M/s Sunshine Builders and Developers Vs. HDFC Bank Limited Through The Branch Manager & Ors. - One can understand that if any final order is passed by the DRT, determining the liability of the borrower or any other liability of any person, and an appeal is preferred under Section 18 of the SARFAESI Act to the appellate tribunal, the provision of pre-deposit would come into play.

SCI (2025.04.17) in M/s Sunshine Builders and Developers Vs. HDFC Bank Limited Through The Branch Manager & Ors. [Civil Appeal No. 5290/2025] held that.

• From this definition, it is absolutely clear that a mortgagor, even though not being a guarantor or a principle borrower, would still be included in the definition of the word "borrower" as defined in Section 2(1)(f) of the SARFAESI Act, 2002.

• The plain reading of Section 18 of the SARFAESI Act, referred to above, would indicate that if any person which should also include a borrower is aggrieved by any order made by the DRT under Section 17 of the SARFAESI, he may prefer an appeal subject to the pre-deposit.

• One can understand that if any final order is passed by the DRT, determining the liability of the borrower or any other liability of any person, and an appeal is preferred under Section 18 of the SARFAESI Act to the appellate tribunal, the provision of pre-deposit would come into play.

Excerpts of the Order;

# 1. Delay condoned.

# 2. Leave granted.

# 3. This appeal arises from the judgment and order passed by the High Court of Judicature at Bombay dated 19-3-2024 in Writ Petition No.3929/2024 by which the High Court rejected the Writ Petition filed by the appellant – herein and thereby affirmed the order passed by the Debts Recovery Appellate Tribunal dated 29-2-2024 in Interim Application No.614/2022 in Appeal (Diary) No.1208/2022.

# 4. The impugned order passed by the DRAT which was made subject matter of challenge before the High Court was one directing the appellant – herein to deposit a sum of Rs.125 Crore as a predeposit under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the “SARFAESI” Act).

# 5. Heard Mr. C.U. Singh, the learned Senior counsel appearing for the appellant.

# 6. We are inclined to dispose of this appeal by a short order as we have looked into something which goes to the root of the matter. 

7. Para 5 of the impugned order reads thus:-

• “We have heard the learned Counsel appearing for the parties at quite some length. We have also carefully perused the order passed by the DRAT. We find that the exact same argument canvassed before us by the Petitioner was also canvassed before the DRAT. The DRAT, in paragraph 13 of the impugned order, has prima facie come to the conclusion that the Petitioners had consented to the creation of the mortgage. We, after perusing the record, do not find that the said finding of the DRAT, is in any way, perverse which would require our interference under Article 226 of the Constitution of India. In any case, the said finding is prima facie finding and was given to determine whether any pre-deposit ought to be ordered before the Appeal filed by the Petitioner is entertained. Section 2(1)(f) of the SARFAESI Act, 2002 defines the word "borrower" inter-alia to mean any person who has been granted financial assistance by any Bank or Financial Institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by the said Bank or Financial Institution. From this definition, it is absolutely clear that a mortgagor, even though not being a guarantor or a principle borrower, would still be included in the definition of the word "borrower" as defined in Section 2(1)(f) of the SARFAESI Act, 2002. It is keeping this definition in mind that the DRAT came to the conclusion that the Petitioner ought to be directed to deposit the sum of Rs. 125 crores as a pre-deposit for the Appeal to be entertained. This figure was arrived at because the sale notice indicates that the debt due is approximately Rs. 259 crores.”

# 8. Prima facie, it appears that the High Court got enamoured by the finding recorded by the DRAT that the appellant – herein had consented to the creation of the mortgage. 

# 9. Having looked into such finding, the High Court thereafter proceeded to consider the definition of the expression “borrower” as defined under Section 2(1)(f) of the SARFAESI Act.

# 10. In the last, the High Court took the view that although the mortgager may not be a guarantor or a principal borrower, yet he would fall within the definition of the expression “borrower” as defined under Section 2(1)(f) of the SARFAESI Act and, therefore, it is not open for him to argue that he is not liable to make a pre-deposit as envisaged under Section 18 of the SARFAESI Act. 

# 11. We take notice of the fact that the Securitisation application filed under Section 17 of the SARFAESI Act is pending with the DRT. In the said SA which is pending before the DRT, two interim applications were filed being IA No.183/2021 and IA No. 1652/2022 respectively for impleading the auction purchasers in the securitisation application and for condonation of delay in preferring such applications.

