Supreme Court clarifies SARFAESI rules, No separate notice required for asset sale, ensuring protection for auction purchasers and streamlining the sale process under the SARFAESI Act.
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NEW DELHI: The Supreme Court has delivered a ruling on the interpretation of Rule(s) 8(6), 8(7), and 9(1) of the Security Interest (Enforcement) Rules, 2002 (SARFAESI Rules). The judgment settles a long-debated issue surrounding the requirement of issuing multiple or separate notices of sale by secured creditors when enforcing security interests.
Supreme Court’s Ruling
A two-judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan held that the SARFAESI Rules do not contemplate the issuance of any distinct or separate notice of sale. Instead, the Court clarified:
“Rule(s) 8(6), the Proviso thereto, Rule 8(7) and Rule 9(1) of the SARFAESI Rules do not speak of any separate or distinct notice of sale that is required to be issued by the secured creditor… The different manner in which the notice of sale has to be served, caused, published, affixed, uploaded… are part and parcel of one single composite intended ‘notice of sale.’”
The Court emphasized that the Rules envisage a single composite notice of sale, with the only distinction being the mode of service or publication, depending on the specific circumstances.
Background of the Case
In 2016, the borrowers availed credit facilities worth ₹5 crores (cash credit) and ₹30 lakhs (term loan) from the Bank, secured by an equitable mortgage. By 2019, the borrowers defaulted, resulting in their accounts being classified as Non-Performing Assets (NPA).
Consequently, the Bank initiated proceedings under the SARFAESI Act, issuing a notice under Section 13(2) for recovery of the outstanding dues, followed by a possession notice under Section 13(4), which was also published in newspapers. In 2021, the Bank issued an auction sale notice in accordance with Rule 8, read with Rule 9.
The appellants participated in the auction, successfully placed their bid, and deposited the entire sale consideration, following which the Bank issued a Sale Certificate. The Debts Recovery Tribunal dismissed the borrowers’ challenge; however, the Madras High Court allowed their writ petition and quashed the sale certificate. The appellants then approached the Supreme Court.
Court’s Observations
The Court clarified that the thirty-day requirement between the notice and the auction applies uniformly, whether the notice is served to the borrower or published in newspapers. Both are part of the same composite notice.
“The embargo under Rule 9(1)… would be reckoned from the date of issuance of the notice of sale… whichever is later.”
For sales through quotations or private treaty, there is no requirement of newspaper publication. The phrase “before the date of publication” under Section 13(8) must therefore be interpreted to mean publication of a valid notice of sale, subject to the chosen mode of sale.
The Court highlighted inconsistencies between Section 13(8) of the SARFAESI Act and the SARFAESI Rules:
“It is unfortunate that the ambiguities within the statutory provisions… have left the interests of secured creditors and auction purchasers high and dry.”
The Court urged the Ministry of Finance to revisit and amend the provisions to remove these anomalies.
Any third-party rights created over the secured asset, contrary to this judgment, would be treated as non-existent.
The Supreme Court allowed the appeals, set aside the Madras High Court’s judgment, and directed the Registry to forward a copy of its ruling to all High Courts across the country, as well as to the Ministry of Finance and Ministry of Law & Justice. This landmark judgment brings clarity to the procedure under SARFAESI, ensuring smoother enforcement of security interests while calling for urgent legislative intervention.
Appearance:
Appellants: AORs Rajesh Kumar, Praveena Gautam, Advocates K.S. Mahadevan, Swati Bansal, R. Rangarajan, Aravind Gopinathan, Vijay Balu S B, Pawan Shukla, Tissy Annie Thomas, and Rohan Bansla.
Respondents: AORs S. Gowthaman, S. Thananjayan, Rajesh Kumar, Praveena Gautam, Advocates Huzefa Ahmedi, K. S. Mahadevan, Swati Bansal, R. Rangarajan, Aravind Gopinathan, Vijay Balu S B, Pawan Shukla, Tissy Annie Thomas, and Rohan Bansla.
Case Title:
M. RAJENDRAN & ORS. VERSUS M/S KPK OILS AND PROTIENS INDIA PVT. LTD. & ORS.
CIVIL APPEAL NO. 12174 OF 2025
Read Judgment: