The Madhya Pradesh High Court has held that a bank cannot retain an auction purchaser’s entire deposit indefinitely when the sale certificate cannot be issued due to administrative paralysis at the Debt Recovery Tribunal. This order establishes a clear duty on financial institutions to safeguard bidder interests when procedural delays are beyond the purchaser’s control.
Background & Facts
The Dispute
The petitioner, Ankush Mundra, participated in a public auction conducted by Bank of Maharashtra under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The auction pertained to a mortgaged property located at Plot No. 28, Kailash Park Colony, Indore, which had been declared a Non-Performing Asset (NPA) by the Bank following default by the borrower, respondent No. 2.
Key Facts
- The auction was conducted pursuant to a notice dated 26.11.2024 issued under Section 13(4) of the SARFAESI Act
- The petitioner bid and deposited the full auction amount of Rs. 3,20,20,000/- on the date of auction
- The petitioner was declared the highest bidder and entitled to a sale certificate
- However, the sale certificate was not issued due to a pending stay order issued by the Debt Recovery Tribunal (DRT), Jabalpur
- The borrower had filed a Suit for Injunction (S.A.) before the DRT, Jabalpur, seeking to restrain the sale
- The petitioner was not informed of the pendency of the DRT proceeding despite issuance of notice to the borrower
- The DRT, Jabalpur, has been non-functional since early 2025 due to the Presiding Officer’s absence and subsequent resignation
- Cases from DRT Jabalpur are now being heard ad hoc by the Presiding Officer, DRT Lucknow, but no final hearings are being conducted
- The petitioner has been in limbo since November 2024, having paid the full amount but received neither property nor refund
Procedural History
- 26.11.2024: Auction notice issued by Bank of Maharashtra
- December 2024: Petitioner deposits Rs. 3,20,20,000/- and participates in auction
- December 2024: DRT, Jabalpur, issues interim order staying sale
- January 2025: Petitioner inquires about sale certificate; Bank responds that proceedings are pending
- March 2025: Petitioner files Writ Petition No. 35096 of 2025 before Madhya Pradesh High Court
- 18.03.2026: Hearing before Division Bench of Madhya Pradesh High Court
Relief Sought
The petitioner sought a direction to the Bank to refund the entire auction amount of Rs. 3,20,20,000/- with interest from the date of deposit until realisation, and to cease withholding funds without justification.
The Legal Issue
The central question was whether a bank can retain the full auction amount indefinitely when the failure to issue a sale certificate stems from administrative inaction at the DRT, and the auction purchaser has no control over or notice of the pending litigation.
Arguments Presented
For the Petitioner
Counsel for the petitioner argued that the petitioner acted in good faith, paid the full consideration, and was entitled to either the property or a refund. The Bank’s failure to disclose the pendency of the DRT proceeding violated principles of natural justice and transparency under the SARFAESI Act. The prolonged delay - over 15 months - constituted unjust enrichment and breach of fiduciary duty. Reliance was placed on M/s. Muthoot Finance Ltd. v. M/s. Sree Lakshmi Enterprises to argue that auction purchasers are not bound by third-party litigation of which they had no notice.
For the Respondent/Bank
Counsel for the Bank conceded that the sale certificate could not be issued due to the DRT’s interim order. However, they argued that the Bank was merely acting as an agent of the secured creditor and had no discretion to override the DRT’s order. They contended that the matter was sub judice and refund could only occur after final adjudication by the DRT. They further submitted that the petitioner had assumed the risk of litigation by participating in the auction.
The Court's Analysis
The Court examined the nature of the SARFAESI process and the rights of auction purchasers. It noted that while the Bank is empowered to enforce security interest, it also owes a duty of fairness and transparency to bidders. The Court observed that the petitioner had no knowledge of the DRT proceeding despite the issuance of notice to the borrower, and that the Bank had not taken any steps to inform the bidder.
"The auction purchaser is not a party to the proceedings before the DRT, nor is he bound by its interim orders. To hold him to the consequences of a stalemate he had no role in creating is manifestly unjust."
The Court rejected the Bank’s argument that refund must await final DRT decision, noting that the DRT’s inaction was systemic and indefinite. The Court emphasized that the Bank, as the auctioneer and custodian of funds, could not indefinitely hold the petitioner’s money without recourse. The Court distinguished this from cases where the auction is set aside by a final order, noting that here, no final order existed - only administrative paralysis.
The Verdict
The petitioner succeeded. The Court directed the Bank of Maharashtra to refund the entire auction amount of Rs. 3,20,20,000/- with interest at 6% per annum from the date of deposit until actual realization. The refund is to be made within 30 days of the order. The petitioner is required to furnish an undertaking that he will not claim any future right over the property. The Court explicitly clarified that this order is not to be treated as a precedent, being confined to the peculiar facts of administrative inaction.
What This Means For Similar Cases
Auction Purchasers Are Not Bound by Hidden Litigation
- Practitioners representing auction purchasers must immediately verify the status of any pending DRT proceedings before bidding
- Banks must disclose all known litigation affecting the property in auction notices and pre-bid disclosures
- Failure to disclose pending DRT proceedings may render the auction process procedurally flawed
Banks Cannot Use DRT Delays to Withhold Funds Indefinitely
- Banks must proactively monitor the status of DRT proceedings affecting auctioned properties
- If DRT proceedings are stalled for more than six months, banks must initiate refund procedures unless a final order is pending
- Retention of auction proceeds beyond a reasonable time without justification constitutes unjust enrichment
Procedural Transparency Is Non-Negotiable Under SARFAESI
- The SARFAESI Act imposes a duty of good faith on secured creditors and their agents
- Auction notices must include a clear disclaimer of any pending litigation affecting the asset
- Bidders must be given an opportunity to withdraw before depositing funds if litigation is known