# 12. If such an application as referred to above stands rejected and an appeal is preferred before the DRAT against such order which is more a procedural part, should Section 18 so far as the aspect of pre-deposit is concerned, apply? This is the moot question that the High Court should have considered at the time of deciding the writ petition.

13. At this stage, we should look into Section 18 of the SARFAESI Act. Section 18 so far as relevant for our purpose is concerned reads thus:

• “18. Appeal to Appellate Tribunal.—(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed] to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. 

• Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:

• Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent. of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: 

• Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent. of debt referred to in the second proviso.”

# 14. The plain reading of Section 18 of the SARFAESI Act, referred to above, would indicate that if any person which should also include a borrower is aggrieved by any order made by the DRT under Section 17 of the SARFAESI, he may prefer an appeal subject to the pre-deposit.

# 15. We are of the view, of course prima facie that the expression “any order” should be given some meaningful interpretation. Should any and every order that may be passed by DRT, if sought to be challenged, be made subject to pre-deposit?

# 16. One can understand that if any final order is passed by the DRT, determining the liability of the borrower or any other liability of any person, and an appeal is preferred under Section 18 of the SARFAESI Act to the appellate tribunal, the provision of pre-deposit would come into play. However, what would be the position if an order like the one passed in the present litigation, i.e., declining to implead the auction purchaser in the pending proceedings before DRT is concerned?

# 17. We are of the view that we should remand the matter to the High Court for the purpose of reconsidering the aforesaid aspects of the matter.

# 18. The impugned order passed by the High Court is set aside. The matter is remitted to the High Court. The High Court shall rehear the Writ Petition No.3929/2024 and decide it afresh in accordance with law.

# 19. In the event if any adverse order is passed by the High Court, it shall be open for the appellant to come back to this Court again.

# 20. The Appeal is disposed of.

# 21. Pending applications, if any, shall also stand disposed of.

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Sunil Gupta Vs. Asset Reconstruction Company (India) Ltd. - HC Bombay specified procedure for issuance of summons by DRT.

HC Bombay (12.09.2022) in Sunil Gupta Vs. Asset Reconstruction Company (India) Ltd. [Writ Petition No.4885 of 2022 ] specified procedure for issuance of summons by DRT.

Facts of the case

In the instant case, respondent no.1/IOB has not produced any evidence/document to establish that summons was in fact created and served on petitioners in accordance with the aforesaid Act, DRT Rules and the aforesaid DRT Regulations or that any of the steps set out hereinabove were complied with. 

 

Even if we proceed on the assumption that a writ of summons, as required by the DRT Rules and Regulations was issued, the same was never served on petitioners as is clear from the reply filed by IOB before the DRT in M.A. No.145/2010.

 

Even if the case of IOB that the Demand Notices (details of which have not been supplied) or summons had returned as unclaimed, even then it was incumbent on IOB to follow the procedure contemplated in Rule 12 read with Regulation 19 as set out herein above before the matter could be proceeded ex-parte. 

 

This is particularly the case where the address on the record of the judicial proceedings is incorrect as is evident from a mere perusal of the cause title in the O.A. and the subsequent affidavit filed by IOB accepting that on due diligence IOB could ascertain the correct address of petitioners in Kanpur. As submitted by Mr. Dwarkadas there is no material whatsoever available or on the record of the DRT to establish that this was in fact done. This was not controverted or denied by Mr. Nimbkar.

 

Decision of High Court

Hon’ble High Court held that:

 

Service of summons upon petitioners:

Petitioners, it is clear, were never served with any writ of summons/documents of the proceedings before the DRT. The burden of proof to establish that petitioners had been served with summons is on IOB/respondent no.1 and petitioners should not be asked to prove a negative averment.(p24)

 

The DRT was duty bound to consider the provisions of the Code of Civil Procedure, 1908 (“the Code”) whilst considering petitioners application to set aside the order dated 11th

December 2009.(p26)

 

Further and in any event, the service of summons is a mandatory requirement as per the Act, the Debt Recovery Tribunal (Procedure) Rules, 1993, (DRT Rules) and the Debts Recovery Tribunals, Maharashtra & Goa Regulations of Practice, 2003 (DRT Regulations). Issuance of a notice informing the other party of the date, place and time of hearing and giving him/her a chance to make representation, is also an essential tenet of the principles of natural justice. The procedure for issuance of Summons by the DRT, as provided in the DRT Regulations of 2003.(p27)

 

