SC Upholds Borrower Redemption Right, Sets Aside Delayed Auction Sale

The dispute arose from recovery proceedings initiated by SARFAESI Act, 2002 after the borrower firm defaulted on a loan of Rs. 4 crore taken from Central Bank of India. The account was classified as an NPA, following which the bank initiated action under Section 13 and conducted an e-auction on 04.09.2020. Auction purchasers deposited 25% of the bid amount, but confirmation of sale remained stalled due to multiple interim orders passed by the DRT, DRAT, and High Court. The balance 75% was ultimately paid only on 31.03.2022, after dismissal of borrower’s proceedings.

Meanwhile, the borrowers continued litigating and eventually deposited the entire outstanding dues in December 2022. Despite full repayment, the High Court set aside the auction sale and sale certificate, holding that the delay in completing the sale violated statutory timelines. Aggrieved, the auction purchasers and the bank approached the Supreme Court.

Issue Raised: Whether an auction sale under SARFAESI, once confirmed and registered, can be annulled when statutory timelines are breached and the borrower has repaid the entire dues.

SC Held: The Supreme Court upheld the High Court’s ruling and dismissed the appeals. It held that the auction sale did not attain legal finality since the balance consideration was not paid within the mandatory timeline prescribed under Rule 9(4). The delay, caused largely due to judicial restraints, could not be used to defeat the borrower’s rights.

The Court emphasized that the right of redemption survives until a legally valid and complete sale is concluded. Since the borrowers had repaid the entire outstanding dues, depriving them of their property would be unjust. Therefore, the auction sale and sale certificates were set aside, and the borrowers were allowed to redeem the secured assets.

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