The Supreme Court has cracked open a fault line running through the SARFAESI Act, 2002, declaring that borrowers’ redemption rights after the 2016 amendment are stuck in a legislative tug-of-war between the Act and its Rules.
A bench of Justice JB Pardiwala and Justice R Mahadevan overturned a Madras High Court ruling that had allowed borrowers to reclaim mortgaged property even after an auction notice was published. The Court made it clear: once the auction notice hits the public domain, redemption rights are gone.
But here’s the snag — Section 13(8) of the Act shuts the door on borrowers after publication of the auction notice, while Rules 8 and 9 of the SARFAESI Rules still leave windows open. Rule 9, for instance, insists on a 30-day waiting period before the auction, inadvertently encouraging borrowers to press claims even after their rights are supposed to have vanished.
The Court called this clash a “glaring anomaly” that has bogged down Debt Recovery Tribunals and Appellate Tribunals with needless litigation. Secured creditors and auction purchasers, it noted, have been left stranded by contradictory drafting that was supposed to provide clarity nine years ago.
Lamenting what it called “ill-worded” legislation, the bench warned that unless the Ministry of Finance cleans up the Act and Rules, the SARFAESI framework will continue to drown in disputes instead of delivering the speedy debt recovery it was designed for.
The judgment didn’t stop at judicial commentary — copies are being sent to every High Court in the country, as well as to the Finance and Law Ministries, effectively pushing Parliament’s drafters into the witness box.
The Court also addressed a grey area around what exactly counts as “publication of notice.” It clarified that the cut-off under Section 13(8) refers to the date of publication of a valid sale notice, regardless of whether the secured creditor opts for newspaper ads, direct service, or other approved methods.
After 23 years of operation, the SARFAESI Act was supposed to be a fast-track for resolving bad loans. Instead, as the bench bluntly put it, poor drafting has turned it into a factory of litigation — the very opposite of what the law set out to achieve.