Court’s decision
The Bombay High Court held that an auction purchaser does not acquire ownership rights in a secured asset unless the entire sale price has been paid and a sale certificate has been issued under Rule 9(6) of the Security Interest (Enforcement) Rules, 2002. The Court concluded that the interim moratorium triggered under Section 96 of the Insolvency and Bankruptcy Code (IBC) barred the Bank from accepting any balance sale consideration after the Personal Insolvency Application was filed. Since the Bank accepted six tranches of payment after the moratorium commenced, the Court held that the sale was legally incomplete. Consequently, the auction purchaser could not be treated as owner and could not seek possession of the secured asset.
The Court relied heavily on the Supreme Court’s ruling in Indian Overseas Bank v. RCM Infrastructure Ltd., which held that a statutory sale under SARFAESI is complete only when full consideration is paid and the sale certificate is issued. The Court also distinguished Celir LLP, holding that although the borrower’s right of redemption stands extinguished upon publication of the sale notice, ownership does not transfer until the statutory sale process is fully completed. The Court emphasized that Section 96 IBC stays all proceedings “in respect of any debt,” which includes actions under SARFAESI. Therefore, acceptance of payment and issuance of the sale certificate after commencement of the moratorium was impermissible.
Facts
The secured creditor initiated measures under the SARFAESI Act after the borrowers defaulted and their account was classified as a non-performing asset. Following issuance of a demand notice and symbolic possession, the creditor obtained assistance from the Magistrate and proceeded to publish a sale notice under Rule 8(6). An auction was conducted, and the Petitioner emerged as the successful bidder. The Petitioner deposited part of the sale price immediately and began paying the balance in instalments. However, before payment was completed, one of the co-owners filed a Personal Insolvency Application under Section 94 IBC, triggering an interim moratorium under Section 96. Despite this, the Bank continued accepting payments from the Petitioner and later issued a sale certificate. The borrowers challenged the sale process before the DRT, which declined relief in view of the moratorium. The Petitioner thereafter filed the present writ seeking possession of the secured asset.
Issues
- Whether ownership in a secured asset under SARFAESI transfers upon confirmation of sale or only upon issuance of the sale certificate.
- Whether the interim moratorium under Section 96 IBC prevents a secured creditor from accepting payments or issuing a sale certificate.
- Whether the extinguishment of the right of redemption under amended Section 13(8) SARFAESI results in extinguishment of ownership.
- Whether the auction purchaser has any enforceable right to possession when the sale process remains incomplete due to a statutory bar.
Petitioner’s arguments
The Petitioner argued that the borrowers’ ownership rights in the secured asset stood extinguished upon the publication of the sale notice or, in any event, upon confirmation of sale. It was contended that the moratorium under Section 96 IBC does not prevent completion of SARFAESI proceedings, and that the interim moratorium is narrower than the moratorium under Section 14 IBC. The Petitioner relied on Celir LLP to argue that the borrowers lost their right of redemption when the sale notice was issued, and the Resolution Professional could not claim a higher right than the borrower. The Petitioner also submitted that even if the IBC were applicable, the sale proceeds could eventually be used in the insolvency process rather than setting aside the sale. In the alternative, the Petitioner sought refund of the auction price, though no such relief was expressly prayed for.
Respondent’s arguments
The secured creditor supported the Petitioner’s claim and argued that its statutory measures under SARFAESI should not be defeated by the borrower’s decision to invoke insolvency. The bank asserted that the Personal Insolvency Application was filed strategically to frustrate the enforcement process. The Resolution Professional, however, contended that Section 96 IBC imposed an absolute stay on continuation of any proceedings in respect of any debt, and therefore the bank was barred from accepting payments or issuing a sale certificate. It was submitted that the auction price was significantly below market value, and the borrowers were contesting the sale before the DRT. The co-owner also opposed the petition, asserting that the sale could not be treated as complete once the interim moratorium came into force.
Analysis of the law
The Court examined the statutory scheme of the SARFAESI Act and the SARFAESI Rules, concluding that ownership transfers only when the statutory requirements under Rules 8 and 9 are fully completed. The Court emphasized that the 2016 amendment to Section 13(8) merely advances the extinguishment of the right of redemption but does not alter the principle that title passes only upon issuance of the sale certificate. The Court then analyzed Section 96 IBC, noting that the interim moratorium is triggered immediately upon filing and is broader than the moratorium under Section 14, as it applies to all actions “in respect of any debt.” Relying on Dilip B. Jiwrajka, the Court explained that the interim moratorium prevents both initiation and continuation of proceedings, and operates irrespective of the debtor’s intent. Applying this framework, the Court held that acceptance of the six subsequent payments and issuance of the sale certificate were legally barred. o
Precedent analysis
The Court relied on Indian Overseas Bank v. RCM Infrastructure Ltd., which held that a SARFAESI sale is complete only upon full payment and issuance of the sale certificate, and that payments made after commencement of IBC moratorium cannot validate the sale. This principle directly applied to the present case, as the bulk of the payments were made after the interim moratorium commenced. The Court distinguished Celir LLP, observing that while the right of redemption ends upon publication of the sale notice, ownership does not transfer unless full payment is made within the statutory framework. The Court also referred to Narayan Deorao Javle, Paramjeet Singh Patheja, and Hindon Forge, reinforcing the distinction between loss of redemption and loss of ownership.
Court’s reasoning
The Court reasoned that extinguishment of the right of redemption does not automatically extinguish ownership, as the bundle of ownership rights persists until the statutory sale is completed. The Court found that the interim moratorium not only halted enforcement actions but also legally prevented the bank from accepting payments. Since the bank was barred from receiving the balance sale price, it was equally barred from issuing the sale certificate. As a result, the Petitioner never became the owner. The Court further noted that the DRT had correctly declined to pass orders in view of the IBC bar. Since the Petitioner lacked ownership, it could not seek possession through a writ.
Conclusion
The Court dismissed the writ petition, holding that the Petitioner did not acquire ownership of the secured asset because the sale was incomplete when the interim moratorium intervened. The Court reiterated that a statutory sale under SARFAESI is completed only upon issuance of a sale certificate, which could not lawfully occur once Section 96 IBC had taken effect. The Court left open the question of refund, noting that no such relief was explicitly prayed for and must be pursued independently.
Implications
This ruling has significant implications for SARFAESI auctions conducted during or near the initiation of individual insolvency proceedings. It confirms that the interim moratorium under Section 96 IBC has a far-reaching effect, suspending SARFAESI processes even after confirmation of sale. It also clarifies that extinguishment of redemption rights does not equate to transfer of ownership. The judgment strengthens protection for debtors under IBC, mandates strict compliance by secured creditors, and warns auction purchasers of the risks posed when insolvency proceedings intervene.