishes only upon the conclusion of an actual sale?

3. ARGUMENTS OF THE PARTIES

Petitioner

 Asserted that under the amended Section 13(8) of the SARFAESI Act, the right of
redemption for a mortgagor is extinguished upon the publication of an auction notice
under Rule 9 of the Security Interest (Enforcement) Rules, 2002.

 He argued that the Bank had confirmed the sale to him as he was the highest bidder of
the 9th Auction conducted by bank after several failures.

 Asserted that the Bank was obligated to issue a sale certificate to the Appellant. He
argued in front of the court claiming his payment of 25% of the total offer of INR
105.5 corore paid by him following the auction.

 The auction proceedings had attained finality and the appellant herein was declared
as the successful highest bidder yet the bank was getting more amount as offered by
the appellant compared to the sale deed and hence they were lured by the money
offered by the buyer.

Respondent
  The borrowers transferred an amount of Rs. 104 crore to the Union Bank of India vide
RTGS, having UTR No. HDFCR52023082882894716.
 This was followed by the Respondent No.3, i.e., Union Bank of India issuing a No
Dues Certificate dated 28.08.2023 thereby acknowledging that the borrowers do not
owe any further amount to the Bank and releasing the personal guarantees as well.

4. LEGAL ASPECTS INVOLVED:

This is a civil case related to the SARFAESI Act, 2002 (Securitisation and Restructuring of
Financial Assets and Enforcement of Security Deposits Act, 2002), Securities Rights
(Enforcement) Act, 2002, and the Transfer of Property Act of 1886. .SARFAESI Act 2002
(Securitisation and Restructuring of Financial Assets and Enforcement of Collateral Act,
2002)

 .Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI Act)The SARFAESI Act is very important in cases
involving the enforcement of guarantees from banks and financial institutions. Here's
how it applies in this case:Section 13(2) and (4): This section empowers banks to give
notice to borrowers and guarantors when necessary to request payment of the
outstanding amount.Section 13(8): This section deals with the right to recover
mortgaged property. When a notice is issued in accordance with paragraph 2 of article
13, the right to resell the property lapses. However, in this case, the correct
interpretation of when the right to buy expires is also an issue..
 Section 13(8):This section deals with the right of creditors to recover collateral assets
from title of compensation. It was decided that after the amendment, the right to
payment is suppressed when a commercial advertisement is published before the sale
or assignment of collateral goods .Rule 8 of the Securities Act Implementation Rules,
2002: Relates to the sale of mortgaged immovable property. Rule 9: Separate act for
the time of sale, issuance of the certificate of sale and delivery of the title

.Transfer of Property Act 1886 (Section 60): A mortgage is extinguished only when the sale
is completed.

5. JUDGEMENT IN BRIEF

The Supreme Court, after a thorough analysis, ruled that following the amendment to
Section 13(8) of the SARFAESI Act, the right of redemption for a mortgagor is
extinguished upon the publication of an auction notice. Consequently, if the borrower
fails to pay their dues before the publication of the auction notice, their right to redeem
the property is forfeited. The Supreme Court specifically dismissed the interpretations
by the High Courts in Concern Readymix, Pal Alloys, and Amme Srisailam, which held
that the right of redemption persists until the asset's sale is completed. In contrast, the
Supreme Court endorsed the views of the Hyderabad High Court in Sri Sai Annadhatha
 Polymers v. Canara Bank and the Telangana High Court in K.V.V. Prasad Rao Gupta v.
SBI, which stated that the right of redemption is extinguished upon the publication of
the auction notice as per the amended Section 13(8).

The Court emphasized that the amended Section 13(8) not only restricts the secured
creditor's rights to deal with the property but also removes the borrower's right of
redemption once the auction notice is published. Previously, borrowers had until the
date of the sale to clear their dues, preventing the creditor from proceeding with the sale
if the dues were paid. This interpretation aligned with Section 60 of the Transfer of
Property Act (TP Act), which allowed the right of redemption until the sale was
completed by a registered deed. However, post-amendment, the law confines the period
within which borrowers can settle their dues to before the publication of the auction
notice, making Section 60 of the TP Act inapplicable due to its inconsistency with
Section 13(8) of the SARFAESI Act. Furthermore, Section 35 of the SARFAESI Act
establishes that its provisions prevail over conflicting laws.

Additionally, the Supreme Court ruled that the High Court erred in exercising
jurisdiction under Article 226 of the Constitution, given that the borrower had an
effective remedy available under Section 17 of the SARFAESI Act. The Court also
criticized the bank's conduct, stating that the bank should have issued the sale certificate
to the auction purchaser once the sale was confirmed and the full amount was paid. The
bank's subsequent private arrangement with the borrower and its altered stance before
the High Court were condemned.

