The Supreme Court in Rajendran (2025) held the 2016 SARFAESI Act Amendment is prospective. Pre-2016 loans retain broad redemption rights; post-2016 loans are restricted to auction-notice stage
New Delhi (ABC Live): The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) empowers banks to enforce security interests without prolonged court proceedings. Section 13(8), which governs the borrower’s right of redemption, was fundamentally altered by the 2016 Amendment.
The Hon’ble Supreme Court in M. Rajendran v. KPK Oils and Proteins Pvt. Ltd. (2025 INSC 1137) addressed a key issue: Does the Retrospective Application of the 2016 SARFAESI Act Amendment extinguish the redemption rights of borrowers whose loans were sanctioned before 2016?
Principles on Retrospective Application of 2016 SARFAESI Act Amendment
1. Presumption of Prospectivity
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Substantive laws are presumed to apply prospectively, unless Parliament clearly provides otherwise.
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Govind Das v. ITO, (1976) 1 SCC 906 — unless expressly stated, a provision affecting substantive rights cannot operate retrospectively.
2. Substantive vs Procedural Law
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Substantive law: Creates, alters, or extinguishes vested rights ? applies prospectively.
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Procedural law: Governs enforcement of rights ? may apply retrospectively, if fairness is preserved.
3. Fairness & Property Protection
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Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 — upheld SARFAESI but stressed that economic recovery measures must respect Article 300A (right to property).
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Retrospective extinguishment of redemption rights would be unfair and unconstitutional.
Case Law Evolution on Redemption Rights
| Year | Case / Event | Principle Laid Down |
|---|---|---|
| 1977 | Narandas Karsondas v. S.A. Kamtam, (1977) 3 SCC 247 | Redemption survives until execution of the sale deed. |
| 2010 | United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 | Speedy SARFAESI recovery is important, but borrowers’ rights remain. |
| 2014 | Mathew Varghese v. Amritha Kumar, (2014) 5 SCC 610 | Borrowers may redeem at any time before actual sale/transfer; Rule 9 SARFAESI Rules ensure fairness with a 30-day notice. |
| 2016 | SARFAESI (Amendment) Act, 2016 | Redemption curtailed: borrower must pay dues before publication of auction notice. |
| 2024 | Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd., (2024) 2 SCC 1 | For post-2016 loans, redemption ends with an auction notice; auction purchasers’ rights are protected. |
| 2025 | M. Rajendran v. KPK Oils, 2025 INSC 1137 | Amendment is substantive, not retrospective; pre-2016 borrowers retain broader rights. |
Supreme Court’s Clarification in Rajendran (2025)
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The 2016 Amendment substantially curtailed the borrower’s redemption right.
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Substantive changes cannot apply retrospectively unless expressly stated by Parliament.
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Dual regime clarified:
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Pre-2016 loans: Borrowers can redeem up to the actual sale/transfer (Mathew Varghese principle continues).
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Post-2016 loans: Redemption ends at auction notice (Bafna Motors governs).
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Auction Purchasers: If sales are undone in pre-2016 cases, they receive a refund + 9% interest — balancing fairness and reliance interests.
Practical Implications
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Borrowers:
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Pre-2016 ? broad redemption rights.
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Post-2016 ? stricter cutoff at auction notice.
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Banks:
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Greater enforcement certainty for post-2016 loans.
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Transitional disputes are possible in legacy (pre-2016) loans.
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Auction Purchasers:
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Protected financially through refund + interest.
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Must assess whether the loan originated pre-2016 before bidding.
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Conclusion
The Supreme Court in Rajendran (2025) reaffirmed a fundamental doctrine: substantive statutory changes cannot operate retrospectively without explicit legislative intent.
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Pre-2016 borrowers retain equitable and statutory redemption rights until actual sale.
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Post-2016 borrowers are bound by stricter auction-notice rules.
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Auction purchasers’ reliance interests are protected through compensation.
?? Core Principle: The Retrospective Application of the 2016 SARFAESI Act Amendment is impermissible; vested redemption rights remain intact unless Parliament expressly provides otherwise.
