Supreme Court Quashes SARFAESI Auction Sale After Buyer Paid Balance Beyond 15-Day Limit

A Division Bench of Justices Dipankar Datta and Augustine George Masih set aside a 2010 auction sale, holding that late payment of the 75% balance without a written extension agreement vitiated the sale under Rule 9 of the SARFAESI Rules.

The Supreme Court has quashed an auction sale of mortgaged property conducted by Indian Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), after finding that the auction purchaser paid the remaining 75% of the bid amount five days beyond the mandatory 15-day deadline and without any written agreement extending that period. The Court held that this non-compliance with Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 was a material irregularity going to the root of the sale's validity. Reversing concurrent findings of the Debts Recovery Tribunal (DRT), the Debts Recovery Appellate Tribunal (DRAT) and the Madras High Court, the Court allowed the appeal of M. R. Vasumathi, daughter of the deceased guarantor G. Ramanujam, and directed that she be given a one-time opportunity to redeem the mortgage.

How the Dispute Reached the Supreme Court

The loan transaction dates to 1984, when S. Murugesan, sole proprietor of M/s Shiv Shankar Agencies, availed financial assistance from Indian Bank. G. Ramanujam stood as guarantor and mortgaged his immovable property. The borrower defaulted, and the bank filed a suit before the City Civil Court, Chennai. On 10 September 1997, the court passed a preliminary decree for Rs. 1,87,004.23 (total Rs. 1,92,400.23 inclusive of court fee of Rs. 5,396) with interest at 18% per annum.

G. Ramanujam died on 26 September 2001, leaving behind his legal heirs including the appellant. Settlement attempts between the bank and the heirs between 2001 and 2003 came to nothing. Nearly twelve years after the preliminary decree, on 8 September 2009, the bank issued a demand notice under Section 13(2) of the SARFAESI Act to the borrower and the heirs of G. Ramanujam, quantifying the outstanding dues at Rs. 95,42,372.52. A possession notice followed on 21 December 2009 and a sale notice on 3 February 2010.

The secured asset was auctioned on 11 March 2010. The second respondent emerged as the successful bidder at Rs. 2,11,00,500, against a reserve price of Rs. 1.58 crore. The 25% deposit was paid by demand draft on 10 and 11 March 2010. The remaining 75% was paid on 31 March 2010. The sale certificate was issued on 10 April 2010.

The heirs challenged the demand notice before the DRT in S.A. No. 28 of 2010 and separately sought to set aside the auction in S.A. (Sr. No. 6473 of 2010). The DRT dismissed both applications on 30 December 2010. The DRAT dismissed the subsequent appeals by orders of 16 December 2016. The Madras High Court dismissed the writ petitions filed by Vasumathi (W.P. No. 29641 of 2019) and her brother (W.P. No. 27770 of 2019) on 21 September 2020, holding that the bank had validly exercised its powers and that no interference was warranted. Vasumathi then preferred the present civil appeal.

The Core Dispute: Rule 9 Compliance and the 15-Day Deadline

Before the Supreme Court, senior counsel Mr. Ratnakar Dash, appearing for the appellant, pressed two principal contentions. First, that the auction purchaser had failed to pay the 25% deposit “immediately” in the prescribed mode on the date of sale. Second, and more critically, that the balance 75% was paid on 31 March 2010 — beyond the mandatory 15-day period that expired on 26 March 2010 — without any written agreement for extension, rendering the sale a nullity. He also argued that the bank had obtained the valuation report through the original borrower rather than through its own authorised officer, contrary to Rule 8(5) of the SARFAESI Rules, and that only a portion of the property ought to have been sold to satisfy the debt.

Counsel for the bank, Mr. Brijesh Kumar Tamber, maintained that the bid amount was deposited within stipulated timelines and that any minor delay was within the bank's power to waive or extend under the SARFAESI Rules. He relied on the concurrent findings of the DRT, DRAT and the High Court upholding the sale. Senior counsel Mr. Soumya Chakraborty, for the auction purchaser, urged protection of his client's rights as a bona fide purchaser who had been kept out of the property for over a decade, and argued that cancelling a sale conducted sixteen years ago would be catastrophic.

