The Delhi High Court allowed a writ petition challenging an e-auction notice issued by an Asset Reconstruction Company (ARC) despite the existence of an alternative remedy under the SARFAESI Act, holding that allegations of fraud and forgery in the creation of the security interest permit invocation of writ jurisdiction under Articles 226 and 227 of the Constitution.
Background & Facts
The Parties and Property
The petitioner, Shashi R. Jatia, is a senior citizen who previously resided in Mumbai and later relocated abroad. Respondent No. 1 is Prudent ARC, an Asset Reconstruction Company registered with the Reserve Bank of India. Respondent No. 2 is ICICI Bank, which disbursed the loan facilities. Respondents Nos. 3 and 4 are the sister-in-law and brother-in-law of the petitioner, respectively. The petitioner's husband and Respondent No. 4 are brothers.
The petitioner is the co-owner of an undivided one-third share in Plot No. B-50, Gulmohar Park, Zone F-3, Masjid Moth, New Delhi, measuring 499 square yards and comprising a basement, ground floor, first floor, and second floor (referred to as the "Subject Property"). The remaining two-thirds share is owned by Respondent No. 3 (the sister-in-law).
Origin of Ownership
The petitioner acquired her interest in the Subject Property pursuant to an Agreement to Sell dated 04.06.1982 and a Deed of Conveyance dated 07.12.1995. Initially, the property was jointly owned by the petitioner, Respondent No. 3, and Ms. Neeta Jatia (the petitioner's third brother's wife). Ms. Neeta Jatia instituted CS No. 957/2005 seeking partition of her one-third share. The proceedings culminated in a settlement where Respondent No. 3 agreed to acquire Ms. Neeta Jatia's share. A Consent Decree dated 09.11.2005 directed Respondent No. 3 to pay Rs. 2,33,33,333/- to Ms. Neeta Jatia. Pursuant thereto, Ms. Neeta Jatia executed a Release Deed dated 10.02.2006 in favor of Respondent No. 3. Thereafter, the petitioner and Respondent No. 3 were recorded in municipal records as the exclusive co-owners of the Subject Property, holding one-third and two-thirds shares, respectively.
The Loan Transactions and Allegations of Forgery
At the relevant time, the petitioner resided in Mumbai while Respondents Nos. 3 and 4 resided at the Subject Property and managed it. According to the petitioner, Respondents Nos. 3 and 4 obtained loan facilities from ICICI Bank (Respondent No. 2) by creating a mortgage over the Subject Property. The total principal amount of the five loan facilities was stated by the Bank to be Rs. 14.96 crores. The petitioner was shown as a co-applicant in the loan documents.
The petitioner states she neither applied for nor availed the loan facilities and that her signatures on the loan documents were forged. She first became aware of the loan facilities in May 2021 when a representative of ICICI Bank's loan recovery department contacted her son at her former Mumbai residence and informed him about outstanding amounts against the Subject Property.
On 31.05.2021, the petitioner emailed ICICI Bank denying any availing of loans and sought copies of loan agreements, sanction letters, mortgage deeds, and title documents. The Bank informed her that the five loan accounts had been availed by Respondent No. 4 and that she had been shown as a co-applicant. The Bank further stated that an amount of Rs. 12,35,54,534/- remained outstanding as of that date. The petitioner then addressed further communications to the Bank and Respondent No. 4, reiterating that she had not executed any loan or mortgage documents and sought complete loan documentation.
On 19.06.2021, the petitioner's representative obtained certain loan documents from ICICI Bank. The petitioner states the documents contained signatures purporting to be hers, which were forged. She obtained a private forensic examination of four documents. A forensic report dated 25.06.2021 opined that the signatures appearing on those documents were forged and fabricated. Additionally, the petitioner had not received any portion of the loan disbursed by ICICI Bank.
