The Auction Purchaser and the Sale Certificate under SARFAESI

When a secured asset is sold under SARFAESI, the buyer needs certainty of title. The Act and the Rules give it through the sale certificate: issued on confirmation of the sale and full payment, it evidences the purchaser's title, needs no registration, and vests the owner's rights in the buyer free of the enforced charge. A confirmed sale is not lightly undone. This note sets out the sale certificate, the title it confers, and the purchaser's position.

1. The Sale Certificate

Figure 1: Issued on confirmation and full payment

• Issued under Rule 9. On confirmation of the sale and receipt of the full price, the authorised officer issues a sale certificate in the prescribed form (Topic 25)
• Evidence of title. The sale certificate evidences the sale and the purchaser's title to the secured asset sold at the auction.
• On full payment. The certificate issues only after the purchaser has paid the entire sale price, the deposit and the balance within time.
• No fresh deed needed. Because title passes on confirmation and the certificate records it, no further deed of transfer from the creditor is required.

2. Title and Registration

Figure 2: Title on confirmation, no registration required

• Title on confirmation. The auction purchaser derives title to the asset on confirmation of the sale in its favour, not on some later formality.
• Registration not mandatory. A sale certificate issued to the purchaser does not require compulsory registration under the Registration Act; it is mere evidence of title.
• The settled rule. The courts have repeatedly held that a sale certificate of a public auction need not be registered under s.17 of the Registration Act, a position recently reaffirmed.
• Stamp duty still applies. Registration is not required, but the applicable stamp duty on the certificate is payable, and a copy is filed with the registering authority.

3. The Purchaser's Position

Figure 3: A protected, bona fide title

• A bona fide purchaser. A purchaser who buys at a confirmed auction in good faith gets a protected title, which the law is slow to disturb.
• Confirmed sale not lightly undone. A completed, confirmed sale is set aside only for grave irregularity or fraud, not for a borrower's late offer to pay (Topic 55)
• Free of the enforced charge. Under s.13(6) the transfer vests in the purchaser the owner's rights, free of the enforced security interest.
• Finality supports the auction. Protecting the purchaser's title is what makes buyers bid with confidence, so finality serves recovery as much as fairness (Topic 30)

4. Frequently Asked Questions

Does a sale certificate issued under SARFAESI require registration?

No. A sale certificate issued to an auction purchaser on confirmation of a sale under SARFAESI does not require compulsory registration under Section 17 of the Registration Act. The courts have consistently held that where a purchaser derives title on confirmation of a sale in a public auction, and a sale certificate is issued evidencing that sale and title, the certificate is mere evidence of title and no further deed of transfer is contemplated or required. Registration is therefore not mandatory. The applicable stamp duty on the certificate is, however, payable, and a copy of the certificate is forwarded to the registering authority for its records.

Can a confirmed auction sale under SARFAESI be set aside?

Only in limited circumstances. Once a sale is confirmed and the sale certificate is issued to a bona fide purchaser who has paid the full price, the sale is not lightly set aside. The courts intervene to upset a confirmed sale only for grave irregularity in the conduct of the sale or for fraud or collusion, not merely because the borrower later offers to pay or alleges a technical lapse that caused no prejudice. Under Section 13(6), the transfer vests in the purchaser the rights of the owner free of the enforced security interest. Protecting the purchaser's title in this way is what gives bidders the confidence to participate, which serves the recovery purpose of the Act.

5. Related Topics

• Topic 25: The Enforcement Rules 2002. The Rule 9 sale and sale certificate.
• Topic 55: ITC v Blue Coast Hotels. Finality of a sale against a non-paying borrower.