The Supreme Court has nullified a bank-conducted auction sale of mortgaged property after finding that the buyer failed to adhere to crucial payment timelines mandated by the Security Interest (Enforcement) Rules, 2002. The ruling gave the legal heir of the deceased guarantor a one-time opportunity to redeem the property, emphasizing strict compliance with statutory provisions governing such sales.
The case arose when Indian Bank auctioned a property mortgaged by a guarantor following a loan default by a sole proprietorship. Although the initial loan was taken decades earlier, the auction was conducted in 2010 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. While the winning bidder deposited 25 percent of the bid amount on auction day, the remaining payment was delayed past the 15-day deadline established by Rule 9(4) of the SARFAESI Rules, which the court held to be mandatory rather than procedural.
The Supreme Court found no evidence of any written agreement between the buyer and the bank to extend the payment deadline. The bench clarified that statutory requirements governing auction sales under SARFAESI cannot be set aside on equitable grounds. The court highlighted that the Act’s purpose is to ensure a fair, transparent recovery process for secured assets, not just to conclude sales mechanically.
Rejecting arguments that the confirmed sale should remain valid, the court underscored the importance of following the prescribed timelines strictly. The ruling also acknowledged that while courts generally protect bona fide purchasers, such protection does not apply when statutory compliance is lacking.
This judgment reinforces the binding nature of payment rules under the SARFAESI framework and affirms heirs' rights to redeem mortgaged properties when procedural lapses occur in enforcement actions.