Know The Law | Does Delayed Payment By Auction Purchaser Invalidate Sale Under SARFAESI Act?

The Supreme Court has recently addressed an important question under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) concerning the validity of the auction sale in an event of delay in payment of the sale consideration by an auction purchaser, holding that the statutory timeline prescribed is mandatory in nature, the violation of which would vitiate the sale.

In two recent judgments, the Supreme Court examined the legal consequences of an auction purchaser's failure to deposit the balance sale consideration within the statutory timeline prescribed under the Security Interest (Enforcement) Rules, 2002 (“SARFAESI Rules”). The Court also considered whether a borrower or debtor retains the statutory right of redemption where a sale certificate has already been issued in favour of the auction purchaser, but the balance sale consideration was not paid within the prescribed period.

Before delving deeper into the aforesaid legal issues, it is incumbent to be informed about the Rule governing the timeline of payment to be followed by a successful auction purchaser, upon confirmation of an auction sale.

To recap, under the SARFAESI Act, banks and financial institutions may enforce their security interest by auctioning secured assets without approaching a civil court. The procedure for such auctions is governed by Rule 9 of the Security Interest (Enforcement) Rules, 2002, which prescribes a strict timeline for payment by the successful auction purchaser.

Under Rule 9(3), the successful bidder is required to immediately deposit 25% of the sale consideration (inclusive of the earnest money deposit). Failure to make this deposit renders the property liable to be resold. Rule 9(4) further requires the purchaser to pay the remaining 75% of the sale consideration within 15 days from the date of confirmation of the sale of the immovable property, or within such extended period as may be agreed upon in writing between the parties. However, such an extension cannot exceed three months from the date of confirmation of the sale. This means an outer limit of three months is provided under the Rules to deposit the balance sale consideration.

In M.R. Vasumathi v. The Authorized Officer & Ors., 2026 LiveLaw (SC) 613, the Court had quashed the 16-year-old auction sale merely because the auction purchaser failed to comply with the mandatory timeline under Rule 9 of the SARFAESI Rules, as the balance sale consideration was deposited with a five-day delay. Upon finding that there was no agreement between the auction purchaser and the bank to extend the timeline beyond 15 days to deposit the balance sale consideration, the Court refused to condone the delay on an equitable ground and held the auction sale to be vitiated.

“A conjoint reading of the relevant sub-rules of Rule 9 underscore the mandatory character of these provisions, particularly accentuating the requirement of balance deposit under sub-rule (4), which is integral to the sanctity and credibility of the auction mechanism. Any deviation therefrom, absent legally sustainable justification, would render the process vitiated.”, the Court observed.

Does Issuance of Sale Certificate in Auction Purchaser's Favour Would Cure Defect Of Non-Payment Of Sale Consideration Within Time?

Does issuance of a sale certificate in favour of an auction purchaser would cure the defect the non-payment of the sale consideration amount within the timeline prescribed under the SARFAESI Rules? This issue was specifically addressed by the Supreme Court in E. Muthurathinasabathy v. Sri International, 2026 LiveLaw (SC) 319, where despite a delay of a 15 months' in depositing the balance sale consideration, a sale certificate issued in favour of the auction purchaser was declared to be ineffective and the auction sale was found to be incomplete.

The Court rejected the argument that issuance of the sale certificate validated the transaction. It held that a sale completed in violation of the mandatory requirements of Rule 9 remains legally inchoate, and the issuance of a sale certificate cannot legalise a fundamentally defective process.

Does Borrower's Right To Redemption Foreclose Upon Issuance Of Sale Certificate?

In addition to the aforesaid issue, another issue cropped up before the Court was whether the borrower would be entitled to redeem the secured assets, upon the failure of the auction purchaser to deposit the sale consideration within the prescribed timeline. Answering in affirmative, the Court held that if the auction purchaser fails to deposit the balance consideration within the statutory period, the sale never attains legal finality, consequently, the borrower does not lose the right of redemption, even if a sale certificate has already been issued.

The Court's reasoning was based on the premise that under Section 13(8) of the SARFAESI Act, a borrower possesses a statutory right to redeem the secured asset by paying the outstanding dues before the sale is lawfully completed.

Noting that the auction purchaser had belatedly deposited the balance sale consideration i.e., with a 15 months' delay, and in the meantime the borrower had cleared its outstanding dues, the Court held that the borrower would be entitled to exercise its right to redemption. The Court observed that where the borrower clears the entire outstanding liability while the sale process remains legally incomplete, courts are justified in restoring the secured asset to the borrower.

The Court's decision was based on the premise that under Article 300-A of the Constitution (constitutional right to property), holding that an auction purchaser who fails to comply with the statutory payment requirements cannot acquire an indefeasible title merely because the bank subsequently accepts delayed payment or issues a sale certificate, and therefore the borrower's valuable statutory right of redemption emerges, requiring strict compliance with the SARFAESI Rules and under Article 300-A of the Constitution, which mandates that no person shall be deprived of his property save by authority of law. [See Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610]

Conclusion

The issue is now settled that the timelines prescribed under SARFAESI Rules are mandatory and not directory. Thus, an auction purchaser's failure to deposit the balance sale consideration within the prescribed period, or within a legally permissible written extension, constitutes a material irregularity that can invalidate the auction sale. A sale certificate issued in violation of these mandatory requirements does not cure the defect, and where the sale remains legally incomplete, the borrower's statutory right of redemption continues to subsist.