Full Bench decision emphasized as courts cannot refuse lifting attachment merely because it "automatically" stands effaced upon sale notice publication under amended Section 13(8) of SARFAESI Act
In a landmark judgment delivered on September 10, 2026, the Kerala High Court clarified the legal position regarding attachments on mortgaged properties where a secured creditor initiates proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court held that even though the equity of redemption in a mortgaged property is attachable, such right is defeasible and stands extinguished upon publication of the sale notice under the amended Section 13(8) of the SARFAESI Act. However, if a secured creditor with a prior mortgage approaches the Civil Court seeking to lift an attachment, the Court cannot refuse relief simply on the ground that the attachment automatically stands effaced once the sale notice is published.
The case arose when the State Bank of India (SBI) challenged orders of the Commercial Court, Thiruvalla, and the District Court, Pathanamthitta, which refused to lift the attachment placed by respondents on the mortgaged property. The attachment was imposed as part of a civil suit filed by respondents for recovery of over Rs. 3.26 crore. SBI filed a claim petition under Order XXI Rule 58 of the Code of Civil Procedure (CPC) seeking to lift the attachment so it could proceed with sale under SARFAESI provisions. The trial court and appellate court dismissed the petition, relying on a Division Bench decision which held that attachment would stand automatically effaced once the secured creditor publishes the sale notice under SARFAESI.
The High Court disagreed with this approach, noting that the equity of redemption, while attachable, is a defeasible right and ceases to exist upon the statutory event of publication of the sale notice. Consequently, attachment over such extinguished right cannot survive. However, the Court emphasized that this does not mean the Civil Court should deny a secured creditor's application to lift the attachment on the sole ground of automatic effacement. Instead, the Court must consider the application, particularly when the mortgage is prior in time to the attachment.
The Court referred to key precedents including the Full Bench decision in Fathima v. Canara Bank (2025), the Supreme Court ruling in Celir LLP v. Bafna Motors (2024), and the three-judge Bench decision in M. Rajendran v. KPK Oil Mills (2025), all underscoring that the borrower's right of redemption is extinguished upon publication of the sale notice as per amended Section 13(8) SARFAESI Act. It also highlighted that the registering authority cannot unilaterally efface attachment entries recorded in encumbrance certificates; secured creditors must approach courts for such relief.
The Court further rejected the respondents' apprehension that lifting the attachment would prejudice their interests, observing that Section 13(7) of the SARFAESI Act provides safeguards by mandating secured creditors to hold sale proceeds in trust and apply them in priority order - first towards costs and secured debts, and then towards the rightful claimants.
The judgment clarifies that a Civil Court cannot ignore an application to lift attachment when the secured creditor holds a prior mortgage, even if the attachment is considered automatically effaced upon sale notice publication. The Court ordered immediate lifting of the attachment over the mortgaged property and directed the Commercial Court to communicate the same to the Sub-Registrar and Village Office for correction of records. Additionally, the petitioner bank was directed to notify the respondents upon publication of sale notice to enable them to protect their residual interests.
This decision resolves confusion created by some Civil Courts' reluctance to follow Full Bench principles and reiterates the need for courts to consider lifting attachments judicially rather than assuming automatic effacement.
Bottom Line:
SARFAESI Act, 2002 - Prior mortgage - Attachment before judgment over mortgaged property - Though equity of redemption is attachable, such right stands extinguished on publication of sale notice under amended Section 13(8) - When secured creditor approaches Civil Court seeking lifting of attachment and mortgage is prior to attachment, Court cannot refuse relief on ground that attachment would automatically stand effaced - In view of Full Bench decision, secured creditor must approach court for lifting attachment and registering authority cannot efface attachment entry on its own.
Statutory provision(s):
SARFAESI Act 2002 Sections 13(7), 13(8), 26E; Code of Civil Procedure 1908 Order XXI Rule 58, Section 60; Transfer of Property Act 1882 Section 60
State Bank of India v. Raju George, (Kerala) : Law Finder Doc Id # 2990654
