Supreme Court Quashes SARFAESI Auction Sale Over Bank's Failure to Enforce Rule 9 Payment Timeline

A Division Bench led by Justice Dipankar Datta set aside a 2010 auction sale, holding that the balance 75% bid amount was paid beyond the mandatory 15-day period without any written extension agreement.

The Supreme Court has quashed an auction sale conducted in March 2010 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 that no written agreement extending that period was ever executed. The Division Bench of Justice Dipankar Datta and Justice Augustine George Masih, deciding Civil Appeal No. 1606 of 2026 on 9 June 2026, reversed concurrent findings of the Debts Recovery Tribunal (DRT), the Debts Recovery Appellate Tribunal (DRAT), and the Madras High Court. The Court simultaneously granted the appellant — daughter of the deceased guarantor — a one-time opportunity to redeem the mortgaged property, while directing the secured creditor, Indian Bank, to refund the auction purchaser's entire deposit with 7% interest per annum.

How the Dispute Reached the Supreme Court

The chain of events began in 1984, when one 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 in favour of the bank.

After the borrower defaulted, 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) along with interest at 18% per annum.

G. Ramanujam died on 26 September 2001, leaving behind his legal heirs including the appellant, M. R. Vasumathi. Settlement attempts between the bank and the heirs between 2001 and 2003 did not succeed.

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 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 — above the reserve price of Rs. 1.58 crore. The sale certificate was issued on 10 April 2010.

The heirs challenged the demand notice before the DRT, Chennai 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. The Madras High Court, by its judgment dated 21 September 2020, dismissed the writ petitions filed by Vasumathi (W.P. No. 29641 of 2019) and her brother (W.P. No. 27770 of 2019), holding that the bank had validly exercised its powers and that no interference was warranted. Vasumathi then appealed to the Supreme Court.

The Core Dispute: Rule 9 and the Payment Timeline

Before the Supreme Court, senior counsel Mr. Ratnakar Dash, appearing for the appellant, pressed two broad challenges. First, that the SARFAESI proceedings initiated in 2009 were barred by limitation, given that the preliminary decree had been passed twelve years earlier. Second, and more concretely, that the auction sale was vitiated by procedural non-compliance — specifically, that the auction purchaser had paid the balance 75% of the bid amount on 31 March 2010, beyond the 15-day outer limit prescribed by Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, and without any written agreement extending that period.

Mr. Dash also argued that the valuation report had been obtained through the original borrower rather than through the authorised officer as required by Rule 8(5), and that only a portion of the property ought to have been sold to satisfy the outstanding debt rather than the entire asset.

Mr. Brijesh Kumar Tamber, appearing for the bank, contended that the definition of “debt” under the SARFAESI Act expressly includes liabilities payable under a decree, that the auction was transparent, and that any minor delay in payment was within the bank's power to waive or extend. Senior counsel Mr. Soumya Chakraborty, for the auction purchaser, sought protection of his client's rights as a bona fide purchaser who had been kept out of full enjoyment of the property for over a decade, warning that cancelling a sale conducted sixteen years ago would be catastrophic.

What the Court Held on Rule 9 Compliance

The Court framed two issues: whether the SARFAESI proceedings were barred by limitation, and whether the auction sale was vitiated by non-compliance with statutory requirements. It resolved the second issue decisively and left the first open.

Rule 9(3) of the SARFAESI Rules requires the purchaser to immediately deposit 25% of the sale price on the date of sale; in default, the property must be resold forthwith. Rule 9(4) requires the balance to be paid within fifteen days of confirmation of sale, or within 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 found the factual position largely undisputed. The auction was held on 11 March 2010. The 25% deposit was paid by demand draft prepared on 10 March 2010 and further drafts on 11 March 2010. The bank's own communication of 11 March 2010 expressly told the auction purchaser that the balance had to be paid within 15 days of confirmation of sale, i.e., by 26 March 2010, failing which the bid amount would be forfeited and the sale cancelled. The balance 75% was, however, paid only on 31 March 2010 — five days after that deadline.

