In a significant ruling on borrowers’ rights under the SARFAESI Act, the Supreme Court refused to interfere with a High Court judgment that had set aside an auction sale of mortgaged properties even after issuance of a sale certificate. The Court emphasized that repayment of dues and procedural fairness cannot be overlooked in recovery proceedings.
Background of the Case
The dispute arose from a loan of around ₹4 crore taken by a partnership firm from a bank. After the account turned non-performing in 2018, the bank initiated recovery proceedings under the SARFAESI Act and conducted an e-auction of secured properties in September 2020.
Auction purchasers deposited 25% of the bid amount. However, confirmation of the sale was repeatedly delayed due to ongoing litigation before the Debts Recovery Tribunal (DRT), Debts Recovery Appellate Tribunal (DRAT), and the High Court.
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Meanwhile, the borrowers continued to challenge the recovery process and made substantial payments over time.
The bench of Justice Dipankar Datta and Justice Satish Chandra Sharma closely examined the timeline of events and found that delays in completing the auction process were largely due to judicial orders-not because of any fault of the borrowers.
The Court noted that although the auction took place in 2020, the balance 75% of the sale consideration was paid only in March 2022-far beyond the statutory timeline prescribed under the SARFAESI Rules.
“The delay in completing the sale cannot be attributed to the borrowers,” the bench observed, adding that statutory timelines must be strictly followed when property rights are at stake.
Importantly, the Court stressed that the purpose of the SARFAESI Act is recovery of dues-not unjust deprivation of property.
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Right of Redemption Explained
A key issue before the Court was whether borrowers retain the right to reclaim their property after a sale certificate is issued.
The Court clarified that the right of redemption a borrower’s right to reclaim mortgaged property by paying dues continues until the sale is lawfully completed.
“The borrower’s right to redeem survives until the sale is completed in accordance with law,” the bench observed, reinforcing earlier legal principles.
Borrowers’ Repayment Efforts
The judgment highlighted that the borrowers had steadily repaid the loan under court supervision. By December 2022, they had deposited the entire outstanding amount, including interest.
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Despite this, the bank refused to release the property, citing third-party rights created through the auction.
The Court found this stance unsustainable, noting that the borrowers had fulfilled their obligations and were entitled to relief.
Agreeing with the High Court, the Supreme Court held that:
- The auction sale did not attain legal finality due to violation of statutory timelines.
- The borrowers had fully repaid the outstanding dues.
- The borrowers could not be deprived of their property in such circumstances.
Accordingly, the Court dismissed the appeals filed by the auction purchasers and the bank, and upheld the High Court’s decision setting aside the auction sale and restoring the property to the borrowers.
Case Details
Case Title: E. Muthurathinasabathy & Ors. vs M/s Sri International & Ors.
Case Number: Civil Appeal (Arising out of SLP (C) Nos. 8850-8851/2023 & connected matters)
Judges: Justice Dipankar Datta, Justice Satish Chandra Sharma
Decision Date: April 1, 2026
