The question of whether a law applies retrospectively has long been a subject of intense judicial scrutiny in India. Retrospective application of legislation affects vested rights, contractual obligations, and the overall predictability of the legal system.
Recently, the Supreme Court in M. Rajendran & Ors. v. M/s KPK Oils and Proteins India Pvt. Ltd. & Ors. (2025 INSC 1137) provided an authoritative exposition on the rules governing retrospective effect, especially in the context of amendments made to Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
This landmark judgment is significant not only for financial law but also for general principles of statutory interpretation. The Court carefully balanced legislative intent, borrowers’ rights, and creditors’ remedies while laying down guiding principles to assess whether a law can apply to past transactions.
Factual Background
The borrowers in this case availed substantial credit facilities from a bank in 2016, secured by mortgages over immovable property.
Due to defaults, their account was classified as a Non-Performing Asset (NPA) in December 2019, prompting the bank to initiate proceedings under the SARFAESI Act. Auction proceedings culminated in the issuance of a Sale Certificate in March 2021 to auction purchasers (the appellants).
The borrowers contested the sale, invoking their right of redemption under Section 13(8) of the Act. The dispute turned on the interpretation of the amended Section 13(8), introduced through the 2016 Amendment, which altered the stage at which redemption of mortgaged property could be exercised.
Madras High Court quashed the Sale Certificate, holding that the borrowers’ right to redemption survived until payment of dues, relying on earlier precedents like Mathew Varghese v. Amritha Kumar (2014) 5 SCC 610. The auction purchasers challenged this in the Supreme Court, arguing that the High Court erred by ignoring the retrospective impact of the amendment and by disturbing a concluded sale.
Issue
The central issue was:
- Whether the amendment to Section 13(8) of the SARFAESI Act, brought into effect from 1 September 2016, had retrospective operation, impacting transactions and rights crystallised before its commencement.
This broader inquiry involved re-examining the principles that determine whether a statutory amendment applies retrospectively.
Supreme Court’s Analysis
1. Legislative History of the SARFAESI Act
The Court traced the background of the SARFAESI Act to the banking crises of the 1990s, the recommendations of the Narasimham Committees, and the urgent need to provide banks with non-judicial remedies for recovering secured debts.
Section 13, in particular, empowered secured creditors to enforce their security interests without court intervention.
Initially, Section 13(8) allowed borrowers to redeem property until the “date fixed for sale.” The 2016 Amendment replaced this with the phrase “before the date of publication of notice for public auction,” thereby curtailing the period available for redemption.
2. Borrower’s Right of Redemption
Redemption is a statutory right flowing from mortgage law, safeguarded under Section 60 of the Transfer of Property Act, 1882. Precedents like Mathew Varghese affirmed that this right continues until the date of actual sale, provided dues are fully tendered. The amendment, however, sought to restrict this right to a narrower window, raising the question of whether borrowers who took loans before 2016 but defaulted later could still rely on the earlier position of law.
3. Principles Governing Retrospective Operation
The Court reiterated the well-settled principles of statutory interpretation:
Presumption Against Retrospectivity: Unless expressly provided or clearly implied, statutes are presumed to operate prospectively.
Substantive v. Procedural Distinction:
- Substantive laws (affecting vested rights, obligations, liabilities) are generally prospective.
- Procedural laws (regulating practice, remedies, enforcement) may operate retrospectively unless expressly excluded.
Impact on Vested Rights: A law that takes away or impairs vested rights is not to be applied retrospectively unless the legislature uses clear language to that effect.
Beneficial Legislation Exception: Where a statute confers a benefit without imposing new obligations, retrospective application may be presumed.
Curative or Declaratory Statutes: If the law merely clarifies existing ambiguity or corrects defects, retrospective effect is permissible.
4. Application to Section 13(8)
The Court held that the amendment to Section 13(8) was substantive, as it directly curtailed the borrower’s vested right of redemption. It was not merely procedural. Therefore, it could not apply retrospectively unless Parliament had expressly provided so. Since no such legislative intent was evident, the amendment was deemed prospective.
This interpretation safeguarded transactions undertaken before the amendment and protected the sanctity of vested rights in mortgage and redemption.
Key Judicial Precedents Considered
Mathew Varghese v. Amritha Kumar (2014) 5 SCC 610 – Confirmed that redemption survives until actual sale and transfer.
Mardia Chemicals v. Union of India (2004) 4 SCC 311 – Upheld the validity of the SARFAESI Act but emphasised borrower’s constitutional protections.
United Bank of India v. Satyawati Tondon (2010) 8 SCC 110 – Highlighted the objective of SARFAESI to ensure speedy recovery of debts.
Celir LLP v. Bafna Motors (2024) 2 SCC 1 – Interpreted borrower’s rights under the amended Section 13(8).
The Court harmonised these precedents, clarifying that while the amended provision applies to transactions after 2016, earlier borrowings and defaults would continue to be governed by the pre-amended regime.
Final Ruling
The Supreme Court held:
- The 2016 Amendment to Section 13(8) of the SARFAESI Act is prospective, not retrospective.
- Borrowers who availed loans before the amendment retain their original redemption rights unless expressly overridden.
- Auction purchasers, however, must be compensated where sales are set aside, ensuring fairness to all parties.
Accordingly, the Court partly upheld the High Court’s decision by recognising borrowers’ redemption rights but clarified the prospective application of the amended provision.
Broader Implications
1. Certainty in Commercial Transactions
The judgment reinforces predictability in contractual and financial dealings by ensuring that vested rights are not altered without clear legislative intent. This stability is crucial for both borrowers and creditors in structuring their obligations.
2. Protection of Borrowers
By upholding the pre-amendment redemption rights for older loans, the Court safeguarded borrowers from sudden curtailment of remedies, aligning with constitutional guarantees of fairness and reasonableness.
3. Guidance for Future Amendments
The ruling serves as a caution to the legislature: whenever substantive rights are curtailed, amendments must clearly specify retrospective application if intended.
4. Banking Sector Efficiency
While protecting borrowers, the judgment does not dilute the overall purpose of SARFAESI. It ensures that banks retain robust mechanisms for recovery but are subject to constitutional and equitable limitations.
Principles Laid Down by the Court
The Supreme Court articulated the following rules for determining retrospective effect:
- Express Provision or Necessary Implication: Retrospective application must be expressly stated or necessarily implied.
- Substantive Rights v. Procedure: Substantive rights are generally prospective; procedural rules may apply retrospectively.
- No Curtailment Without Clear Words: Rights already accrued cannot be taken away without explicit legislative command.
- Beneficial Provisions: Laws conferring benefits without imposing new burdens may apply retrospectively.
- Curative or Clarificatory Nature: If a statute merely clarifies existing law or removes doubt, it may be applied to past events.
Conclusion
The Supreme Court’s judgment in M. Rajendran v. KPK Oils and Proteins represents a landmark clarification on retrospective application of laws. By holding that the 2016 Amendment to Section 13(8) of the SARFAESI Act operates prospectively, the Court reaffirmed foundational principles of statutory interpretation and protected vested rights while balancing creditor remedies.
This ruling strengthens the jurisprudence on retrospectivity and will serve as a guiding precedent across domains—whether in property law, taxation, corporate regulation, or constitutional adjudication. It underscores the judiciary’s role in ensuring that legislative innovations do not undermine settled expectations and contractual stability.