Right of Redemption Under SARFAESI Section 13(8): When a Borrower Can Still Save the Mortgaged Asset

For a borrower whose mortgaged flat, factory or shop has been advertised for auction under the SARFAESI Act, one question decides everything: how late can the dues be cleared and still get the property back? The answer changed in 2016, and the Supreme Court settled the dispute on 21 September 2023 in Celir LLP v Bafna Motors (Mumbai) Pvt Ltd (2023 INSC 838). The window to redeem now closes far earlier than most borrowers assume.

This playbook explains the exact statutory position on the right of redemption under Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act 54 of 2002), the step-by-step procedure a secured creditor must follow before it can sell, the defences a borrower can still raise at the Debts Recovery Tribunal (DRT), and how the Celir judgement reshaped the deadline. Every figure below is drawn from the statute on indiacode.nic.in or judgements reported on indiankanoon.org.

The Statutory Position

The right of redemption is the borrower's equitable right to recover the mortgaged asset by paying the full outstanding debt. It flows from Section 60 of the Transfer of Property Act, 1882, which says a mortgagor may redeem the property on payment of the mortgage money at any time before that right is extinguished by the act of parties or by a decree of a court. SARFAESI carries this right into the enforcement machinery through Section 13(8).

Before the 2016 amendment, Section 13(8) allowed a borrower to tender the dues and stop the sale right up to the point at which the sale or transfer was completed. The Supreme Court in Mathew Varghese v M. Amritha Kumar (2014) read this as protecting redemption until the transfer was actually effected, that is, until the sale certificate was issued and the conveyance completed. That older, borrower-friendly cut-off is the position many still quote, and it is wrong for any auction notified after 1 September 2016.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 substituted Section 13(8). The amended text, verified on indiankanoon.org, now reads that where the amount of dues together with all costs, charges and expenses 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", the secured asset shall not be sold or transferred and no further step shall be taken. In plain terms, the 2016 amendment pulled the deadline back from the completion of the sale to the moment the auction is first advertised.

The table below sets out the sub-sections of Section 13 that a borrower under a SARFAESI notice must track.

Two carve-outs matter. Section 31(i) of the Act keeps agricultural land outside SARFAESI altogether, and Section 31(j) bars enforcement where the amount due is less than 20 per cent of the principal amount and interest. If either applies, the lender cannot invoke Section 13 at all.

Procedure Step by Step

SARFAESI is a self-help remedy, but it is a regulated one. A secured creditor cannot skip a stage, and each stage is a checkpoint at which a borrower can either pay or defend. The sequence below reflects Section 13, Section 14 and the Security Interest (Enforcement) Rules, 2002.

1. NPA classification. The account must first be classified as an NPA under the Reserve Bank of India's prudential norms, which generally means an overdue period of 90 days. Only a "secured creditor" holding a "security interest" as defined in Section 2 can proceed.
2. Section 13(2) demand notice. The lender issues a written demand giving the borrower 60 days to discharge the liability in full, and specifying the amount and the secured assets it intends to enforce.
3. Borrower representation and Section 13(3A) reply. Within the 60 days, the borrower may send a representation or objection. The creditor must consider it and communicate its reasons for non-acceptance within 15 days. This reply stage was read into the Act by the Supreme Court in Mardia Chemicals Ltd v Union of India (2004) and later codified.
4. Section 13(4) measures. If the dues remain unpaid after 60 days, the creditor may take possession of the secured asset, take over its management, or appoint a manager. Physical possession of immovable property is usually taken with a magistrate's help under Section 14.
5. Valuation and sale notice. Under the Security Interest (Enforcement) Rules, 2002, the creditor obtains a valuation, fixes a reserve price and issues a sale notice. Rule 8 and Rule 9 require a clear 30-day gap before the sale of immovable property and a public notice of the auction.
6. Publication of the auction notice. This is the decisive moment. The date on which the public auction notice is published is now the cut-off for redemption under the amended Section 13(8).
7. Auction, confirmation and sale certificate. The property is auctioned, the highest bid is confirmed on payment of 25 per cent immediately and the balance within 15 days, and a sale certificate is issued to the purchaser.

The table below maps the redemption window against this sequence, contrasting the old and new law.

Borrower Defences Available

Losing the redemption right at the auction-notice stage does not leave a borrower without remedies. Several defences run in parallel, and the earlier they are raised the stronger they are.

Pay within the Section 13(8) window. The cleanest defence is arithmetic: tender the full dues, costs and charges before the auction notice is published, and the sale cannot proceed. A borrower weighing this against a fresh loan or an asset sale should run the numbers on the foreclosure calculator and the home loan EMI calculator to confirm the closure figure is affordable. Section 13(8) protects the tender only if it covers the whole amount, not a part payment.

Section 17 application to the DRT. Any person aggrieved by a measure taken under Section 13(4) may apply to the Debts Recovery Tribunal within 45 days. Crucially, there is no 75 per cent pre-deposit to approach the DRT: the Supreme Court struck that condition down in Mardia Chemicals (2004) as unreasonable, though the tribunal may still direct a conditional deposit. The DRT can examine whether the notice, possession and sale followed the Act and the 2002 Rules. Our explainer on the DRT sets out how these tribunals are constituted.

