High Court Upholds Auction Sale of Secured Asset; Declines Relief to Borrower for Repeated Defaults and Abandonment of SARFAESI Challenge

The High Court upheld the auction sale of the secured asset and declined relief to the borrower in view of repeated defaults and abandonment of the challenge to the SARFAESI proceedings.

The Division Bench of the Delhi High Court, comprising Justice Subramonium Prasad and Justice Harish Vaidyanathan Shankar, while adjudicating a writ petition, recently held that a borrower who defaults on a One-Time Settlement (OTS) and fails to challenge SARFAESI proceedings in a timely manner cannot seek judicial relief against a lawfully conducted auction sale. The Court further observed that the Debt Recovery Tribunal (DRT) has no jurisdiction to rewrite contractual terms or extend equitable relief in contravention of settled legal principles. Judicial indulgence cannot override statutory defaults or revive remedies that have been consciously abandoned.

The High Court dismissed a writ petition filed under Articles 226 and 227 of the Constitution, challenging the order dated 10.12.2018 passed by the Debt Recovery Appellate Tribunal (DRAT), which had upheld the validity of an auction sale conducted by the Respondent Bank under the SARFAESI Act. The dispute arose out of a series of defaults committed by the Petitioner in repaying dues on loans secured against two mortgaged properties. After the loan accounts were declared as Non-Performing Assets (NPAs), the Bank initiated recovery proceedings and took possession of the secured properties. Though the Petitioner was granted an opportunity by the DRT to clear the dues in instalments, he failed to comply, prompting the Bank to issue a One-Time Settlement (OTS) proposal.

Under the OTS terms, the Petitioner made an initial payment of Rs. 2.15 crores and secured the release of one mortgaged property. However, he failed to deposit the remaining Rs. 35 lakhs within the stipulated time, resulting in the Bank revoking the settlement and resuming SARFAESI proceedings. The Bank proceeded to auction the second mortgaged property, a residential flat, which was sold to Respondent No. 2. The Petitioner challenged the auction through a second securitisation application before the DRT, which set aside the auction sale on the ground of lis pendens and recognised the Petitioner's subsequent payments, including interest. The DRT observed that the Bank's withdrawal of the OTS was arbitrary, and found that handing over possession despite full payment would cause irreparable harm.

The DRAT, however, allowed the Bank’s appeal and reversed the DRT’s decision. It held that the Petitioner had not challenged the legality of the SARFAESI proceedings in the second application and had already abandoned his initial challenge. It found that the Petitioner repeatedly defaulted, failed to comply with both the judicial and contractual terms, and had no valid basis to seek cancellation of a lawfully concluded auction. The DRAT also held that time was indeed of the essence in the OTS agreement and the Bank had the discretion to withdraw concessions upon breach.

The High Court, affirming the DRAT’s decision, held that the Petitioner’s defaults were continuous and deliberate, and that the judicial indulgence shown by the DRT went beyond its jurisdiction. The Court found no illegality in the auction process and held that granting relief to a repeated defaulter, particularly after abandonment of earlier proceedings, would defeat the mandate of the SARFAESI Act. It concluded that the DRT erred in interfering with a valid auction sale and wrongly rewrote the contractual terms of the OTS. Finding no merit in the petition, the High Court upheld the DRAT’s decision and dismissed the writ petition.

Mr. Gaurav Mahajan, Ms. Mehak Joshi and Mr. Kanak Shori, Advocates, represented the Petitioner.

Mr. R.P. Agarwal and Ms. Manisha Agrawal, Advocates, appeared for the Respondent No. 1/ Bank.

---

To access the full content related to this article, including the complete judgment text, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications, we invite you to subscribe to our premium service.

Click "Subscribe" to unlock these exclusive legal resources.

If you are already a subscriber, please explore these resources by clicking the following citation/link.

REEDLAW 2025 Del 06203