SARFAESI and the Transfer of Property Act: Where They Meet

Most security that banks enforce under SARFAESI is created under the Transfer of Property Act: mortgages of every kind, especially the equitable mortgage by deposit of title deeds. SARFAESI changes how such a mortgage is enforced, overriding the TP Act's sale and receiver provisions, and in places modifies the general law, as with redemption. Elsewhere it applies the TP Act, as with leases. This note sets out how mortgages fit into SARFAESI and where the two statutes meet.

1. Mortgages under SARFAESI

Figure 1: TP Act security, SARFAESI enforcement

• Mortgages are security interests. Every form of mortgage under s.58 of the TP Act, simple, English, usufructuary and the rest, is a security interest that SARFAESI can enforce (Topic 11)
• Equitable mortgage. A mortgage by deposit of title deeds, s.58(f), the commonest bank security, is fully enforceable under the Act.
• Override of ss.69 and 69A. Section 13(1) operates notwithstanding the TP Act's power of sale and receiver provisions, so the creditor needs no court (Topic 22)
• Pledges and liens excluded. Securities governed by the Contract Act, such as pledges and liens, fall outside SARFAESI under s.31 (Topic 5)

2. Points of Contact

Figure 2: Where SARFAESI modifies or applies the TP Act

• Redemption, s.60. In a SARFAESI sale, the special rule in the amended s.13(8) prevails: the right to redeem ends on publication of the sale notice (Celir, Topic 30)
• Lease by mortgagor, s.65A. A lease created after the mortgage binds the creditor only if it complies with s.65A (Bajarang, Topic 60)
• Registered lease, s.107. A lease for more than a year needs a registered instrument to carry its term against the creditor (Topic 60)
• Transfer by the mortgagor. After the s.13(2) notice, s.13(13) bars the borrower from transferring the secured asset without the creditor's consent (Topic 32)

3. Reading Them Together

• Creation by the TP Act. The TP Act still governs how a mortgage is created and what interest passes; SARFAESI governs how it is enforced.
• Special over general. Where they conflict on enforcement, SARFAESI, as the special and later statute with a non-obstante clause, prevails (Topic 6)
• General law fills gaps. Where SARFAESI is silent, as on the validity of a lease, the TP Act supplies the rule the DRT applies under s.17(4A) (Topic 36)

4. Frequently Asked Questions

Can an equitable mortgage be enforced under SARFAESI?

Yes. An equitable mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act is a mortgage, and therefore a security interest within SARFAESI. It is the most common form of bank security over immovable property and may be enforced through the Section 13 measures without the intervention of a court. Section 13(1) operates notwithstanding Sections 69 and 69A of the TP Act, so the creditor is not confined to the TP Act's power of sale or receiver provisions.

Does the TP Act right of redemption under Section 60 apply in a SARFAESI sale?

Not in its general form. In Celir LLP v Bafna Motors (2023), the Supreme Court held that in a sale under SARFAESI the special provision in the amended Section 13(8) governs, so the borrower's right to redeem is extinguished on publication of the notice for public auction or sale. The general right under Section 60 of the TP Act, which runs until the mortgage is extinguished by act of parties or decree, yields to this special rule in SARFAESI enforcement.

5. Related Topics

• Topic 30: Section 13(8) Right of Redemption. Redemption under SARFAESI after 2016.
• Topic 60: Bajarang Shyamsunder Agarwal. Sections 65A and 107 applied to leases.