'SARFAESI Timeline Mandatory' : Supreme Court Cancels Auction Sale After 16 Yrs Over 5-Day Delay In Payment Of Balance

The Supreme Court has quashed a 16-year-old auction sale of a mortgaged property, holding that non-compliance with the mandatory timelines prescribed under the Security Interest (Enforcement) Rules, 2002, rendered the sale legally unsustainable.

A bench of Justice Dipankar Datta and Justice Augustine George Masih allowed an appeal filed by the daughter of a deceased guarantor whose property had been auctioned by Indian Bank under the SARFAESI Act.

The dispute arose from a loan availed by a borrower in 1984, for which G. Ramanujam had stood as guarantor and mortgaged his property. After default by the borrower and recovery proceedings, the bank initiated action under the SARFAESI Act in 2009 and auctioned the secured asset on March 11, 2010. The successful bidder purchased the property for ₹2.11 crore.

The appellant challenged the auction sale, contending that the purchaser had failed to comply with the payment schedule prescribed under Rule 9 of the Security Interest (Enforcement) Rules. Under the unamended Rule 9(4), the balance sale consideration was required to be paid within fifteen days of confirmation of sale unless an extension was agreed to in writing between the parties.

Examining the record, the Court found that while 25% of the bid amount had been deposited at the time of auction, the remaining 75% was paid only on March 31, 2010, beyond the statutory period which expired on March 26, 2010. The Court further noted that there was no material on record to show that the auction purchaser had sought an extension or that any written agreement extending the time for payment had been executed.

The bench stressed that the requirements under Rule 9 are mandatory and not merely procedural formalities.

"These provisions are neither ornamental nor directory; they are couched in mandatory terms and go to the root of the validity of the sale," the Court observed.

"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."

Reference was also made to the judgment in IDBI Bank Ltd. v. Ramswaroop Daliya (2024) and Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal(2013).

Rejecting the argument that the sale could be sustained on equitable considerations, the Court held that a process vitiated by statutory non-compliance cannot be validated merely because the borrower or guarantor failed to discharge the debt. The Court said that the rights of an auction purchaser, though deserving of protection, must yield where the sale process itself is legally infirm.

Accordingly, the Court set aside the orders of the Debts Recovery Tribunal, the Debts Recovery Appellate Tribunal and the Madras High Court, and quashed the auction sale.

At the same time, the Court protected the interests of the auction purchaser by directing Indian Bank to refund the entire bid amount along with interest at 7% per annum from the dates of deposit within six weeks.

Invoking its powers under Article 142 of the Constitution, the Court granted the appellant a one-time opportunity to redeem the mortgage. The appellant was directed to pay ₹95.42 lakh, being the amount specified in the bank's Section 13(2) notice, together with interest at 5% per annum from the date of the notice until payment. Upon such payment, the property is to be restored free from encumbrances arising from the loan transaction.

The Court clarified that if the appellant fails to redeem the property within the stipulated period, the bank would be at liberty to conduct a fresh auction after obtaining a fresh valuation report from a government-empanelled valuer.

Notably, having decided the case on the issue of procedural irregularity in the auction sale, the Court left open the larger question of whether the SARFAESI proceedings initiated nearly twelve years after the preliminary decree were barred by limitation.

Related - SARFAESI | Borrowers' Redemption Right Not Lost By Auction Sale If Balance Consideration Was Paid After Timelimit : Supreme Court

Case : MR Vasumathi v The Authorized Officer

Citation : 2026 LiveLaw (SC) 613

Click here to read the judgment