From DRT Rules and DRT Regulations, it is clear that the following steps are required to be adopted for the writ of summons to be issued under the Seal of the Registrar and served on the Defendants to the O.A. (including petitioners herein):(p33)

 

Steps	Provision	Particulars
Step 1	Section 19(4) of the Act	Direction   of issuance of summons : On   receipt of the Application, the Tribunal is required to issue summons   requiring the Defendants to show cause within thirty days of the service of   summons as to why the relief prayed for should not be granted. Mr. Dwarkadas, on instructions stated   that (and not denied by Mr. Nimbkar for respondent no.1) not even a copy of   the Writ of Summons is available on the record of the DRT nor has IOB   produced any proof of the Writ of Summons being created or served. Admittedly no documents were filed by   IOB in response to the MA filed by petitioners to set aside the ex parte   order. IOB has not produced any Writ of Summons that they claim was returned,   or a copy thereof, or even an Affidavit of Service that may have been   contemporaneously filed in the Ld. DRT.
Step 2	Regulation 19(1), 19(2) of the DRT Regulations r/w Rule 13, 22 of the DRT Rules	Creation  of summons: The Tribunal shall issue summons/Notice   and the Registrar or the Assistant Registrar or official authorized by  Registrar shall sign the summons/notice adding thereto the date of signing. Each summons of O.A. shall be in Form   No. 14. The seal of the Tribunal is required to    be affixed on every Summons/Notice.  Date and place of hearing should also be   notified. There is a need for creation of   summons/notice even in case of pending proceedings and service of the same on   the Advocate.
Step 3	Regulation 19(3) of the DRT Regulations   r/w Rule 11 of the DRT Rules	Service   of summons: Summons/Notice are ordinarily required   to be served by Registered Post Acknowledgment Due. The Registrar shall also serve a copy of   the application and paper book, as soon as they are filed, on defendants by   registered post.
Step   4	Regulations 19(7), 19(8), 19(10) of the   DRT Regulations	Enquiry   regarding service: Where   the summons/notice was properly addressed (pre-paid and duly issued) by   Registered Post Acknowledgment due is not received within 30 days from the   date of the issue of summons/notice, the Registrar is required to declare, on   submission of the Affidavit by the applicant regarding correctness of the   address and evidence of posting that the summons/notice is duly served and   the matter would proceed further. Where the summons/notice is returned   un-served except in the above circumstances, the Applicant shall take steps   for service within 15 days from the date of return of summons/notice failing which the matter is required to be kept before Presiding Officer for further   orders. Where summons are returned with postal   endorsement ‘refused’ or ‘not claimed’, the Registrar is required to declare   that the summons/notice has been duly served and the matter shall proceed   ex parte.
Step 5	Section 19 (5) of the Act r/w Rule 12(1)   of the DRT Rules	Filing   of Written Statement : If Step 3 has been duly completed, then defendant   is required, within a period of thirty days/one month from the date of   service of summons, to present a written statement of his defence.
Step 6	Proviso to Section 19(5) of the Act r/w   Rules 12(3) and 12(4) of the DRT Rules	Enquiry   on non-filing of Written Statement: However, where defendant fails to file   the written statement within the said period of thirty days, the Presiding   Officer may, in exceptional cases and in special circumstances to be recorded   in writing, allow not more than two extensions to defendant to file the   written statement. If defendant fails to file the reply   within 30 days/ 1 month of service of summons or on the date fixed for hearing of the application, the Tribunal may proceed forthwith to pass an   order on the application as it thinks fit.
Step 7	Rule 13 of the DRT Rules	Requirement   of issuance of notice for date and place of hearing: The Tribunal is also required to notify   the parties the date and place of hearing of the application in such a manner   as the Presiding Officer may by general or special order direct.

 

Where packet is unclaimed more than one attempt must be made to serve particularly where the address to which the summons was posted in incorrect:

It is settled law that the serving of the summons is a mandatory procedural requirement and the time for filing the written statement commences only from the date of service of summons. It is evident that no enquiry was ever conducted by both DRT and DRAT into whether a notice/summons was ever served on petitioners herein. The said enquiry ought to

have been made more so when the said advocate had stopped appearing on behalf of petitioners before the DRT, w.e.f., 24th August 2005. The enquiry would have required the IOB/respondent no.1 to discharge its burden qua service of summons (which it has not been able to discharge till date) and would have established that petitioners had never been served with the summons. The alleged knowledge about the pendency of the case by IOB/respondent no.1 cannot dispense with the requirement of service of summons, which should have been issued to petitioners to notify to them the day, date, time and place of hearing of the Original Application.(p38&43)

