SARFAESI Act Section 13(8) | Auction Purchaser Loses Rights If 25% Bid Amount Not Deposited on Auction Date: Rajasthan HC

The Rajasthan High Court's Division Bench has clarified the legal position regarding the rights of an auction purchaser under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Court held that if an auction purchaser fails to deposit 25% of the bid amount on the date of auction, no vested rights accrue in their favour, even if the amended Section 13(8) of the SARFAESI Act applies. The judgment underscores the mandatory nature of auction conditions and the retrospective applicability of amended provisions to subsisting claims.

Background & Facts

The Dispute

The appellant, Shree Developers (a partnership firm), participated in an e-auction conducted by the State Bank of India (SBI) on 19.08.2016 for the sale of mortgaged properties belonging to respondent No. 3, Samtel Glass Ltd. The properties, ad-measuring 72.12 acres (including land, buildings, and plant & machinery), were mortgaged to a consortium of banks led by SBI. The appellant emerged as the successful bidder for the entire lot, depositing Rs. 7,43,50,000 as earnest money and later transferring an additional Rs. 11,15,25,058 on 20.08.2016, constituting 25% of the total bid amount.

Key Facts

• 15.03.2011: Mortgage created over 27.79 hectares of land in favour of SBI, RIICO, Canara Bank, ICICI Bank, and Bank of Baroda under a consortium lending arrangement.
• 31.12.2011: Account of Samtel Glass Ltd declared as Non-Performing Asset (NPA).
• 14.01.2012: Notice issued under Section 13(2) of the SARFAESI Act by the consortium, demanding outstanding dues of Rs. 31,76,74,083.92.
• 10.01.2013: Separate notice issued by SBI under Section 13(2) demanding Rs. 13,01,36,393.10.
• 03.09.2012: Consortium meeting held; separate notices issued by individual banks for their respective dues.
• 11.07.2016: SBI issued e-auction notice for the sale of properties on an "as is where is" and "as is what is" basis. The notice specified:
  • Land & Building: Rs. 74,35,00,000 (Rs. 743.50 lacs at Rs. 1.00 per sq. m)
  • Plant & Machinery: Rs. 46,80,00,000 (Rs. 46.80 lacs)
  • Total Reserve Price: Rs. 1,21,15,00,000 (Rs. 121.15 crores)
• 19.08.2016: E-auction conducted; appellant declared successful bidder.
• 20.08.2016: Appellant deposited 25% of the bid amount (Rs. 11,15,25,058).
• 26.08.2016: Interim order passed in S.B. Civil Writ Petition No. 11302/2016 (filed by Samtel Color Ltd., a group company of Samtel Glass Ltd.), directing status quo over 6.2 hectares of land, purportedly subleased to Samtel Color Ltd.
• 03.11.2016: Debt Recovery Tribunal (DRT-II, Delhi) allowed SBI to proceed with the auction of the remaining property, excluding the 6.2 hectares under dispute.
• 26.09.2017: SBI informed the appellant that the sale could not be confirmed due to pending litigation and offered a One Time Settlement (OTS) scheme to Samtel Glass Ltd. The appellant was directed to contact Canara Bank for further proceedings.
• 19.01.2018: Learned Single Judge dismissed the appellant's writ petition (S.B. Civil Writ Petition No. 22939/2017), holding that the OTS entered into by SBI was valid and that the appellant was not entitled to the property. The Single Judge directed SBI to refund the deposited amount with 8% interest per annum.

Procedural History

• 12.06.2017: Appellant filed S.B. Civil Writ Petition No. 22939/2017 challenging the OTS and seeking confirmation of the auction sale.
• 19.01.2018: Single Judge dismissed the writ petition.
• 26.02.2018: Appellant filed D.B. Special Appeal (Writ) No. 269/2018 before the Division Bench. The Court admitted the appeal, directed the appellant to deposit the remaining bid amount, and ordered status quo.
• 18.02.2026: Division Bench referred the matter to mediation under the Rajasthan Legal Services Authority.
• 27.04.2026: Mediation concluded with all stakeholders (banks and borrower) settling their claims amicably.
• 26.05.2026: Final arguments heard.
• 19.06.2026: Division Bench delivered the present judgment, dismissing the appeal and directing the refund of the deposited amount with accrued interest.