Criminal and Civil Proceedings
In view of the allegations of forgery and fraud, the petitioner lodged a complaint dated 31.08.2021 before the Economic Offences Wing (EOW), New Delhi. Following a preliminary enquiry, FIR No. 17/2022 dated 28.01.2022 was registered against Respondent Nos. 3 and 4 and unknown officials of Respondent No. 2 for offenses under Sections 406, 420, 468, 471 read with Section 120-B of the Indian Penal Code, 1860.
During the pendency of the investigation, the petitioner received a demand notice dated 18.06.2022 issued by Respondent No. 2 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), demanding payment of Rs. 12.46 crores and stating that proceedings under Section 13(4) would follow in case of non-payment.
The petitioner thereafter instituted CS SCJ No. 779/2022 before the Senior Civil Judge, Saket Courts, seeking, inter alia, an injunction against Respondent Nos. 3 and 4 from dealing with or creating third-party rights in the Subject Property and against Respondent No. 2 from taking action pursuant to the demand notice dated 18.06.2022. Respondent No. 2 moved an application under Order VII Rule 11 of the Code of Civil Procedure, 1908, read with Section 34 of the SARFAESI Act, contending that the suit was barred by the SARFAESI Act. The application was allowed by order dated 09.06.2023.
Aggrieved by the said order, the petitioner preferred a civil appeal. The appeal, initially numbered RCA SCJ No. 14/2023 and subsequently numbered RCA DJ No. 7/2025, was transferred to the Court of the Learned District Judge, South District, Saket Courts, and remains pending adjudication.
During the pendency of the civil proceedings, Respondent No. 2 informed the Court on 21.10.2024 that the loan accounts concerning the Subject Property had been assigned to Respondent No. 1, Prudent ARC, pursuant to an Assignment Deed dated 25.09.2024.
Meanwhile, Respondent Nos. 3 and 4 instituted W.P.(Crl.) No. 3711/2024 before this Court seeking quashing of FIR No. 17/2022. The EOW filed a status report dated 13.12.2024, which recorded that the FSL examination of the loan documents had found the signatures of the petitioner appearing on loan facility documents to be forged.
The petitioner filed her reply to Respondent No. 1's application for substitution on 04.03.2025, relying, inter alia, upon the aforesaid status report of the EOW and opposing the substitution.
While the civil appeal and Respondent No. 1's application for substitution were pending, Respondent No. 1 issued the impugned e-Auction Notice dated 25.04.2026 proposing to sell the Subject Property by e-auction on 29.05.2026. The petitioner, asserting that the proposed sale would affect her one-third undivided share in the Subject Property and prejudice the proceedings pending before the Saket District Court, approached this Court by way of the present writ petition.
Procedural History Timeline
- 04.06.1982: Agreement to Sell for Subject Property
- 07.12.1995: Deed of Conveyance for Subject Property
- 09.11.2005: Consent Decree in CS No. 957/2005
- 10.02.2006: Release Deed by Ms. Neeta Jatia
- May 2021: Petitioner first aware of loan facilities
- 31.05.2021: Email to ICICI Bank denying loans
- 19.06.2021: Obtained loan documents from Bank
- 25.06.2021: Forensic report dated (signatures forged)
- 31.08.2021: Complaint lodged before EOW
- 28.01.2022: FIR No. 17/2022 registered
- 18.06.2022: Demand notice from ICICI Bank under SARFAESI Section 13(2)
- 09.06.2023: Order dismissing civil suit (CS SCJ No. 779/2022)
- 21.10.2024: ICICI Bank informed Court of loan assignment to Prudent ARC
- 25.09.2024: Assignment Deed for loan accounts
- 04.03.2025: Reply to substitution application filed
- 25.04.2026: Impugned e-Auction Notice issued
- 13.10.2026: Judgment pronounced
Relief Sought
The petitioner sought: (A) Quashing and setting aside the impugned e-Auction Notice dated 25.04.2026; (B) Restraining respondents from taking coercive steps pursuant to the notice; (C) Restraining respondents from creating third-party rights in her one-third share; (D) Staying the operation of the e-auction notice during the pendency of Appeal No. RCA DJ No. 7 of 2025; and (E) Alternatively, directing Respondent No. 2 to deposit one-third of the fair value of the subject property with the Hon'ble Saket District Court during the pendency of Civil Suit No. CS SCJ No. 779 of 2022 and Appeal No. RCA DJ No. 7 of 2025.