 

Mere filing of the Vakalatnama or appearance through an Advocate does not amount to waiver of the mandatory requirement of service of summons:

Service of summons is a mandatory procedural requirement and is not dispensed with merely on account of the party entering appearance by filing a Vakalatnama. Given the almost identical language in Rule 12(1) of the DRT Rules when compared with the amendments brought about to the Original Side Rules and Order 8 Rule 1 of the Code by the Commercial Courts Act, 2015, it is clear that the time to file written statement contemplated in the DRT Rules, could only commence on due and proper service of the writ of summons. The appearance of an Advocate and filing of a Vakalatnama by him cannot and does not dispense with the requirement to serve the writ of summons. Accordingly, petitioners, in the absence of service of summons, could not have made any representation and/or file their written statement before the DRT. In light of the above, it is immaterial that the said advocate appeared on behalf of petitioners in the proceedings before the DRT. 

 

Mere filing of a Vakalatnama and appearance of the said advocate could not have dispensed/waived the requirement of service of summons. 

The said Vakalatnama cannot be considered to be a proof of service of summons, particularly when the purpose for which it has been obtained is disputed and when it has been virtually admitted by IOB/respondent no.1 that petitioners were never served with the summons. Thus, the proceedings in O.A. No.927/2001, without the issuance of summons, were in complete derogation and ignorance of the principles of natural justice.(p45-48)

 

Individual service of summons on each partner:

As petitioners are sought to be proceeded against individually, as Partners of respondent no.2 firm, it was incumbent on the DRT to ensure that summons were served individually on each of the Partners. In this regard, it is first pertinent to note that the DRAT has incorrectly purported to hold that the individual partners of the firm, including petitioners herein are not being proceeded against personally. On account of this error alone, the impugned order deserves to be set aside. If that is assumed to be true, no recovery can be initiated in law against petitioners in their individual capacity and the recovery can only be made against respondent no.2 firm. 

 

Order 30 of the Code of Civil Procedure (Code) deals with the procedure in respect of suits against Partnership Firms. The Courts have, on an interpretation of Order 30 of the Code, held that if a person wants to bind the partners of a firm individually, he must serve the partners personally. 

 

In the present case, the O.A. filed by respondent no.1 (IOB) has sought to bind each of petitioners personally. The order dated 11th December 2009 is accordingly passed against respondent no. 2 firm as well as against each of petitioners individually. In our view, petitioners ought to have been personally served with the summons as mandated by law. Non-service of summons on petitioners vitiates the order dated 11th December 2009 qua them.(p49-52)

 

Requirement of issuance of fresh notice at the time of the hearing when the party is not represented on the date of the hearing:

A party must not be made to suffer on account of the mistake committed by the Advocate engaged. This was a without prejudice submission made on behalf of petitioners.  It is a matter of record that the said advocate had stopped appearing on behalf of petitioners, with effect from 24th August 2005 and had not filed any written statement or contested any evidence. In view of the above, and basis the settled principles of law, it was incumbent upon the DRT to make an enquiry regarding service of summons to petitioners herein and call upon IOB/respondent no. 1 to prove the same. 

 

In terms of Rule 13 of the DRT Rules, the DRT should have issued at least one notice to petitioners between August 2005 and December 2009, when the matter came to be finally disposed. The finding of the DRAT to the contrary is clearly erroneous and contrary to the said Rule.(p55)

 

Despite appearance of the said Advocate, order dated 11.12.2009 is nevertheless an e x-parte order:

In case we proceed on the basis that the service of summons was not mandatory on account of the appearance of advocate Bhushan Sakpal for petitioners, the order dated 11th December 2009 is nevertheless an ex-parte order and ought to be set aside under Order 9 Rule 13 of the Code. The DRAT has wrongly held in the impugned order that the order dated 11th December 2009 was not in the nature of an ex-parte order. As noted above, the said advocate Bhushan Sakpal stopped appearing on behalf of petitioners, w.e.f. 24th August 2005. This being the case, the DRT should have proceeded to decide the O.A. in accordance with the provisions of Order 17 Rules 2 and 3 read with Order 9 Rule 6 of the Code. Thus, on such non-appearance of the said advocate on behalf of petitioners, the DRT should have inquired if the summons had been duly served. If it was considered to be duly served, the DRT essentially proceeded ex-parte against petitioners under Order 9 Rule 6(1)(a) of the Code. If the summons were considered not to be duly served, the DRT should have effected a fresh service of summons under Order 9 Rule (6)(1)(b) of the Code.

