The High Court clarifies and reaffirms that non-compliance with mandatory requirements of Section 13(3A) & 13(4) of the SARFAESI Act and Rules 8 & 9 of the Security Interest (Enforcement) Rules, 2002, including failure to consider borrower’s representations and improper service of possession notice, render the sale proceedings illegal and liable to be set aside. Existing Supreme Court and High Court precedents are followed and distinguished as appropriate. The judgment is binding and provides clear guidance for contested bank auctions under SARFAESI.
Summary
| Category | Data |
|---|---|
| Case Name | WPC/156/2019 of AJAY UPADHAYAY Vs UCO BANK |
| CNR | CGHC010011752019 |
| Date of Registration | 15-01-2019 |
| Decision Date | 29-10-2025 |
| Disposal Nature | DISMISSED |
| Judgment Author | Hon’ble Shri Justice Narendra Kumar Vyas |
| Court | High Court of Chhattisgarh |
| Bench | Single Bench |
| Precedent Value | Binding on subordinate courts in Chhattisgarh; persuasive for other High Courts |
| Overrules / Affirms | Affirms decisions of DRT and DRAT setting aside the auction sale |
| Type of Law | Banking and Financial Law — SARFAESI Act, 2002; Security Interest (Enforcement) Rules, 2002 |
| Questions of Law | Whether failure to comply with the mandatory provisions of Section 13(4) of SARFAESI Act and Rules 8 & 9 of the Rules, 2002, including non-consideration of borrower representation and improper service/publication of possession notice, vitiates the entire auction proceedings. |
| Ratio Decidendi | The Court held that non-service of mandatory possession notice and failure to consider representation under Section 13(3A) are serious violations. Such deviations from Schemes of SARFAESI and Security Interest (Enforcement) Rules cause substantial legal prejudice to the borrower. The auction conducted in breach of these mandatory steps is illegal and liable to be set aside. It was further held that mere technical or trivial irregularities are not sufficient, but where mandatory procedural safeguards are ignored, the prejudice is presumed. The requirement for timely deposit of 25% of the bid amount by the auction purchaser is also mandatory, and its violation further invalidates the sale. Precedents such as GM, Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal, Mathew Varghese, Dwarika Prasad, and M. Rajendran have been applied to reinforce the strict compliance requirement. The Court distinguished cases where borrowers had waived objections or failed to challenge, clarifying these did not apply on these facts. |
| Judgments Relied Upon | M. Rajendran & Others v. M/s KPK Oils & Proteins India Pvt. Ltd. [2025 INSC 1144]; Mathew Varghese; Allokam Peddabbayya v. Allahabad Bank; GM, Sri Siddeshwara Cooperative Bank Ltd.; Dwarika Prasad v. State of U.P.; Arce Polymers (P) Ltd. v. Alpine Pharmaceuticals (P) Ltd. |
| Logic / Jurisprudence / Authorities Relied Upon by the Court | Section 13(8) SARFAESI; Rule 8(1) & Rule 9(3) & (4) Security Interest (Enforcement) Rules; Section 60 Transfer of Property Act; Supreme Court precedents on mandatory nature of requirements and right of redemption |
| Facts as Summarised by the Court | Respondent No. 4 obtained a credit facility from UCO Bank, mortgaging his mother’s property. After default, account declared NPA and SARFAESI proceedings initiated. Possession and auction notice issued, but allegations of improper notice/service and failure to consider borrower’s representations. The property was sold in auction to the petitioner, who failed to deposit the required amount within time. DRT and DRAT set aside the auction for violation of statutory procedure. Bank and auction purchaser challenged, but High Court affirmed the finding of illegality. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All subordinate courts in Chhattisgarh |
| Persuasive For | Other High Courts, and may be cited before the Supreme Court |
| Overrules | None (clarifies and follows settled Supreme Court and DRT/DRAT law) |
| Distinguishes | Arce Polymers (P) Ltd. v. Alpine Pharmaceuticals (P) Ltd. – on borrower waiver and delay (facts here showed timely contestation and ongoing objection) |
| Follows | M. Rajendran & Others v. M/s KPK Oils & Proteins India Pvt. Ltd.; Mathew Varghese; Allokam Peddabbayya v. Allahabad Bank; GM, Sri Siddeshwara Coop. Bank Ltd.; Dwarika Prasad v. State of U.P. |
What’s New / What Lawyers Should Note
- Reiterates and strictly enforces that non-compliance with mandatory procedures under SARFAESI Act and Security Interest (Enforcement) Rules (such as possession notice service, reply to borrower’s objections) vitiates entire proceedings.