The Legal Issue
The central question was whether a writ petition is maintainable against a private Asset Reconstruction Company (ARC) under Articles 226 and 227 of the Constitution when an efficacious alternative remedy exists under Section 17 of the SARFAESI Act, particularly where the petitioner alleges fraud and forgery in the creation of the very security interest sought to be enforced.
Arguments Presented
For the Petitioner
The petitioner contended that Respondent Nos. 1 and 2 cannot frustrate the subject matter of proceedings sub judice before the Trial Court, as the very foundation of the impugned e-Auction Notice - namely, the validity of the alleged loan transactions and mortgage - is under challenge in the civil proceedings before the Saket District Court. It was submitted that Respondent No. 1, being aware of these proceedings (having sought substitution via assignment of loan accounts), ought not be permitted to proceed with the auction to create third-party rights in property subject to pending adjudication. The dispute goes to the root of the alleged security interest, as the petitioner asserts that the loans and mortgage were created through fraud and forgery, supported by the EOW's FIR and the FSL report finding her signatures forged. The petitioner emphasized that she neither applied for the loans nor derived any benefit from the alleged transactions. It was argued that SARFAESI proceedings can be invoked only against a validly created security interest, and since the alleged mortgage is founded on forged documents, the assignment by Respondent No. 1 cannot cure defects going to the validity of the loan transaction. Permitting the auction to proceed would cause irreparable prejudice by creating third-party rights in the Subject Property, with the balance of convenience lying in preserving the property until the validity of the alleged mortgage is adjudicated. The impugned e-Auction Notice was described as being without jurisdiction, amounting to deprivation of property without authority of law, and being arbitrary and violative of Articles 14 and 21 of the Constitution, thereby warranting interference under Articles 226 and 227 despite the availability of an alternate remedy due to the allegations of fraud, forgery, and want of jurisdiction.
For the Respondents
Respondent No. 1 (Prudent ARC) opposed the petition on three grounds: (a) the writ petition is not maintainable as an efficacious alternate remedy is available under Section 17 of SARFAESI Act and before the Civil Court; (b) the writ petition against a private entity is not maintainable; and (c) the writ petition was instituted through a defective special power of attorney, with the petitioner guilty of suppression of facts. It was stated that the impugned notice was issued under Section 13(4) of SARFAESI Act, against which the petitioner has an efficacious statutory remedy under Section 17 before the DRT. Reliance was placed on Bhadra International India Pvt. Ltd. v. Punjab National Bank W.P.(C) 7939 of 2025 and Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. and Ors (2024) 2 SCC 1. Even if the DRT lacks jurisdiction, the controversy was held not amenable to writ jurisdiction, as the remedy for fraud lies before the Civil Court, which the petitioner has already availed (the civil suit being pending adjudication). It was further submitted that the present petition contains the same averments and questions as the civil suit already availed by the petitioner, with reliance on Rushali Khera v. State (NCT of Delhi), 2023SCC OnLine Del 1320. The writ petition was deemed not maintainable against a private ARC when an efficacious remedy under SARFAESI Act is available, as grievances against actions of private banks/ARCs under SARFAESI must be agitated before the DRT (per Girish Bansal v. Yashpal Singla, 2023 SCC Online Del 4981). The petition was characterized as forum shopping, since substantially similar reliefs were earlier sought in a civil suit rejected on the ground of DRT remedy availability. Lastly, the writ petition was stated to have been instituted through a defective Special Power of Attorney not authorizing the alleged attorney holder to institute or prosecute the proceedings.