The impugned order, in fact, being in the nature of an ex-parte order, petitioners are entitled to seek to set aside the same in accordance with Order 9 Rule 13 of the Code on making out

sufficient grounds. In the present case, the following grounds are clearly sufficient grounds to set aside the order dated 11th December 2009 : 

• (i) The signing of the Vakalatnama and consequent appearance of advocate Bhushan Sakpal was on the alleged misrepresentation made to petitioners that the matter was being settled;

• (ii) That petitioners had clearly averred that they were neither issued a notice of the filing of the O.A. nor served with any copies of the papers, an assertion which respondent no.1 (IOB) has not been able to disprove;

• (iii)The DRT did not observe Rule 13 of the said Rules and did not issue any notice to petitioners between August 2005 and 2009 intimating petitioners of the hearing fixed in the matter;

• (iv) The DRT failed to consider the admitted position that petitioners were not aware of the date, day and time of hearing of the matter.

 

The DRT and DRAT having failed to consider the order dated 11th December 2009 as an ex-parte order did not apply the test laid down in Order 9 Rules 6 and 13 of the Code, thereby failing to afford petitioners an opportunity to seek to set aside the order dated 11th December 2009 despite having sufficient grounds. In view thereof, it is evident that there has been a serious lapse of procedure in the present case. There has been no service of the writ of summons on petitioners and respondent no.1 (IOB) has been unable to establish otherwise. The advocate appearing for petitioners was engaged only for a very limited purpose and has not appeared on behalf of petitioners in the matter since August 2005. The

passing of the order in 2009 and the recovery certificates issued pursuant thereto, therefore, suffer from a serious procedural infirmity and the order dated 11th December 2009 ought to be set aside.(p56-59)

 

The Court concluded that the ex-parte decree dated 11th December 2009 passed by the DRT and order dated 27th April 2011 passed by the DRAT and Recovery Certificate dated 21st January 2010 issued by the Recovery Officer are hereby quashed and set aside.(p67)

 

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Pratibha Industries Ltd. Vs Yes Bank Ltd. and Anr. - In view of the aforesaid discussion, we hold that as per the amended section 13(8) of the Act, once the borrower fails to tender the entire amount of dues with all costs and charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the 2002 Rules.

NCLAT (2025.04.04) in Pratibha Industries Ltd. Vs Yes Bank Ltd. and Anr. [(2025) ibclaw.in 239 NCLAT. , Comp. App. (AT) (Ins) No. 1049 of 2024] held that;

• In view of the aforesaid discussion, we hold that as per the amended section 13(8) of the Act, once the borrower fails to tender the entire amount of dues with all costs and charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the 2002 Rules.

Excerpts of the Order;

This appeal is filed by the Liquidator of the Corporate Debtor to challenge the order dated 08.04.2024, passed by the NCLT, Mumbai Bench- I (in short ‘Tribunal’), by which an application filed by the Appellant bearing M.A No. 1662 of 2019, under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’), for reversing the sale transactions of the properties situated at E-10 and B-85 Defence Colony, New Delhi, has been dismissed.

# 2. Pratibha Industries Limited (Corporate Debtor) availed credit facility from Yes Bank/Respondent No. 1, by way of term loan of Rs. 50 Cr. and created an exclusive mortgage on the following properties, namely, the front portion of the 3rd Floor alongwith servant quarter with attached toilet and two car parking spaces in the driveway of the property situated at E-10 Defence Colony, New Delhi (hereinafter referred to as the first property) and entire 1st Floor of the property situated at B-85, Defence Colony, New Delhi (herein after referred to as the second property).

# 3. The Corporate Debtor was admitted to Corporate-Insolvency Resolution Process (CIRP) vide order dated 01.02.2019. Mr. Sunil Kumar Choudhary was appointed as the Interim Resolution Professional (IRP) and moratorium under Section 14 of the Code was imposed.

# 4. Mr. Sunil Kr. Choudhary (IRP) was replaced by Mr. Anil Mehta on 14.03.2019 and since no resolution plan was approved during the CIRP period, therefore, the Tribunal passed the order of liquidation on 08.02.2021 and appointed Anil Mehta as the liquidator of the CD.

