A delay of just five days in depositing the balance auction amount has led the Supreme Court to invalidate the sale of a mortgaged property that had remained undisturbed for over sixteen years, underlining that timelines prescribed under the SARFAESI framework are binding and not mere procedural formalities.
The ruling came from a Bench of Justices Dipankar Datta and Augustine George Masih, which set aside the auction sale of a property mortgaged by a guarantor to secure a loan obtained in 1984. The challenge was brought by the daughter of the deceased guarantor after the property had been sold by Indian Bank through proceedings initiated under the SARFAESI Act.
The property was auctioned on March 11, 2010, and fetched a bid of ₹2.11 crore. While the successful bidder deposited the mandatory 25% of the sale price at the auction stage, the remaining 75% was paid on March 31, 2010.
The Court noted that under the then-applicable Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, the balance amount had to be deposited within fifteen days of confirmation of the sale unless both sides agreed in writing to extend the deadline. In this case, the statutory period expired on March 26, 2010.
After examining the records, the Bench found no evidence that the purchaser had sought additional time or that any written arrangement extending the deadline existed. The payment, therefore, fell outside the mandatory timeframe.
Emphasising the significance of the rule, the Court observed that the provisions governing auction sales are fundamental to maintaining the integrity and credibility of the recovery process. It held that compliance with the payment schedule is an essential requirement and that a sale conducted in breach of those conditions cannot be sustained.
The Bench relied on earlier judicial precedents, including decisions concerning auction sales under the SARFAESI regime, to reiterate that statutory safeguards cannot be diluted on equitable grounds. According to the Court, even though auction purchasers deserve protection, their interests cannot override a sale process tainted by legal infirmities.
Consequently, the Court overturned the decisions of the Debts Recovery Tribunal, the Debts Recovery Appellate Tribunal and the Madras High Court, all of which had upheld the transaction.
To safeguard the auction purchaser, however, the Court directed Indian Bank to refund the entire bid amount along with interest at the rate of 7% per annum from the respective dates of deposit. The refund is to be made within six weeks.
Using its powers under Article 142 of the Constitution, the Court also granted the appellant a final opportunity to reclaim the property. The appellant was directed to pay ₹95.42 lakh—the amount specified in the bank’s demand notice issued under Section 13(2) of the SARFAESI Act—along with interest at 5% per annum from the date of that notice until payment.
Upon such payment, the property will stand restored free from liabilities arising out of the loan transaction.
The Court further clarified that if the appellant fails to exercise this redemption opportunity within the prescribed period, the bank will be free to conduct a fresh auction after obtaining a new valuation from a government-approved valuer.
Since the appeal was decided on the basis of procedural illegality in the auction process itself, the Bench did not examine the broader issue of whether the SARFAESI proceedings, initiated nearly twelve years after a preliminary decree, were barred by limitation. That question was left open for consideration in an appropriate case.