The Court's Reasoning on Rule 9

The Court set out the text of Rule 9(3), (4) and (5) of the unamended SARFAESI Rules as they stood at the time of the sale. Rule 9(3) requires the purchaser to immediately pay 25% of the sale price on the date of sale; in default, the property must forthwith be resold. Rule 9(4) requires the balance to be paid within fifteen days of confirmation of sale or “such extended period as may be agreed upon in writing between the parties.” Rule 9(5) provides that in default, the deposit is forfeited and the property resold.

The Court held that these provisions are “neither ornamental nor directory; they are couched in mandatory terms and go to the root of the validity of the sale.” It drew on Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal, (2013) 10 SCC 83, which had held that Rule 9(3) and Rule 9(4) are mandatory in nature, though capable of waiver by the parties for whose benefit they are enacted. It also relied on IDBI Bank Ltd. v. Ramswaroop Daliya, 2024 SCC OnLine SC 2878, for the proposition that the 15-day period is extendable only by written agreement.

On the facts, the Court found the position clear. The bank's own communication of 11 March 2010 to the auction purchaser stated that the balance had to be paid within 15 days of confirmation of sale, i.e., by 26 March 2010, and that failure would result in forfeiture and cancellation. The balance was paid on 31 March 2010 — five days late. There was nothing on record to show that the auction purchaser had sought an extension before that date or that any written agreement extending the time had been entered into between the bank and the auction purchaser. The bank's contention that the delay was regularised by a valid exercise of its power of waiver or extension was, the Court found, “unbacked by any demonstrable material.”

The Court rejected the argument that the conduct of the guarantor's heirs — their failure to repay and their prolonged inaction — could validate a process vitiated by statutory non-compliance. It held that the property of G. Ramanujam had vested in his legal heirs upon his death, and those heirs could not be divested of their interest except through a process in strict conformity with the SARFAESI Act and the SARFAESI Rules.

On the appellant's willingness to redeem, the Court noted that she and the other heirs had filed miscellaneous applications before the DRT seeking permission to redeem the property upon deposit of the required amount. Those steps, the Court held, constituted sufficient indication of willingness to redeem, even if not expressed in formal terms.

Having allowed the appeal on the second issue concerning the validity of the auction sale, the Court left open the first issue of whether the SARFAESI proceedings initiated in 2009, nearly twelve years after the 1997 preliminary decree, were barred by limitation under Section 36 of the SARFAESI Act read with the Limitation Act, 1963.

Directions Under Article 142

The Court set aside the impugned judgment of the Madras High Court, the DRAT orders and the DRT orders. The auction sale was quashed.

Recognising that the auction purchaser had participated in good faith and had been deprived of the use of his money for a significant period through no fault of his own, the Court directed the bank to refund the entire amount deposited by him together with interest at 7% per annum from the respective dates of deposit until payment, within six weeks.

For the appellant, the Court invoked Article 142 of the Constitution to grant a one-time opportunity to redeem the mortgage. She was directed to approach the bank within two weeks with a copy of the judgment to ascertain the amount due. The Court fixed the redemption sum at Rs. 95,42,372.52 (the amount quantified in the Section 13(2) demand notice) together with interest at 5% per annum from the date of that notice until the date of payment. The bank was directed to give the appellant not less than one month from the date of intimation to make payment. Upon payment, the secured asset would stand restored to the appellant free from all encumbrances arising out of the subject loan transaction.

Should the appellant fail to pay within the stipulated period, the bank was directed to put the property to auction afresh eight weeks thereafter, after obtaining a fresh valuation report from a government-empanelled valuer. The Court clarified that failure to avail this one-time opportunity would result in the appellant forfeiting all her rights to the secured asset. Parties were directed to bear their own costs.

Order

Civil Appeal No. 1606 of 2026 was allowed in part. The Madras High Court's judgment dated 21 September 2020 was set aside, as were the orders of the DRAT and the DRT. The auction sale of 11 March 2010 was quashed. The bank was directed to refund the auction purchaser's deposit with 7% interest within six weeks. The appellant was granted a one-time opportunity to redeem the mortgage by paying Rs. 95,42,372.52 with 5% interest from the date of the Section 13(2) notice. The directions were issued under Article 142 of the Constitution. Connected applications were disposed of. The judgment was pronounced on 9 June 2026.