# 5. However, vide order dated 07.07.2023, the Tribunal replaced Mr. Anil Mehta and appointed Avil Menezes (Appellant herein) as the liquidator of the CD.

# 6. There were proceedings regarding the first and second property by the mortgagee/Respondent No. 1 under the SARFAESI Act, 2002 (in short ‘ Act’ ). The Respondent No. 1 issued a notice dated 10.05.2018 to the CD under Section 13(2) of the Act, demanding an amount of Rs. 87,53,58,171/ . Since, the CD failed to return the aforesaid amount, therefore, on 17.07.2018 notice for possession under Section 13(4) of the Act was issued and physical possession was taken on 21.09.2018. The possession notice was published on 27.09.2018 in the local newspapers, namely, the Statesman and Vir Arjun.

# 7. After taking possession, the Respondent No. 1 issued first e-auction sale notice under Section 13(8) of the Act on 30.11.2018 but e-auction was declared unsuccessful on 03.01.2019 because no bid was received.

# 8. The second e-auction sale notice was issued on 11.01.2019 and sale was conducted on 28.01.2019 of the first property in which Respondent No. 2 gave the highest bid for a total sale consideration of Rs. 5,11,00,000/. The bid was accepted by Respondent No. 1 and a letter of confirmation was issued on 28.01.2019 in favour of Respondent No. 2.

# 9. As per the letter of confirmation, the date of payment of the balance consideration was 12.02.2019. The Respondent No. 2 deposited 25% payment of the sale price including EMD on 29.01.2019 in terms of Rule 9(3) of the Security Interest (Enforcement) Rules, 2002. The remaining payment of the sale consideration, as per the timelines in the public notice, was made on 12.02.2019. The sale certificate was issued on 12.02.2019 and it was registered with the office of sub-registrar in favour of Respondent No. 2 on 18.02.2019.

# 10. In so far as, the second property is concerned, since no bid was received by Respondent No. 1, therefore, it issued letter of confirmation to itself of the said property for the total sale consideration of Rs. 5,30,00,000/- and issued the sale certificate on 30.01.2019.

# 11. It is alleged that the stamp duty of the said property was paid on 02.02.2019 which was registered with the office of the sub-registrar on 05.02.2019.

# 12. According to the Appellant, the insolvency commencement date for both the properties is 01.02.2019. Letter of confirmation of sale for both the properties is 28.01.2019. Issuance of sale certificate for the first property is 12.02.2019 and second property is 30.01.2019. Date of payment of balance sale consideration qua both the properties is 12.02.2019 and Registration of sale certificate qua the first property is 18.02.2019 and for the second property is 05.02.2019.

# 13. The Appellant being the liquidator, objected to the sale of the properties through email dated 15.02.2019 sent to R1 on the ground that the properties have been sold in breach of Section 14 of the Code and requested that the properties be handed over to him.

# 14. Respondent No. 1 responded to the email of the Appellant vide email dated 26.02.2019 alleging that there is no breach of law much less Section 14 of the Code.

# 15. Thus, the Appellant filed the application bearing M.A No. 1662 of 2019 in CP (IB) No. 3558/NCLT/MB/C-1/2018 for reversing the sale transactions of the properties which has been dismissed by the Tribunal and hence, the present appeal has been filed.

# 16. Counsel for the Appellant has submitted that e-auction of the first property was held on 28.01.2019. Respondent No. 1 accepted the bid of Respondent No. 2 and issued the letter of confirmation on 28.01.2019 i.e on the same date but the payment of balance consideration and issuance of sale certificate happened on 12.02.2019, after the date of CIRP i.e. on 01.02.2019, therefore, it is directly hit by Section 14(1)(c) of the Code. In this regard, he has relied upon a decision of the Hon’ble Supreme Court in the case of Indian Overseas Bank Vs. M/s RCM Infrastructure Ltd. & Ors. Civil Appeal No. 4750 of 2021.

# 17. In respect of second property, it is submitted that the sale has been conducted, relying on Section 13(5A) of the Act but before the registration of the sale certificate, CIRP was initiated against the CD and stamp duty regarding the sale certificate was paid only on 02.02.2019 and was registered with the office of the sub-registrar on 05.02.2019.

