Confirmed SARFAESI Auction Can Be Interfered With Only on Limited Grounds: Telangana HC

The Telangana High Court has dismissed a batch of writ petitions filed by a borrower challenging a secured creditor’s auction conducted under the SARFAESI Act and upheld by the Debts Recovery Appellate Tribunal, Kolkata.

A Division Bench comprising Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar dismissed Writ Petition Nos. 24552 and 24642 of 2025, holding that the borrower had failed to establish any fraud, collusion, or material procedural illegality warranting interference with a confirmed public auction.

"... sale pursuant to a public auction can only be set aside where the material on record clearly reveals that the property was frittered away on a wholly inadequate/unrealistic consideration or by reason of fraud/collusion or on any material irregularity/illegality in conducting the public auction. The Court’s duty is to protect the sanctity of an auction as undue interference would frustrate the very object and purpose behind auctions and deter public confidence and participation in the same: Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. (supra)", it was observed.

The Court upheld the DRAT’s order dated 04.08.2025, which had reversed the Debts Recovery Tribunal’s decision and sustained the auction conducted on 10.01.2020.

The petitions arose from credit facilities of approximately Rs. 10.50 crore availed by the borrower from Union Bank of India, secured by mortgaging an immovable property. After the loan account was classified as a non-performing asset in May 2017, the Bank issued demand and possession notices under Sections 13(2) and 13(4) of the SARFAESI Act.

Pursuant to a valuation report obtained on 08.05.2018 in terms of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, the Bank initiated auction proceedings. The Court noted that five auction attempts were made between July 2018 and January 2020, each preceded by statutory sale notices.

Due to repeated failure of the auctions on account of lack of bidders, the reserve price was reduced in a phased manner.

It was only in the fifth auction held on 10.01.2020 that the auction purchaser emerged as the highest bidder, offering Rs. 5.35 crore against a reserve price of Rs. 4.95 crore.

The auction purchaser deposited the entire sale consideration in March, 2020.

The borrower challenged the auction before the Debts Recovery Tribunal, Hyderabad, which set aside the sale on the ground that the price fetched was below the distress value reflected in the valuation report.

This order was reversed by the DRAT, which held that the reserve price had been fixed after due consultation and taking into account the repeated failure of earlier auctions.

Before the High Court, the borrower contended that the auction was vitiated as it was conducted on the basis of an outdated valuation report and in violation of Rule 8 of the 2002 Rules. The borrower also argued that the auction did not fetch a just price and was adversely impacted by prevailing market conditions.

Rejecting these submissions, the Court held that Rule 8(5) does not prescribe any mandatory time gap between obtaining a valuation report and conducting an auction. It observed that the statutory requirement is limited to obtaining valuation from an approved valuer and fixing the reserve price in consultation with the secured creditor prior to sale.

The Bench further held that Rule 8 does not mandate a fresh valuation before each successive auction, particularly where multiple auctions fail due to lack of bidders.

The Court found the gradual reduction of the reserve price by 10% after each failed auction to be reasonable, lawful, and consistent with recognised auction practices, including those contemplated under the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

The Court also noted that no allegation of fraud or collusion had been pleaded or proved before the DRT or DRAT and that such contentions were raised for the first time before the High Court.

It reiterated that a confirmed public auction conferring rights on a bona fide purchaser cannot be set aside unless there is a fundamental procedural defect or substantive illegality going to the root of the process.

Taking note of the equities involved, the Court observed that the auction purchaser’s rights had crystallised as early as March 2020, while the borrower had failed to comply with conditional deposit orders passed by the DRT. The Court further recorded that nearly six years had elapsed since payment of the sale consideration, during which the borrower’s outstanding liability had substantially increased.

Holding that repeated judicial interference would erode the sanctity of public auctions and deter participation, the Court concluded that no grounds were made out to interfere with the DRAT’s order and dismissed the writ petitions.

Case Title: M/s Aditya Constructions v. Debts Recovery Appellate Tribunal & Ors.

Bench: Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar

Date of Judgment: 28.01.2026