The Court held that the payment was ex facie beyond the statutory period. It then examined whether the delay had been regularised by any valid waiver or written extension agreement. Nothing in the record showed that the auction purchaser had sought an extension before 31 March 2010, or that any written agreement extending the time had been entered into between the bank and the auction purchaser.

The Court drew on its earlier decision in 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 party for whose benefit they exist. That decision had also clarified that a “written agreement” under Rule 9(4) means a manifestation of mutual assent in writing, and that the word “parties” includes the secured creditor, borrower, and auction purchaser. The Court 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 with the agreement of the parties, and that cancellation follows only upon default.

The Court held that the bank's contention that the delay stood regularised by a valid waiver was “unbacked by any demonstrable material.” The non-adherence to the timeline constituted a material irregularity going to the root of the matter. The mere fact that the sale had been confirmed could not foreclose judicial scrutiny.

On the Appellant's Conduct and the Equities

The DRT, DRAT, and High Court had all proceeded on a broader premise — weighing the delay and inaction of the guarantor's heirs and the perceived equities in favour of the auction purchaser. The High Court had characterised the writ petitioners' challenge as lacking in bona fides, given that they had remained inactive for over 4,500 days without taking steps to set aside the ex parte decree.

The Supreme Court acknowledged that no concrete steps had ultimately been taken by the appellant to liquidate the outstanding dues, and that earlier settlement attempts had not succeeded. However, it held that the failure to repay, without being informed of any extension granted to the auction purchaser, could not by itself validate proceedings that were otherwise vitiated in law.

The Court also rejected the argument that the appellant had not demonstrated readiness and willingness to redeem. It pointed to the miscellaneous applications filed before the DRT — including M.A. 6504 of 2010 seeking permission to redeem the property — as a sufficient indication of the appellant's intent to redeem, even if implicit.

The Court stated plainly that the property of G. Ramanujam, having vested in his legal heirs upon his death, could not be divested except through a process in strict conformity with the SARFAESI Act and the SARFAESI Rules. A process vitiated by statutory non-compliance could not be sanctified by reference to the heirs' conduct.

Relief Moulded Under Article 142

Having quashed the auction sale, the Court turned to fashioning relief. It directed that the auction purchaser was entitled to a full refund of the Rs. 2,11,00,500 deposited by him, together with interest at 7% per annum from the respective dates of deposit until actual payment. The bank was directed to effect this refund within six weeks.

For the appellant, the Court granted a one-time opportunity to redeem the mortgage. She was directed to approach the secured creditor within two weeks from the date of the judgment, with a copy of the order, to ascertain the amount due. The bank was required to give her not less than one month from the date of intimation to make payment.

The Court fixed the redemption amount at Rs. 95,42,372.52 — the figure 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 by the appellant. Upon payment, the secured asset was to stand restored to the appellant free from all encumbrances arising out of the subject loan transaction.

Should the appellant fail to pay within the period stipulated by the bank, the secured asset was to be put up for fresh auction eight weeks thereafter. The bank was directed to obtain a fresh valuation report from a government-empanelled valuer before any fresh auction. The Court clarified that failure to avail this one-time opportunity would result in the appellant forfeiting all rights to the secured asset.

The directions in paragraphs 43 to 46 of the judgment were issued in exercise of the Court's jurisdiction under Article 142 of the Constitution, described as a one-time measure to balance the equities of the parties in the peculiar facts of the case.

The question of limitation — whether SARFAESI proceedings initiated twelve years after the preliminary decree were time-barred — was left open, the Court finding it superfluous to decide given its conclusion on the validity of the auction sale.

Order

The Supreme Court allowed the civil appeal in part. The judgment and order of the Madras High Court dated 21 September 2020 was set aside, as were the orders of the DRAT and the DRT. The auction sale of the secured asset was quashed. The bank was directed to refund Rs. 2,11,00,500 to the auction purchaser with interest at 7% per annum within six weeks. The appellant was granted two weeks to approach the bank to ascertain dues, and the bank was required to allow her not less than one month to pay Rs. 95,42,372.52 with 5% per annum interest from the date of the Section 13(2) notice. If the appellant fails to pay, the property is to be re-auctioned eight weeks thereafter, with a fresh valuation from a government-empanelled valuer. Parties were directed to bear their own costs.