One-time settlement (OTS). Borrowers who cannot clear the full dues often negotiate a one-time settlement at a discount to the outstanding, usually approved under the lender's board-approved OTS policy and the RBI's framework. An OTS agreed and part-paid before the auction notice can be pleaded to restrain the sale. Because a settlement replaces the foreclosure of the security, the figures should be documented in a written sanction letter.

Procedural challenges. Defective service of the Section 13(2) notice, an undervalued reserve price, a shortened sale-notice period below the 30 days required by Rule 8, or non-consideration of the Section 13(3A) representation are all grounds to have the sale set aside. These are pleaded in the Section 17 application, not by paying under Section 13(8).

The appeal ladder carries its own price of admission, summarised below.

A borrower who has pledged a commercial property or loan against property should note that the same Section 13 machinery applies whether the security is a home, a shop or a factory.

Recent Tribunal and High Court Position

The controlling authority is Celir LLP v Bafna Motors (Mumbai) Pvt Ltd, decided by the Supreme Court on 21 September 2023 and reported as 2023 INSC 838 (indiankanoon document 149474401). Bafna Motors had defaulted, the secured creditor auctioned the mortgaged property, and Celir LLP emerged as the highest bidder. After the auction, the borrower approached the Bombay High Court, which permitted it to redeem the mortgage by paying the full dues even though the sale to Celir had been confirmed. The auction purchaser carried the matter to the Supreme Court.

The Supreme Court allowed the auction purchaser's appeal and set aside the High Court order. It held that after the 2016 amendment, the borrower's right of redemption under Section 13(8) stands extinguished on the date of publication of the auction sale notice, and not, as under the pre-2016 law, on the registration of the sale certificate. The older understanding traceable to Mathew Varghese (2014), that redemption survived until the conveyance was completed, no longer holds for the amended provision. The Court underscored that permitting late redemption would defeat the finality of auction sales and prejudice bona fide purchasers who had paid the bid amount.

For borrowers, the practical lesson from Celir (2023) is stark: the fight to save a mortgaged asset must be won before the auction is advertised, not after the hammer falls. High Courts have since followed this line, declining to reopen concluded SARFAESI sales merely because a borrower belatedly offers the full dues. The remedy after the auction notice is no longer redemption but a Section 17 challenge to the legality of the process, which succeeds only on proof of a procedural breach rather than a mere willingness to pay.

That said, the door is not bolted the instant an advertisement appears. The tender under Section 13(8) must still be a genuine, full and unconditional tender of the entire dues, costs and charges, and courts examine whether the auction notice itself was validly published under Rule 8 of the 2002 Rules. A sale notice that is defective in form or shorter than the mandatory 30 days can be challenged, which in turn can reset the redemption clock. The discipline the 2016 amendment and Celir (2023) impose is on timing, not on the borrower's underlying right to a lawful process.

FAQ

When exactly does my right of redemption end under Section 13(8)?

After the 2016 amendment and the Supreme Court's ruling in Celir LLP v Bafna Motors (2023 INSC 838), your right to redeem ends on the date the secured creditor publishes the public auction notice. Before that date, tendering the full dues, costs and charges stops the sale; after it, redemption is no longer available and you are left with a Section 17 challenge on procedural grounds.

Does paying part of the dues before the auction notice save the property?

No. Section 13(8) protects only a tender of the full amount of dues together with all costs, charges and expenses. A part payment does not trigger the statutory bar on sale. If you cannot raise the whole figure, a formal one-time settlement sanctioned by the lender before the auction notice is the route, not a partial tender.

Do I have to deposit 75 per cent of the debt to approach the DRT?

No. The Supreme Court in Mardia Chemicals (2004) struck down the 75 per cent pre-deposit condition for approaching the DRT under Section 17, so no mandatory deposit applies at that first tier, though the tribunal may impose a conditional one. A 50 per cent deposit, reducible to 25 per cent, applies only at the next stage, an appeal to the DRAT under Section 18.

How long do I have to file a Section 17 application?

You have 45 days from the date of the measure taken under Section 13(4), such as the taking of possession. The DRT can examine whether the Section 13(2) notice, the Section 13(3A) reply and the sale process complied with the Act and the Security Interest (Enforcement) Rules, 2002.

Can agricultural land be sold under SARFAESI?

No. Section 31(i) of the SARFAESI Act, 2002 expressly excludes agricultural land from the Act. Section 31(j) also bars enforcement where the amount due is less than 20 per cent of the principal and interest, so smaller defaults fall outside the Section 13 machinery.

Is a one-time settlement a legal right?

No. A one-time settlement is a commercial arrangement under the lender's board-approved policy and the RBI framework, not a statutory entitlement. But a settlement agreed and part-performed before the auction notice can be pleaded to restrain the sale, and it fixes the closure figure at a discount to the outstanding dues.

What happens to my redemption right after the sale certificate is issued?

Once the auction is concluded and the sale certificate is issued to the purchaser, the redemption right is already gone, because under Celir (2023) it ended at the earlier auction-notice stage. The only remaining remedy is a challenge to the legality of the sale under Section 17, which requires proof of a breach of the Act or the 2002 Rules rather than an offer to pay.