- Confirms that the requirement for timely deposit of 25% of the bid amount by auction purchaser is mandatory; failure results in setting aside of sale.
- Distinguishes principles of waiver: Timely contestation by borrower nullifies bank’s plea of waiver or estoppel.
- Cites latest Supreme Court authority (M. Rajendran 2025 INSC 1144) on borrower’s right of redemption and procedural safeguards pre-sale.
- Affirms that even if default is not denied, banks must comply with the process strictly for lawful recovery.
- DRT/DRAT findings on procedural lapses are not lightly interfered with by writ courts when based on settled law.
Summary of Legal Reasoning
- The Court extracted and analyzed relevant provisions: Section 13 of the SARFAESI Act and Rules 8 & 9 of the Security Interest (Enforcement) Rules, emphasizing their mandatory language and strict compliance.
- It affirmed that failure to serve statutory possession notice or properly respond to borrower’s representations under Section 13(3A) creates substantial legal prejudice and invalidates subsequent actions including auction sale.
- Cited Supreme Court decisions: Mathew Varghese (right of redemption not lost until executed conveyance), Dwarika Prasad and Allokam Peddabbayya (requirement of registered sale certificate), and GM, Sri Siddeshwara Cooperative Bank Ltd. (mandatory nature of 25% deposit).
- Emphasized that mere technical irregularities do not vitiate process, but breaches of mandatory steps do.
- Addressed and distinguished opposite case law (Arce Polymers), explaining that borrower’s active, timely resistance defeats plea of waiver.
- Concluded that DRT and DRAT decisions voiding the sale were in accordance with law and warranted no interference.
Arguments by the Parties
Petitioner
- Challenged the DRAT finding of irregularity in not considering representation and the conclusion that statutory possession notice was improperly served.
- Contended any date error in records was typographical, not fatal.
- Pointed out that all sale amounts were ultimately deposited and credited, and no notice of delay was issued to him.
- Urged that technicalities should not defeat auction recovery of public money.
- Cited multiple Supreme Court authorities to support regularity and validity of auction and sale process.
Respondents No. 1 to 3 (Bank)
- Supported petitioner that auction followed SARFAESI Act and relevant Rules.
- Argued that DRT and DRAT erred by interfering with bank’s lawful recovery process.
- Stated respondent No. 4 (borrower) failed to repay, thereby necessitating enforcement.
Respondent No. 4 (Borrower)
- Supported DRT/DRAT orders; emphasized auction purchaser was aware matter was subjudice.
- Alleges serious procedural lapses, improper notice/service, no consideration of his pre-auction representation to bank.
- Detailed factual background involving loss of business due to outside criminal events and police inaction.
- Stressed ongoing contestation of proceedings, payment of partial amounts, and absence of waiver.
- Cited Supreme Court and High Court decisions upholding mandatory compliance of due process.
Factual Background
The borrower (respondent No. 4) operated a computer sales business and obtained a credit facility from UCO Bank, secured by his mother’s property. Due to business setbacks and criminal events, he defaulted, leading to his account being classified as NPA. SARFAESI proceedings were initiated. The bank served possession and sale notices, but the borrower alleged these were either not served properly or not replied to. An auction was held and the petitioner emerged as the highest bidder; subsequently, DRT and DRAT found statutory procedural violations by the bank and set aside the sale. Both the bank and auction purchaser challenged these findings in the High Court.
Statutory Analysis
- Section 13(2), (3A), (4), and (8) of the SARFAESI Act, 2002: Section 13(3A) mandates a reply/consideration to any representation/objection by the borrower to a demand notice; failure invalidates further steps. Section 13(4) describes the bank’s right to take possession, but must be read with strict compliance safeguards.
- Rule 8 and Rule 9 of the Security Interest (Enforcement) Rules, 2002: Rule 8(1) mandates service and publication of possession notice in a prescribed manner before auction; Rule 9(3) requires deposit of 25% of sale price immediately—both are held as mandatory requirements.
- Section 60 Transfer of Property Act: Borrower’s redemption right persists until completion of formal sale transfer.
- Provisions were interpreted strictly and narrowly—the court held compliance is not merely directory but mandatory.
Procedural Innovations
No explicit innovation recorded. The court adhered to established approach for testing validity of DRT/DRAT orders upholding borrower’s challenge to SARFAESI procedures.
Alert Indicators
- ✔ Precedent Followed – Existing Supreme Court and SARFAESI procedure affirmed; no overruling of established law.