Respondent Nos. 3 and 4 opposed the petition on the same grounds as Respondent No. 1, with an additional ground that the petition is barred by delay, laches, and acquiescence. They asserted that the petitioner issued a series of General Power of Attorney in favor of Respondent No. 4 authorizing him to obtain loans by mortgaging the Subject Property, a fact admitted by the petitioner in her letter dated 29.06.2021. Due to these powers of attorney, Respondent No. 3 obtained loans from Respondent No. 2. Since the petitioner has taken no legal action since 2005, she has acquiesced to this position, thereby barring the petition by delay and laches.
In rejoinder, the petitioner submitted that the present writ petition goes beyond an ordinary challenge to SARFAESI proceedings, as it assails the validity of the security interest sought to be enforced against her one-third undivided share. The availability of a remedy before the DRT does not bar the exercise of jurisdiction under Articles 226 and 227. The principal allegations of fraud are against Respondent Nos. 2 to 4, while Respondent No. 1 acquired the loan despite being aware of pending proceedings and criminal investigations against Respondent Nos. 2 to 4. It was contended that the petitioner was never served with documents in the proceedings before DRT, Delhi, and that despite the order dated 18.04.2024, no affidavit of service has been filed by Respondent Nos. 1 or 2, indicating collusion. Fraud cannot be adjudicated by the DRT, and the civil suit is not a bar as the reliefs in the suit and the present petition are different.
The Court's Analysis
The Court framed three main issues for consideration: (a) whether a writ petition is maintainable against a private ARC; (b) whether the writ petition is liable to be rejected at the threshold due to the existence of an alternate remedy; and (c) whether the petition is barred by delay and laches.
Regarding maintainability against a private ARC, the Court noted that while a private ARC does not become an instrumentality of the State under Article 12 merely by exercising rights under SARFAESI Act, the peculiar facts of the case warranted examination of whether writ jurisdiction could be invoked. The Court observed that Respondent No. 1, as assignee of the mortgage, steps into the shoes of the assignor (Respondent No. 2) and cannot accrue a right greater than that held by the assignor. Crucially, the petitioner has not merely challenged the dispute concerning a private transaction but has challenged the very foundation of the loan - the security interest - and has further alleged that the loan facility documents were executed through fraud and collusion between Respondent Nos. 2, 3, and 4, thereby challenging the existence of the contract that gives rise to SARFAESI proceedings.
The Court relied on the principles laid down in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, and explained in Tajunissa v. Vishal Sharma, (2022) 2 HCC (Del) 154, to hold that where the action of a secured creditor is alleged to be fraudulent, the bar of Section 34 of the SARFAESI Act does not exclude the jurisdiction of the Civil Court. Specifically, the Court adopted the view that once an allegation of fraud is made in the pleadings, the proscription against recourse to the ordinary civil remedy ceases to apply. In the present case, the petitioner's allegations of fraud and forgery were not merely a "puff in the air" but had been prima facie made out on the basis of an independent forensic report dated 25.06.2021, which opined that the signatures on the loan documents were forged and fabricated. The FSL report had also been relied upon by the EOW to register FIR No. 17/2022, and the EOW's status report dated 13.12.2024 concluded that there was sufficient evidence against Respondent Nos. 3 and 4 and officials of Respondent No. 2 to proceed with charges of fraud and forgery.
The Court further held that the existence of an efficacious alternative remedy is not an absolute bar to the exercise of jurisdiction under Articles 226 and 227, particularly where the proceedings impugned before the Court are alleged to be founded upon fraud and forgery and the very existence of the underlying security interest is under challenge. Drawing from Gurdeep Singh v. Punjab & Sindh Bank, 2015 SCC OnLine Del 6724, the Court emphasized that recovery proceedings under SARFAESI should not proceed until the civil suit challenging the validity of the security interest is decided finally, as allowing the bank to proceed against the property during the pendency of such a suit would cause irreparable prejudice to the petitioner if her pleas ultimately succeed.
