Borrower’s Redemption u/s 13(8) of SARFEASI Act Prevails Over Unconfirmed Auction: Calcutta HC sets Aside Auction Purchaser’s Revision Against UCO Bank [Read Order]

The Calcutta High Court has held that a borrower’s statutory right of redemption under Section 13(8) of the SARFAESI Act prevails until the sale is confirmed and a sale certificate is issued, even if an auction purchaser has deposited the full bid amount.

Setting aside the revision filed by Gajanan Highrise Pvt. Ltd., the Court upheld UCO Bank’s decision to accept a compromise settlement from the borrower and return the auction purchaser’s money, noting that the sale had never been confirmed due to a subsisting DRT restraint order.

The dispute arose after UCO Bank initiated SARFAESI proceedings against its borrower, Samadhan Mercantile Pvt. Ltd., and issued a possession‑cum‑sale notice on 30 December 2009. The petitioner participated in the auction, was declared the highest bidder at ₹70 lakh, and deposited both the earnest money and the full balance consideration by April 2010.

However, unknown to the petitioner at the time of bidding, the borrower had already filed SA No. 7/2010 before the DRT, and on 9 February 2010, the Tribunal had directed the borrower to deposit ₹8 lakh by 15 February 2010. The order permitted the bank to proceed with the auction in case of default but expressly restrained it from confirming the sale without further orders.

The borrower failed to deposit the ₹8 lakh, and the bank proceeded with the auction. But because of the DRT’s restraint, the bank could not confirm the sale.

The petitioner only learned of this order when the bank, by letter dated 13 April 2010, acknowledged receipt of the balance amount but stated that confirmation was not possible due to the Tribunal’s directions.

The petitioner then applied for impleadment before the DRT, seeking confirmation of sale and possession.

Meanwhile, the borrower approached the bank with a compromise proposal. On 14 May 2010, the borrower offered a settlement, and in November 2010, UCO Bank accepted a compromise of ₹97 lakh covering two loan accounts.

The bank returned the petitioner’s earnest money and unencashed cheque, asserting that the borrower had exercised its right of redemption under Section 13(8). The petitioner denied receiving the refund and continued litigation before the DRT and DRAT, both of which rejected his claim. The petitioner then approached the High Court in revision.

The bench of Justice Chaitali Chatterjee Das examined the statutory framework and the chronology of events. It held that Section 13(8) allows a borrower to redeem the secured asset “at any time before the date of publication of notice for public auction or inviting quotations or tender,” and judicial interpretation has consistently held that the right of redemption survives until the sale is confirmed and a sale certificate is issued.

The Court relied on the Supreme Court’s ruling in Janatha Textiles v. Tax Recovery Officer (2008), where it was held that “the right of redemption is not extinguished until the sale is complete by issuance of a sale certificate.”

The Court also referred to Janak Raj v. Gurdial Singh (AIR 1967 SC 608), where the Supreme Court held that,

“The policy of the Legislature seems to be that unless a stranger auction purchaser is protected against the vicissitudes of the fortunes of the suit sales in execution would not attract customers and it would be to the detriment of the interest of the borrower and the creditor alike if sales were allowed to be impugned merely because the decree was ultimately set aside or modified’.

The High Court noted that these principles apply with even greater force under SARFAESI, where Section 13(8) expressly protects the borrower’s right to redeem.

The petitioner relied on decisions such as K. Chidambara Manickam v. Shakeena and to argue that once the full bid amount is deposited, the auction purchaser acquires enforceable rights.

The Court distinguished these cases, noting that in those matters, no judicial restraint order existed preventing confirmation of sale, whereas in the present case, the DRT’s order of 9 February 2010 expressly barred confirmation.

The Court further observed that the petitioner was aware of the pending DRT proceedings by April 2010 and still proceeded to deposit the balance amount.

The DRT’s restraint order meant that the bank could not legally confirm the sale, and therefore, the petitioner’s rights never crystallised. The Court also noted that the borrower’s settlement was placed before the Tribunal, which did not object to it, and the bank acted within the statutory framework.

In conclusion, the High Court held that the borrower’s redemption under Section 13(8) was valid, the sale was never confirmed, and the petitioner acquired no right, title, or interest in the property.

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