The Supreme Court has set aside the auction sale of the ‘The Fernhill’ resort in Ooty after finding several violations of the mandatory procedure governing the sale of secured property under the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002. The Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe held that the finality normally attached to auction sales cannot protect a sale that was itself conducted contrary to law.
Background
The dispute arose from financial defaults by Sterling Holiday Resorts Limited, which had mortgaged the Ooty resort to secure loans from IFCI and Tourism Finance Corporation of India. IFCI issued an auction notice on March 25, 2010, fixing the reserve price at Rs. 20 crore.
Before the auction could proceed, however, the Debts Recovery Appellate Tribunal restrained IFCI from taking further steps under the SARFAESI Act after Sterling deposited Rs. 1 crore. Despite the restraint, a bid was subsequently received. After the Madras High Court lifted the restraint in September 2011, IFCI opened the bids and declared Rukmani Khemchand the successful bidder. The sale certificate, however, was issued in favour of M/s P.M. Associates, a partnership firm constituted only on September 12, 2011.
The Supreme Court found that the auction process suffered from multiple procedural defects. The Court noted that the bid had been received while the DRAT’s restraint order was operating. It further held that the mandatory 30-day period prescribed for the sale had not expired when the bids were opened and the sale certificate was issued.
The Court also noted that the borrower was not informed about the opening of the bids after the sale process had remained suspended for a substantial period. It found that issuing the sale certificate to P.M. Associates, which had neither submitted the bid nor existed when the auction was originally scheduled, was inconsistent with the auction conditions and applicable Rules.The Bench explained the importance of following the prescribed safeguards:
“Rules 8 and 9 of the Rules are mandatory and must be scrupulously followed. The thirty days’ notice under Rules 8(6) and 9(1) is intended to afford the borrower a real and final opportunity to redeem the secured asset under Section 13(8) of the SARFAESI Act. A sale effected in breach of these requirements cannot be sustained.”
On the question of auction finality, the Court held:
“However, the principle of finality presupposes an auction conducted in accordance with law. The same line of authority recognises that a sale vitiated by material irregularity, fraud, or non-compliance with the mandatory statutory procedure does not attract that protection and may be set aside even after confirmation.”
The Supreme Court quashed and set aside the Madras High Court’s judgment dated August 23, 2013. It allowed Civil Appeal Nos. 10077-10078 of 2014 filed by Sterling Holiday Resorts Limited and dismissed the appeals filed by M/s P.M. Associates.
The Court also declined to proceed with the contempt petitions and dismissed the connected Special Leave Petition concerning the amalgamation issue.
There was no order as to costs.
Case Details:
Case Title: Sterling Holiday Resorts Limited v. M/s P.M. Associates & Ors.
Case Number: Civil Appeal Nos. 10077-10078 of 2014 with connected matters
Judge: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Decision Date: September 30, 2026
