The Patna High Court holds that, where a bank delays handing over possession of a mortgaged property purchased in a SARFAESI auction, the bona fide purchaser is entitled to interest for the period of unjustified retention of funds, except for a reasonable processing period. This judgment sets a new precedent, correcting the earlier refusal to grant such relief and clarifying the equitable jurisdiction of the court under Article 226, with binding effect on subordinate courts in Bihar.
Summary
| Category | Data |
|---|---|
| Case Name | L.P.A/615/2025 of Vishal Kumar Vs The State of Bihar |
| CNR | BRHC010589122025 |
| Date of Registration | 16-06-2025 |
| Decision Date | 15-10-2025 |
| Disposal Nature | ALLOWED |
| Judgment Author | HONOURABLE MR. JUSTICE ALOK KUMAR SINHA |
| Concurring or Dissenting Judges | THE CHIEF JUSTICE (concurring) |
| Court | Patna High Court |
| Bench | HONOURABLE THE CHIEF JUSTICE and HONOURABLE MR. JUSTICE ALOK KUMAR SINHA |
| Precedent Value | Binding on subordinate courts in Bihar (as a Division Bench decision of the High Court) |
| Overrules / Affirms | Overrules Single Judge’s order in CWJC No. 16777 of 2024 (order dated 29.04.2025) to the extent challenged |
| Type of Law | Banking Law, SARFAESI Act, Equity, Constitutional Law (Article 226) |
| Questions of Law | Whether an auction purchaser under SARFAESI is entitled to interest on the deposit when delivery of possession is delayed? |
| Ratio Decidendi |
The Court held that once the entire sale consideration is accepted by the bank under a SARFAESI auction, the bank becomes obliged, both in law and equity, to deliver possession within a reasonable time. Delay in delivering possession, even if attributable to pending litigation or third-party occupation, does not justify indefinite retention of funds without compensation. Even though SARFAESI and its rules do not expressly provide for interest payment, the High Court’s inherent equitable jurisdiction permits relief to ensure that bona fide purchasers are not prejudiced by delays not attributable to them. The Court carved out a reasonable 90-day period for bank processing time and granted simple interest at 6% p.a. for the balance period until possession was delivered. The Single Judge’s refusal to grant interest was thus set aside. |
| Logic / Jurisprudence / Authorities Relied Upon |
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| Facts as Summarised by the Court |
The appellant purchased a property in a SARFAESI e-auction, paid the entire amount (₹1,87,75,000) on 19.06.2024, but was denied possession till 11.02.2025 due to litigation and the borrower’s non-vacation. The Single Judge directed sale deed execution but rejected the claim for interest. This Division Bench was moved for interest on the deposit for the period possession was withheld. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts in Bihar |
| Persuasive For | Other High Courts, especially on equitable relief under Article 226; potential persuasive value before Supreme Court |
| Overrules | Single Judge’s order dated 29.04.2025 in CWJC No. 16777 of 2024 (to the extent of rejection of interest claim) |
What’s New / What Lawyers Should Note
- The Patna High Court holds, for the first time, that a bank cannot retain sale amounts without compensation during delayed delivery of possession in SARFAESI auctions.
- Even absent an express statutory right under SARFAESI or its rules, interest may be awarded based on equity under Article 226.
- A “reasonable handling period” (here, 90 days) for the bank is recognized; interest runs only thereafter.
- The bank is treated as holding auction funds in trust for the purchaser after sale confirmation.
- The case can be cited as binding precedent for seeking equitable relief, including interest, against banks in delayed sale transactions under statutory auctions.
Summary of Legal Reasoning
- The court identifies the principal issue as whether, under SARFAESI auctions, interest is payable to the auction purchaser for periods when the bank holds the sale amount but fails to deliver timely possession due to litigation or third-party occupation.
- The Division Bench finds that, upon full payment of bid amount and confirmation of sale, a bank assumes both a legal and equitable obligation to deliver possession within a reasonable period.
- The plea that delay was caused by litigation (DRT proceedings by the original borrower) or the prior occupant does not absolve the bank of its responsibility; the interests of a bona fide purchaser must be safeguarded.
- The conduct of the bank in holding the purchaser’s funds while withholding possession amounts to unjustifiable enrichment and causes financial loss to the purchaser.
- The Single Judge wrongly framed the issue as one of contractual or statutory entitlement to interest, without considering equitable principles.
- The High Court, exercising equitable jurisdiction under Article 226, finds it appropriate to grant simple interest at 6% per annum, after making an allowance for a reasonable bank processing period (90 days from deposit).
- The order of the Single Judge is overruled to the extent it denied interest.
- The claim that SARFAESI auctions are governed solely by “caveat emptor” and exclude all equitable remedies is rejected.
- Payment of interest is ordered to ensure that no party suffers due to delays not of their making.
Arguments by the Parties
Petitioner (Appellant):
- Participated as highest bidder in e-auction and deposited full sale consideration (₹1,87,75,000) on 19.06.2024.
- Bank did not hand over possession or execute sale deed until 11.02.2025; thus, deprived of property and funds during the interim.
- Bank benefited from holding a large sum without paying interest, causing financial loss and mental distress to purchaser.
- The claim for interest is based on equity and fairness, not any commercial or statutory contract.
- Single Judge failed to appreciate that delay was not due to appellant’s fault.
Respondent (Bank and Others):
- Appeal is meritless; rejection of interest claim by Single Judge was justified.
- Auction was expressly made subject to outcome of pending DRT proceedings filed by the original borrower; this risk was accepted by appellant.
- Delay in handing over possession was due to judicial proceedings and continued occupation by borrower, not due to the bank’s fault.
- Auction proceeds were not used for profit but adjusted against NPA; as secured creditor, bank is not a real estate vendor.
- SARFAESI auction terms (“as-is-where-is”) mean purchaser must undertake due diligence and cannot claim compensation for foreseeable litigation-related delay.
Factual Background
The appellant purchased an immovable property through an e-auction conducted under the SARFAESI Act by the Bank of Baroda, depositing the entire sale consideration of ₹1,87,75,000 on 19.06.2024. Possession could not be delivered immediately because of ongoing DRT litigation filed by the original borrower and his continued occupation of the property. The appellant received actual possession only on 11.02.2025, by which time both litigation and occupation had been resolved following an interim court order. The appellant’s original writ claim for interest during the interim period was rejected by the Learned Single Judge, leading to the present appeal.
Statutory Analysis
- The judgment interprets the SARFAESI Act, 2002 and the Security Interest (Enforcement) Rules, 2002.
- It is noted that neither statute nor rules expressly provide for payment of interest to auction purchasers for delayed delivery of possession.
- However, the Court invokes Article 226 of the Constitution to grant equitable relief, holding that such power exists even where statutes are silent, to ensure fairness and justice in execution of statutory sales.
Dissenting / Concurring Opinion Summary
No dissenting opinion; the order is passed per HONOURABLE MR. JUSTICE ALOK KUMAR SINHA with concurrence of THE CHIEF JUSTICE.
Procedural Innovations
- The Court recognizes and deducts a specific “reasonable period” (90 days from date of deposit) to allow for bank processing, an approach not previously specified in such cases.
- Relief is granted solely for the period beyond reasonable processing time, balancing equitability.
Alert Indicators
- 🚨 Breaking Precedent – The Division Bench overrules the Learned Single Judge’s refusal to grant interest, establishing that equitable relief is available even absent specific statutory provision in SARFAESI auction sales.