On the issue of delay and laches, the Court rejected the submission by Respondent Nos. 3 and 4 that the petition is barred on these grounds. The plea of acquiescence assumed that the loans were raised under Powers of Attorney from 2005-2008, but the petitioner's case is that the five facilities date from 2015-2020, that she never signed the loan documents, and that she first learned of them only on 29.05.2021. She subsequently wrote to the bank, obtained documents on 19.06.2021, obtained a forensic report on 25.06.2021, complained to the EOW on 31.08.2021, and filed a civil suit in July 2022 - conduct inconsistent with someone who knew of the mortgage and accepted it. The letter dated 29.06.2021, relied upon by the respondents, states that the earlier Powers of Attorney were revoked upon family separation and asks Respondent No. 4 to disclose any action taken under the letter; it does not admit that the petitioner authorized the loans or mortgage. Whether the petitioner knew of the mortgage and acquiesced to it is a question of fact to be decided by the competent forum on evidence, and the material before the Court (the FSL report, the EOW status report, and the absence of explanation from Respondent Nos. 3 and 4 for the forged signatures) is sufficient for a prima facie view that precludes accepting acquiescence as a ground for refusing to examine the petitioner's case. The fact that the petitioner became aware of the alleged fraud on 29.05.2021 and thereafter continuously followed up, including filing the civil suit, clearly persuades the Court that she is not the one who has slept over her rights, so the petition cannot be said to be barred by delay and laches.
The Court also rejected the contention that the petitioner suppressed material facts regarding DRT proceedings, as the orders dated 18.04.2024 and 21.01.2026 show that nobody appeared on behalf of the petitioner on those dates, supporting her claim of unawareness. Furthermore, the present writ petition is not seeking the same relief as the civil suit; while the civil suit challenged the validity of the mortgage and loan documents, the writ petition seeks, among other reliefs, a stay of the e-auction notice, and is based on the infraction of the petitioner's rights.
The Verdict
The writ petition was allowed. The Court directed that the petitioner's undivided one-third share in the immovable property bearing Plot No. B-50, Gulmohar Park, Zone F-3, Masjid Moth, New Delhi - 110049 shall be excluded from the e-auction scheduled for 29.05.2026. No restriction was imposed regarding the two-thirds undivided share of the said property owned by Respondent No. 3.
What This Means For Similar Cases
Fraud Allegations Override Statutory Bars Under SARFAESI
The judgment establishes that an allegation of fraud in the creation of a security interest under SARFAESI Act removes the bar of Section 34, permitting invocation of writ jurisdiction under Articles 226 and 227 even when an efficacious remedy under Section 17 exists. Practitioners must now ensure that any challenge to SARFAESI proceedings is grounded in a specific allegation of fraud or forgery, supported by prima facie evidence such as forensic reports, to successfully invoke High Court jurisdiction.
Prima Facie Fraud Suffices to Sustain Writ Jurisdiction
The Court clarified that it is not necessary to prove fraud beyond doubt at the writ stage; a prima facie case made out on credible evidence (like an independent forensic examination) is sufficient to entertain the petition. This lowers the evidentiary threshold for borrowers seeking to challenge SARFAESI actions, shifting the focus to whether the security interest's validity is genuinely in dispute rather than merely questioning the debt amount or default.
Security Interest Validity Is a Jurisdictional Gateway
The holding reinforces that challenges to the very existence or validity of the security interest (as opposed to mere allegations of default) fall outside the SARFAESI framework and permit civil court or High Court intervention. Banks and ARCs must now scrutinize the authenticity of loan documentation more rigorously, as any taint of fraud or forgery in the mortgage deed or loan agreement will expose their recovery actions to jurisdictional challenges before constitutional courts.