The Court underscored the importance of maintaining the integrity of public auctions,
which should only be interfered with under exceptional circumstances. The Supreme
Court annulled the Bombay High Court's order and instructed the bank to refund the
borrower's deposited amount. Additionally, the auction purchaser was directed to pay an
extra amount of Rs 23.95 crores.

6. COMMENTARY

This decision is significant for several reasons. First, it clarifies the confusion
surrounding the interpretation of Section 13(8) of the SARFAESI Act and states that the
borrower's right lapses if the borrower defaults on installments and does not pay the
property before publication. . This interpretation is not only in accordance with the
language used in the Act but also emphasizes the purpose of the SARFAESI Act, which
is to ensure that borrowers can access their security and limited intervention by the
courts. If you leave the payment option open until after the purchase order is executed,
there is always a chance that an unscrupulous borrower, upon learning of the auction
process, might try to stall the auction process by resorting to some dilatory tactic or
other.. . This will seriously delay the process and defeat the very purpose of the
SARFAESI Act. The case itself is an example of significantly delaying the foreclosure
process if the borrower can pay off their property until the sale is complete. The lesson
that borrowers can learn from this case is that they should be careful, and if they want to
pay off their property, they should pay their bills on time or at least before issuing bank
notices under section 13 (8) Now an auction-purchaser can freely participate in an
auction process without being worried of the borrower coming in and taking away the
secured asset before the conclusion of the sale. Auctioneers enter auctions with the
expectation that they may own the property being auctioned in the near future. The sale
is not sacrosanct if the creditor can freely take possession of the property during or after
the sale. Public confidence in doing business under the SARFAESI Act is undermined
and defeats the purpose for which the SARFAESI Act was enacted. Indeed, as seen in
the judgment, all these concerns weighed heavily on the Supreme Court's mind while
interpreting Article 13(8). Thirdly, the Supreme Court has sent a message to the debtors
as well as the High Courts by reiterating that the High Courts should not entertain writ
petitions under Article 226 when there are relief measures under the SARFAESI Act.
But I don't think the story is being exaggerated. It must be remembered that the
jurisdiction of the High Court came after the debtor approached the DRT, commenced
proceedings, and was aware that the DRT could take an adverse decision. Given this, it
is held that the High Court, by filing and dismissing the petition, not only encouraged
collective bargaining but protected the sanity of the proceedings under other laws such
as the SARFAESI Act. Even if a litigant claims jurisdiction from another forum, he
dares to approach the High Court if he has received an adverse decision in a forum as
usual. The mere observation of an adverse decision of a forum cannot be a basis for
establishing the jurisdiction of the Superior Court under Article 226, unless there are
other compelling circumstances, such as the action of the forum under the law or in
violation of natural law. In this case, the borrower does not have a strong case.
approached the High Court contending that the DRT heard it properly and that an
adverse order was obtained prior to the decision of the DRTIn such a situation, the High
Court ought to have dismissed the writ petition at the threshold and directed the
borrower to await the decision of the DRT; this would have not only sent the message
that one cannot pursue writ proceedings during the pendency of another proceeding in
respect of the same subject-matter merely because an unfavourable decision was
expected but also upheld the sanctity of the proceedings before the DRT . Reasonable
considerations such as the subsequent understanding between the bank and the borrower
under which the bank allowed the borrower to pay the amount should not have weighed
on the High Court when it filed the writ petition. While holding that the High Court was
not justified in filing writ petitions, the Supreme Court may have taken a firmer stand by
explaining the dangers of filing writ petitions for fear of a wrong decision. However, the
Supreme Court rightly said that justice cannot strike down a law when that law is
imprecise. The Supreme Court erred in seeking the opinion of the judiciary to strike
down the SARFAESI Act. However, what borrowers should take from this is that they
should be careful and not seek relief in writing because the DRT or any other forum has
taken an adverse decision. It is important to remember that, in the event of an adverse
decision, an appeal/judgment is always available based on the facts.
 8.Important cases referred:

- Shakeena and Anr. v. Bank of India and Ors., (2021) 12 SCC

- M/s Pal Alloys and Metal India Private Limited & Ors. v. Allahabad Bank & Ors., reported in
2021 SC

- Amme Srisailam v. Union Bank of India, Regional Office, Guntur, rep. by its Region Head &
Deputy general Manager, Andhra Pradesh & Ors.

- S. Karthik & Ors. v. N. Subhash Chand Jain & Ors

- Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.

Tarushi singh

20LW2H1039

8th Semester BBA LLB

Kristu Jayanti Of Law