# 18. He has also submitted that the adjustment under Section 13(5B) is in conflict with Section 43(2) of the Code because the purchase by adjustment is prohibited. It is argued that in such circumstances, the Bank is deemed to have been given preference because if the CD transfer property for the benefit of any creditor, on account of any pre-existing debt owed by the CD and such transfer puts the creditor into a beneficial position than it would be a preferential transfer. In this regard, reliance has been placed upon decisions of the Hon’ble Madras High Court in the case of Putta RM. Ramanatha Iyer Vs. T.S Ramachaei and Anr., 1958 SCC OnLine Mad 144 and Venkatasuryya Vs. Suryanarayana, AIR 1938 Mad. 906.

# 19. He has further submitted that the Tribunal has committed an error in relying upon the decision of the Hon’ble Supreme Court in the case of CELIR LLP Vs. Bafna Motors (Mumbai) Pvt. Ltd. & Ors. (2024) 2 SCC 1 because the said judgment did not consider the provisions of the Code and only dealt with the interpretation of the provisions of the Act. It is submitted that the Appellant shall not loose its right of redemption over the first property on the first notice of public auction i.e. 30.11.2018 rather the Respondent No. 2 shall get the right in the first property upon confirmation of sale.

# 20. On the other hand, Counsel appearing on behalf of Respondent No. 2, arguing in respect of the first property, has submitted that although the Tribunal has rightly dismissed the application filed by the Appellant holding that the confirmation of sale was issued on 28.01.2019 and the CIRP commenced on 01.02.2019 but according to him, the material date is not 28.01.2019 but 30.11.2018 when the first e-auction sale notice was issued in terms of Section 13(8) of the Act.

# 21. Counsel for Respondent No. 2 has submitted that right of the borrower/CD stood extinguished on 30.11.2018 qua the first property when the date of e-auction sale notice was issued on 30.11.2018 in respect of the said asset. In this regard, it is submitted that there has been an amendment in Section 13(8) of the Act w.e.f. 01.09.2016 as per which the right of the borrower to redeem the mortgage stands extinguished on the date when the e-auction sale notice is issued and once the jural link is snapped on 30.11.2018, the IRP/RP who steps into the shoes of the CD/Borrower only on 01.02.2019 does not have the right over the asset which can be claimed by the liquidator later on.

# 22. He has further submitted that the decision in the case of Indian Overseas Bank (Supra) relied upon by the Appellant, is not at all applicable because in the said case there was no discussion/interpretation of Section 13(8) of the Act except Section 14(1)(c) of the Code.

# 23. It is further submitted that the decision in the case of Celir LLP (Supra) is squarely applicable because in that case the Hon’ble Supreme Court has thoroughly discussed the impact of Section 13(8) before amendment and after the amendment.

# 24. It is argued that before the amendment of Section 13(8) it was provided that if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, then secured asset shall not be sold but with effect from 01.09.2016 it has been provided in Section 13(8) that where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction is made then the secured asset shall not be sold.

# 25. It is submitted that the first e-auction sale notice was issued on 30.11.2018 and the Appellant/CD could have paid the entire amount of the secured creditor in order to avoid the sale. It is further submitted that the amendment has been brought to instill confidence in the purchaser that henceforth there shall not be any reversal of the sale at the instance of the borrower.

# 26. In so far as the second property is concerned, Counsel for the Respondent No. 1 has submitted that the sale of the property has been conducted in terms of Section 13(5)(6) of the Act. It is submitted that e auction sale notice for the second property was given on 03.01.2019 but since the sale could not succeed in the first instance as no bid was received, therefore, Respondent No. 1 published the second e-auction sale notice scheduling the sale of the property on 28.01.2019. It is submitted that no payment was made by the borrower for avoiding sale on or before 03.01.2019 whereas the sale was affected on 28.01.2019 and sale certificate was issued on 30.01.2019. He has also submitted that the same principle as enshrined under Section 13(8) would apply. It is also argued that the contention of the Appellant regarding the sale by way of adjustment under sub-section 5B of Section 13 is directly in conflict with Section 43(2) of the Code, is totally fallacious because Respondent No. 1 is permitted by law to purchase the property in question in terms of Section 13(5)(6) of the Code.

# 27. We have heard Counsel for the parties and perused the record.

# 28. Since, the Appellant has relied upon Section 14(1)(c) of the Code for avoiding the sale of both the properties on the ground that the sale has been affected after the imposition of the moratorium, therefore, it would be relevant to refer to Section 14(1)(c) of the Code which is reproduced as under;-

• “Section 14. Moratorium

• (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:–

• (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);”

# 29. Similarly, the Respondents have relied upon Section 13 of the Act, therefore, the same is also reproduced as under:- . . . . 

