In a significant ruling on the enforcement of secured assets under the SARFAESI Act, the Supreme Court has set aside an auction sale conducted by a bank in 2010 after finding that mandatory procedural requirements governing the sale were not followed. The Court held that compliance with statutory auction rules is essential and cannot be overlooked merely because the sale was completed years ago.
The judgment came in an appeal filed by M. R. Vasumathi, daughter of a deceased guarantor whose mortgaged property had been auctioned by the bank to recover loan dues.
Background of the Case
The dispute traces back to a loan granted in 1984 to a sole proprietorship concern. To secure the loan, one G. Ramanujam stood as guarantor and mortgaged his immovable property in favour of the bank. After default by the borrower, a civil court passed a preliminary decree in favour of the bank in 1997.
Ramanujam passed away in 2001. Several settlement attempts followed but did not succeed. In 2009, the bank initiated proceedings under the SARFAESI Act and issued a demand notice to the borrower and the guarantor’s legal heirs. The property was eventually auctioned on March 11, 2010, and sold for ₹2.11 crore.
Challenges raised before the Debts Recovery Tribunal (DRT), the Debts Recovery Appellate Tribunal (DRAT), and later the Madras High Court were unsuccessful, prompting the daughter of the guarantor to approach the Supreme Court.
The appellant argued that the bank failed to comply with mandatory provisions of the Security Interest (Enforcement) Rules, 2002 governing auction sales. It was contended that the successful bidder did not deposit the balance sale consideration within the period prescribed by law and that there was no written agreement extending the deadline.
The bank defended the sale, stating that the auction was conducted transparently and that any delay in payment was capable of being waived or regularized. The auction purchaser also sought protection of his rights, emphasizing that he had paid the entire bid amount and had faced prolonged litigation for more than a decade.
The Supreme Court focused on Rule 9 of the SARFAESI Rules, which governs payment of auction consideration and confirmation of sale. The bench observed that these requirements are mandatory and form the foundation of a valid auction process.
The Court noted that while 25% of the bid amount had been deposited at the relevant time, the remaining 75% was paid on March 31, 2010. The statutory period for payment had expired on March 26, 2010. Importantly, the Court found no material showing that any written agreement extending the deadline existed between the parties.
The bench observed:
“The non-adherence to the timeline that the SARFAESI Rules contemplate constitutes a material irregularity going to the root of the matter.”
Rejecting the argument that the sale should be protected because it had already been completed, the Court stated that statutory compliance cannot be sacrificed in favour of convenience or perceived equities.
The judges further emphasized that legal heirs of the guarantor could not be deprived of their property rights except through a procedure that strictly conforms to the law.
Allowing the appeal in part, the Supreme Court set aside the judgments of the Madras High Court, the DRAT and the DRT. The auction sale conducted in respect of the secured asset was quashed.
At the same time, the Court directed the bank to refund the entire auction amount to the purchaser along with interest at 7% per annum from the dates of deposit until repayment. The refund must be made within six weeks.
The Court also granted the appellant a one-time opportunity to redeem the mortgage. She was permitted to approach the bank to ascertain the outstanding dues and secure restoration of the property by paying ₹95,42,372.52 along with 5% annual interest calculated from the date of the demand notice issued under the SARFAESI Act.
The bench clarified that if the amount is not paid within the time stipulated by the bank, the property may be put up for a fresh auction after obtaining a new valuation report.
Case Details
Case Title: M. R. Vasumathi v. The Authorized Officer & Ors.
Case Number: Civil Appeal No. 1606 of 2026
Judges: Justice Dipankar Datta and Justice Augustine George Masih
Decision Date: June 9, 2026
