The Bombay High Court has issued interim protection to a secured creditor against state-led auction of mortgaged property, reinforcing that the Real Estate (Regulation and Development) Act, 2016 cannot override pre-existing security interests created under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, unless fraud is established.
Background & Facts
The Dispute
The petitioner, Bank of Maharashtra, is a secured creditor holding mortgage deeds over immovable properties in Pune, executed on 25.10.2012 and 21.09.2013. These mortgages were created prior to the enforcement of the Real Estate (Regulation and Development) Act, 2016 (RERA). The respondent State authorities, including the Tahsildar, initiated proceedings under RERA to auction the same properties for alleged violations by the developer, despite the bank’s prior security interest.
Key Facts
- The mortgage deeds were registered on 25.10.2012 and 21.09.2013, well before RERA came into force on 1.5.2017
- The bank extended loans to the borrower based on these mortgages, which were duly recorded in the Sub-Registrar’s office
- The State authorities, acting under RERA, issued notices and initiated auction proceedings against the properties in 2024
- The auction was conducted on 29.04.2026 but failed due to lack of bidders
- A second auction is scheduled for 07.05.2026
- The bank had no prior notice or opportunity to be heard before the auction proceedings commenced
Procedural History
- 25.10.2012: First mortgage deed executed and registered in favour of Bank of Maharashtra
- 21.09.2013: Second mortgage deed executed and registered
- 01.05.2017: RERA came into force
- 2024: State authorities initiated RERA proceedings against the developer
- 13.01.2025: Writ Petition No. 346 of 2025 filed before Bombay High Court
- 13.01.2025: Court issued notice to respondents
- 29.04.2026: First auction conducted by Tahsildar; no bidders
- 30.04.2026: Judgment delivered by Bombay High Court
The Parties' Positions
Petitioner (Bank of Maharashtra): Argued that its security interest, created prior to RERA, is protected under the Supreme Court’s ruling in Union Bank of India v. Rajasthan RERA. The bank contends that RERA cannot override the rights of secured creditors under SARFAESI, absent proof of fraud or collusion.
Respondents (State of Maharashtra and others): Did not file any reply affidavits as of the date of hearing. The Tahsildar proceeded with auction without addressing the bank’s prior mortgage rights.
Relief Sought
The petitioner seeks:
- Immediate stay on further auction proceedings
- Declaration that RERA proceedings cannot override prior mortgage rights
- Direction to the State to recognize the bank’s secured creditor status under SARFAESI
- Costs of litigation
The Legal Issue
The central question is whether RERA empowers state authorities to auction properties subject to prior mortgage deeds created before the Act’s commencement, without establishing fraud or collusion, thereby overriding the rights of secured creditors under SARFAESI.
Arguments Presented
For the Petitioner
The bank relied on Union Bank of India v. Rajasthan RERA (2022 SCC Online SC 1885), particularly Paragraph 2(iv), which explicitly states that RERA does not apply to transactions between borrowers and banks where security interest was created prior to RERA’s enforcement, unless the mortgage is found to be fraudulent or collusive. The bank argued that its mortgage was validly registered, disclosed, and created in good faith. The auction by the Tahsildar, without any adjudication of fraud, violates the settled principle of priority of secured interests and undermines the SARFAESI regime.
For the Respondent
No reply affidavits were filed by the State or Tahsildar. No counter-arguments were presented before the Court. The respondents did not contest the bank’s claim of prior mortgage or the applicability of the Supreme Court’s ruling.
The Court's Analysis
The Court examined the Supreme Court’s clear directive in Union Bank of India v. Rajasthan RERA, which establishes a bright-line rule: pre-RERA mortgages are immune from RERA-driven auction proceedings unless fraud or collusion is proven. The Court noted that the respondents have not alleged, let alone adduced evidence of, any fraudulent intent in the creation of the mortgage deeds dated 25.10.2012 and 21.09.2013.
"RERA would not apply in relation to the transaction between the borrower and the banks and financial institutions in cases where security interest has been created by mortgaging the property prior to the introduction of the Act unless and until it is found that the creation of such mortgage or such transaction is fraudulent or collusive."
The Court emphasized that the State’s unilateral action to auction the property, without affording the secured creditor an opportunity to be heard and without any judicial determination of fraud, constitutes a violation of natural justice and the hierarchy of secured rights under Indian law. The Court further observed that allowing such auctions to proceed during pendency of litigation would render the bank’s remedy nugatory, as the property may be sold to third parties, creating irreparable loss.
The Court rejected the notion that RERA’s regulatory objectives can override statutory security rights absent fraud. It held that the bank has made out a strong prima facie case and that the balance of convenience clearly favours granting interim protection.
The Verdict
The petition succeeded in part. The Court directed respondent Nos. 1 and 8 to 10 to file reply affidavits within four weeks from 30.04.2026. The petition is listed for further hearing on 19.06.2026. In the interim, no further auction steps shall be taken by respondent No. 9 concerning the properties mortgaged under the deeds dated 25.10.2012 and 21.09.2013. The auction scheduled for 07.05.2026 is stayed.
What This Means For Similar Cases
Pre-RERA Mortgages Are Shielded from RERA Auctions
- Practitioners representing secured creditors may now invoke Union Bank of India v. Rajasthan RERA to seek immediate stay against RERA-driven auctions of mortgaged properties
- The burden lies on the State or RERA authority to prove fraud - not on the bank to prove its innocence
- Any auction conducted without judicial scrutiny of fraud is legally vulnerable
SARFAESI Rights Prevail Over RERA Enforcement
- Banks and financial institutions must assert their SARFAESI rights at the earliest stage of RERA proceedings
- RERA authorities cannot proceed with sale of mortgaged property merely on the basis of developer default
- The existence of a registered mortgage prior to 1.5.2017 creates a rebuttable presumption of immunity from RERA enforcement
Procedural Due Process Is Non-Negotiable
- RERA authorities must provide notice and hearing to secured creditors before initiating auction
- Failure to implead or notify secured creditors renders auction proceedings voidable
- Courts will intervene where procedural fairness is ignored, even during pendency of litigation
