Court’s Decision
The Delhi High Court dismissed a writ petition challenging the DRAT’s order dated 10.12.2018, which had reversed a DRT order that had set aside the auction sale of the petitioner’s residential property. The Court affirmed that the auction was lawful, the borrower had consistently defaulted despite multiple opportunities, and no valid challenge was raised against SARFAESI actions. The Court held:
“In light of the foregoing analysis, this Court is of the considered view that the order dated 22.03.2018 passed by the Ld. DRT is legally unsustainable and does not withstand judicial scrutiny.”
Accordingly, the Court upheld the DRAT’s direction to hand over possession of the residential property to the auction purchaser and permitted the bank to recover dues as if the One-Time Settlement (OTS) had never been offered.
Facts
The petitioner had taken loans from the respondent bank, mortgaging two properties. Following defaults, the bank issued notice under Section 13(2) of the SARFAESI Act on 03.10.2013. When possession was taken, the petitioner filed S.A. No. 79/2014, which was disposed of by the DRT on 29.12.2015 with directions to pay the dues in instalments by 31.03.2016. Failure to do so would allow the bank to proceed under SARFAESI.
Thereafter, the petitioner approached the bank for an OTS, which was granted on 30.07.2016 for ₹2.50 crores. ₹2.15 crores were paid, but the balance ₹35 lakhs was not paid within the stipulated period due to alleged financial constraints post-demonetization. Consequently, the bank withdrew the OTS on 24.02.2017 and resumed recovery proceedings under SARFAESI.
The petitioner filed S.A. No. 40/2017, during which he partially complied with the payment directions. Nonetheless, the residential property was auctioned on 07.07.2017. The DRT, by its order dated 22.03.2018, allowed the S.A., set aside the auction, and directed refund to the auction purchaser with interest.
This order was set aside by the DRAT on 10.12.2018, leading to the present writ petition.
Issues
- Whether the DRT rightly set aside the auction sale after finding substantial compliance with OTS.
- Whether the DRAT’s reversal of the DRT’s order was legally sustainable.
- Whether the petitioner could invoke Section 17(1) of the SARFAESI Act again after earlier accepting adverse orders.
Petitioner’s Arguments
The petitioner contended that he substantially complied with the OTS by paying ₹2.15 crores in time and ₹35 lakhs later with penal interest. The delay, caused by demonetization, was beyond his control. He argued that:
- The auction was conducted lis pendens, and the purchaser was aware of the litigation.
- The bank acted unfairly by auctioning despite recovering nearly the entire OTS amount.
- The DRT rightly held that time was not of the essence in the OTS and invoked equitable principles.
- The DRAT overlooked its own remand order and failed to appreciate the petitioner’s good faith compliance.
Respondent’s Arguments
The respondent bank argued that:
- All recovery proceedings were conducted per law and due process.
- Despite OTS concessions, the petitioner defaulted and issued dishonoured cheques.
- Repeated indulgence was extended, but the petitioner failed to comply.
- The petitioner never challenged the original SARFAESI action or the bank’s revocation of the OTS, and thus had no cause under Section 17(1).
- The DRAT was right in restoring the lawful auction and preventing misuse of legal process.
Analysis of the Law
The Court observed that Article 226 relief is discretionary and must be guided by equity and public interest. It cited M.S. Sanjay v. Indian Bank, 2025 SCC OnLine SC 368, reaffirming that the High Court should mould relief only when justice demands it and not as a matter of right.
It found that the petitioner:
- Accepted the 29.12.2015 DRT order but did not comply with it.
- Availed of OTS but defaulted again, and dishonoured issued cheques.
- Was given multiple chances by the DRT even post-default but failed to meet revised deadlines.
- Never challenged the legality of the SARFAESI action or the revocation of OTS.
Thus, the DRT’s final relief setting aside a lawfully conducted auction was an overreach.
Precedent Analysis
- M.S. Sanjay v. Indian Bank, 2025 SCC OnLine SC 368: Held that High Courts, under Article 226, must not mechanically interfere with actions taken per statutory procedure unless gross injustice is caused. Relief must be tempered with equity and public interest.
- Ambience Pvt. Ltd. v. Punjab & Sind Bank, (2014) 208 DLT 459: Cited by the petitioner to support the doctrine of legitimate expectation in contractual settlements.
- P. D’Souza v. Shondrilo Naidu, (2004) 6 SCC 649 and SBI v. Vijay Kumar, (2007) 11 SCC 369: Invoked to argue that substantial compliance under settlement schemes prevents banks from arbitrary withdrawal.
The Court distinguished these rulings, emphasizing that in the present case, the repeated defaults and absence of any challenge to SARFAESI action made the petition untenable.
Court’s Reasoning
The Court noted:
- The petitioner repeatedly defaulted and approached tribunals only to seek more time, not to challenge SARFAESI legality.
- The DRT’s directions were binding and the bank’s grant of OTS was a commercial concession, not a judicial mandate.
- The DRT, by repeatedly extending time and setting aside an auction where no illegality was established, had erred in law.
- The DRAT rightly set aside this order and upheld the auction.
The Court concluded that continued indulgence to a defaulter in these circumstances would undermine judicial and financial discipline.
Conclusion
The High Court dismissed the petition, affirming the DRAT’s order, and found no reason to interfere under Article 226. It reiterated that:
“The remedy under Article 226 is discretionary… in a given case, even if some action is found to be illegal, the High Court can refuse to upset it if substantial justice is otherwise served.”
Implications
This ruling reinforces the principle that courts will not protect wilful defaulters who exploit litigation delays to stall legitimate recovery. It emphasizes judicial deference to banks’ commercial decisions, especially in recovery matters, and discourages the abuse of discretionary relief under Article 226.