# 30. It is also pertinent to mention that Section 13(8) has been amended on 01.09.2016, therefore, both unamended and amended Section 13(8) are being reproduced by way of a table for a quick reference :-

Section 13(8) before amendment

Section 13(8) after amendment on 01.09.2016

If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.

Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets: (i) The secured assets shall not be transferred by way of lease, assignment or sale by the secured creditor; and (ii) In case, any steps has been taken by the secured creditor for transfer of such amount under his sub-section, no further steps shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.

# 31. There is no dispute that both the properties were mortgaged by the CD in favour of the Respondent No. 1 for availing the term loan. It is also not in dispute that the first property was put to e-auction on 30.11.2018 for the first time. Till, 30.11.2018 the CD/Appellant did not come forward to pay the dues of Respondent No. 1. The first property was sold on 28.01.2019 and sale was confirmed. The CIRP commenced on 01.02.2019. The remaining payment of sale consideration is made on 12.02.2019 and sale certificate was issued on the same date and it was registered on 18.02.2019.

# 32. The issue in this regard is as to whether the relationship in respect of first property between the CD and the R1 came to end on the day when the notice for e-auction was issued in terms of amended provision of Section 13(8) of the Act. In this regard, it may be mentioned that a specific question was formulated by the Hon’ble Supreme Court in the case of Celir LLP (Supra) which read thus:- “what is the impact of the amended section 13(8) of the Act on the borrower’s right of redemption in an auction conducted under the Act? Or in other words, what is the effect of amendment to Section 13(8) of the Act r/w Section 60 of the 1882 Act?”

# 33. In this regard, the Hon’ble Supreme Court has held that “in view of the aforesaid discussion, we hold that as per the amended section 13(8) of the Act, once the borrower fails to tender the entire amount of dues with all costs and charges to the secured creditor before the publication of auction notice, his right of redemption of mortgage shall stand extinguished / waived on the date of publication of the auction notice in the newspaper in accordance with Rule 8 of the 2002 Rules.”

# 34. In the presence of direct decision of the Hon’ble Supreme Court interpreting Section 13(8) of the Act, the decision relied upon by the Appellant in the case of Indian Overseas Bank (Supra) which has only interpreted Section 14(1) of the Code does not apply because Section 13(8) was not brought to the notice of the Hon’ble Court.

# 35. The Hon’ble Supreme Court has also discussed sanctity of public auction from paras 88 to 93 in its decision in the case of Celir LLP (Supra). The relevant portion of the said order are reproduced as under:-

• “91. Thus what is discernible from above is that it is the duty of the courts to zealously protect the sanctity of any auction conducted. The courts ought to be loath in interfering with auctions, otherwise it would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same.

• 92. Any other interpretation of the amended section 13(8) will lead to a situation where multiple redemption offers would be encouraged by a mischievous borrower, the members of the public would be dissuaded and discouraged from in participating in the auction process and the overall sanctity of the auction process would be frustrated thereby defeating the very purpose of the Act. Thus, it is in the larger public interest to maintain the sanctity of the auction process under the Act.”

# 36. In respect of the second property, the first public notice was issued on 03.01.2019. By that time the Appellant did not move to redeem the property by making the payment of the Bank. However, the first sale could not take place, therefore, the public notice was again published scheduling the sale of the properties on 28.01.2019. In that sale, the Bank itself purchased the property which is permitted under Section 13(5A) & 13(5B) of the Act and adjusted the amount which it had to recover from the CD.

# 37. The jural relationship between the parties in respect of second property also came to an end on 03.01.2019 or 28.01.2019 which was much earlier than the date of commencement of CIRP on 01.02.2019. In this case, even the letter of confirmation was issued on 28.01.2019 and sale certificate was issued on 30.01.2019 much before the date of commencement of the CIRP on 01.02.2019. The Hon’ble Supreme Court has held in the case if Celir LLP (Supra) while interpreting Section 13(8) that the relationship between the parties i.e. mortgager and mortgagee, for the purpose of redemption exists till the date of issuance of notice of sale, if the property is being sold under Section 13(8) of the Act then in that situation also the Appellant has no right to the property for the purpose of raising the dispute.

# 38. The contention of the Appellant that non-deposit of the sale consideration in the estate of the CD effects the right of the secured creditor is of no avail.

# 39. Thus, looking from any angle, we do not find any merit in the present appeal, therefore, the same is hereby dismissed though without any order as to costs. I.As, if any, pending are hereby closed.

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