Supreme Court Quashes Auction Sale Under SARFAESI Act Due to Procedural Lapses, Apex Court Balances Equities, Allows Legal Heir to Redeem Property Upon Payment of Outstanding Dues
In a significant ruling, the Supreme Court of India has quashed an auction sale conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), citing non-compliance with mandatory timelines prescribed under the SARFAESI Rules. The judgment was delivered on June 9, 2026, by a bench comprising Justices Dipankar Datta and Augustine George Masih in the case of M.R. Vasumathi v. Authorized Officer.
The appeal was filed by M.R. Vasumathi, challenging the auction sale of her deceased father's property, which was mortgaged as collateral for a loan taken by S. Murugesan, a borrower who defaulted on repayment. The auction sale, held on March 11, 2010, was contested on grounds of procedural irregularities under Rule 9 of the SARFAESI Rules, which mandates immediate deposit of 25% of the bid amount on the date of auction and payment of the remaining 75% within 15 days or any extended period through a written agreement.
The Supreme Court observed that the auction purchaser failed to comply with the prescribed timelines, paying the remaining 75% of the bid amount beyond the statutory period without any written agreement for extension. This, the Court held, rendered the auction sale invalid, emphasizing that statutory compliance is integral to the credibility of the auction process.
In exercising its powers under Article 142 of the Constitution, the Supreme Court provided an opportunity to M.R. Vasumathi, as a legal heir, to redeem the property upon payment of the outstanding dues with interest. The Court directed the secured creditor to refund the auction purchaser the entire deposited amount with interest, acknowledging the purchaser's participation in the process and the deprivation suffered due to prolonged litigation.
The judgment underscores the importance of strict adherence to statutory provisions in auction sales under the SARFAESI Act, reaffirming the legal sanctity of such processes. The ruling balances the equities between the parties, allowing Vasumathi to reclaim the property by settling the dues, while ensuring restitution for the auction purchaser.
Bottom Line:
Auction sales under the SARFAESI Act are governed by mandatory timelines under Rule 9 of the SARFAESI Rules, and non-compliance with these statutory provisions renders the sale invalid. Relief can be moulded under Article 142 to balance equities between parties in peculiar factual scenarios.
Statutory provision(s): Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Rule 9 of the SARFAESI Rules, Constitution of India, Article 142.
M.R. Vasumathi v. Authorized Officer, (SC) : Law Finder Doc id # 2920137
