Court’s decision
The High Court of Madras dismissed the civil revision petition filed under Article 227 challenging the orders of the Debts Recovery Tribunal and the Debt Recovery Appellate Tribunal, which had upheld the SARFAESI auction sale of the borrower’s secured asset. The Court held that none of the objections raised by the petitioners could demonstrate illegality in the auction process, nor any prejudice sufficient to invalidate the sale. The Court emphasised that the auction purchaser had already paid substantial consideration and had obtained the sale certificate, and that confirmed auctions cannot be unsettled on technical grounds unless the challenge goes to the root of the sale.
Facts
The borrowers defaulted in repayment of their loan, resulting in the initiation of measures under the SARFAESI Act. A notice under Section 13(2) was issued, followed by measures under Section 13(4), leading to symbolic possession and subsequent auction of the property. The borrowers filed a securitisation application before the DRT challenging the sale notice, valuation, and NPA classification. The DRT dismissed the application, which was affirmed by the DRAT. The borrowers then invoked the High Court’s supervisory jurisdiction, contending that the auction notice suffered from defects, that valuation was outdated, that objections under Section 13(3A) were not considered, and that the account was wrongly classified as NPA.
Issues
The central issues were whether the SARFAESI auction violated Rule 9 of the Security Interest (Enforcement) Rules, whether the property valuation suffered from any illegality, whether the borrower’s objections under Section 13(3A) were duly considered, whether the NPA classification was wrongful, and whether the High Court should exercise its exceptional supervisory jurisdiction to interfere with concurrent findings of the DRT and DRAT confirming the sale.
Petitioner’s arguments
The petitioners argued that the sale notice violated the mandatory requirement of 15 clear days under Rule 9(1) as the auction was fixed exactly on the 15th day after publication. They contended that the description of the property was defective and incomplete because the superstructure was not properly described. They challenged the valuation report as outdated, noting that the valuation was more than one year old. They further submitted that the bank failed to decide their objections under Section 13(3A), that their account was wrongly classified as NPA by ignoring a payment of ₹1,37,718, and that they were unlawfully deprived of the 20% COVID-19 emergency credit facility. They also emphasised that they had already paid ₹78 lakh and remained willing to settle the balance.
Respondent’s arguments
The bank argued that the sale notice complied with Rule 9 because for subsequent auctions, 15 days’ notice is sufficient and need not be “clear” days. The bank asserted that the valuation was carried out by an approved valuer registered under Section 34AB of the Wealth-Tax Act, while the borrowers relied on a surveyor who was not qualified as a valuer. The bank demonstrated that the property description in the sale notice was complete. Regarding Section 13(3A), the bank submitted that the borrower’s letter contained no objections but merely a request for indulgence, which was nonetheless replied to. The bank further argued that the claim regarding misclassification of the account as NPA was never raised before the DRT and could not be introduced for the first time before the High Court under Article 227. The auction purchaser argued that he had paid ₹67 lakh and obtained the sale certificate and could not be displaced.
Analysis of the law
The High Court reiterated that supervisory jurisdiction under Article 227 is limited and cannot be exercised to re-appreciate evidence or substitute findings unless there is perversity or jurisdictional error. The Court analysed Rule 9 of the Security Interest Rules, holding that in cases of subsequent auctions, the statutory requirement is a minimum of 15 days’ notice, not thirty days. The Court noted that the objective of Rule 9 is to afford reasonable opportunity to the borrower to clear dues before auction, and that the petitioners never attempted to repay the loan before the auction date. The Court observed that valuation made by a registered valuer cannot be displaced by a surveyor’s report, and that the valuation-to-auction time gap did not violate any statutory rule. The Court also found no error in the sale proceedings that would warrant interference.
Precedent analysis
The Court relied heavily on the Supreme Court judgment in Celir LLP v. Sumati Prasad Bafna, which held that confirmed auctions cannot be interfered with except on grounds of fraud, collusion, or material procedural illegality affecting the root of the sale. The Supreme Court clarified that mere irregularities which do not cause prejudice cannot invalidate a sale. Applying this precedent, the High Court observed:
“Courts must refrain from unsettling confirmed auctions unless the challenge goes to the core of the sale.”
The High Court also noted the Supreme Court’s emphasis that objections which could have been raised before the sale cannot be raised belatedly after confirmation.
Court’s reasoning
The Court held that the auction notice was valid because the 15-day requirement under Rule 9 was fully satisfied. It rejected the argument that the Rule required “clear” days, emphasising the purpose of the provision. The Court found the description of the property in the sale notice accurate and sufficiently detailed, noting that boundaries, survey numbers, and structural details were fully specified. On valuation, the Court held that the bank’s registered valuer report had greater evidentiary weight than the petitioners’ surveyor report. The Court further held that the borrower’s letter could not be treated as an objection under Section 13(3A). Regarding NPA classification, the Court found that this issue was never properly pleaded before the DRT and could not be raised for the first time in supervisory jurisdiction. Finally, applying Celir LLP, the Court held that interference with the sale was unwarranted as no fraud, collusion, or fundamental illegality was demonstrated.
Conclusion
The High Court held that no illegality, procedural violation, or prejudice had been established by the petitioners that could warrant setting aside a confirmed auction. The valuation, sale notice, NPA classification, and SARFAESI process were all found to be compliant with law. The petition was dismissed, and all interim applications were closed.
Implications
This ruling reinforces that borrowers cannot challenge confirmed SARFAESI auctions on minor technical grounds. The High Court of Madras clarified that unless borrowers demonstrate prejudice, fraud, or a fundamental violation of statutory safeguards, auction sales will not be disturbed. The judgment strengthens judicial consistency by applying the Supreme Court’s principle that confirmed auctions embody finality, stability, and commercial certainty. It further emphasises the narrow scope of Article 227 intervention and warns borrowers against raising new pleas belatedly.