The Parties' Positions

For the Appellant

1. Auction Sale Confirmation: The appellant contended that the sale stood confirmed upon depositing 25% of the bid amount, invoking Section 13(8) of the SARFAESI Act and Rule 9 of the Security Interest (Enforcement) Rules, 2002. It was argued that the bank's email dated 20.08.2016 constituted confirmation of sale.
2. Retrospective Applicability of Amended Section 13(8): The appellant relied on the 2016 amendment to Section 13(8), which extinguishes the borrower's right of redemption upon publication of the auction notice. It was submitted that the amended provision applied retrospectively to subsisting claims.
3. No OTS in Consortium Lending: The appellant argued that SBI, as the lead bank, could not unilaterally settle its dues under the OTS scheme without the consent of the consortium members.
4. Sanctity of Auction: Citing Celir LLP v. Bafna Motors, the appellant contended that the bank's conduct in entering into an OTS after the auction undermined the sanctity of the auction process and discouraged future participation.
5. Malafide Conduct: The appellant alleged collusion between SBI and Samtel Glass Ltd., warranting an independent investigation.

For the Respondents

1. Non-Compliance with Auction Conditions: SBI argued that the appellant failed to deposit 25% of the bid amount on the auction date (19.08.2016), as required by the auction notice. The appellant's account showed a balance of only Rs. 20,800 on 19.08.2016, and the deposit was made on 20.08.2016, violating the auction terms.
2. No Sale Confirmation: SBI contended that the sale was never confirmed, as the sale certificate was not issued, and the entire bid amount was not deposited within 15 days of the auction.
3. DRT Order and Fresh Auction: The DRT's order dated 03.11.2016 necessitated a fresh auction for the remaining property (excluding 6.2 hectares), rendering the earlier auction void.
4. OTS Scheme Validity: SBI relied on its OTS Scheme dated 01.09.2017, which was applicable to NPAs with outstanding dues between Rs. 20,00,000 and Rs. 25,00,00,000. The scheme covered cases pending before courts/DRTs and accounts under consortium lending.
5. Mediation Settlement: All consortium banks, including Canara Bank and RIICO, confirmed that their dues were fully satisfied during mediation, amounting to Rs. 34,00,00,000.

The Legal Issue

The central legal question was whether the appellant-auction purchaser acquired vested rights in the mortgaged property under Section 13(8) of the SARFAESI Act and Rule 9 of the Security Interest (Enforcement) Rules, 2002, despite:

1. Failing to deposit 25% of the bid amount on the auction date.
2. The DRT's order necessitating a fresh auction for the undisputed portion of the property.
3. The OTS entered into by SBI with the borrower before the sale was confirmed.

The Court's Analysis

The Division Bench undertook a detailed analysis of the SARFAESI Act, Security Interest (Enforcement) Rules, 2002, and relevant judicial precedents:

1. Non-Compliance with Auction Conditions:

   • The Court observed that the appellant's account showed a balance of only Rs. 20,800 on 19.08.2016, and the 25% deposit (Rs. 11,15,25,058) was made on 20.08.2016, violating the auction notice's requirement of immediate deposit.
   • The Court relied on M.R. Vasumathi v. The Authorized Officer & Ors. (2026 INSC 633), where the Supreme Court set aside an auction sale due to a five-day delay in depositing the balance amount, emphasizing the mandatory nature of auction timelines.

2. DRT Order and Fresh Auction:

   • The DRT's order dated 03.11.2016 directed SBI to exclude 6.2 hectares from the auction and conduct a fresh auction for the remaining property. The Court held that the earlier auction of 72.12 acres was deemed cancelled, as the property could not be bifurcated post-auction.

3. Retrospective Applicability of Amended Section 13(8):

   • The Court examined the 2016 amendment to Section 13(8), which extinguishes the borrower's right of redemption upon publication of the auction notice.
   • While the amendment was held to apply retrospectively to subsisting claims (M. Rajendran v. KPK Oils and Proteins India Pvt. Ltd., 2025 INSC 1144), the Court distinguished the present case on the ground that the appellant failed to comply with auction conditions.
   • The Court relied on E. Muthurathinasabathy v. Sri International (2026 INSC 303), where the Supreme Court held that the amended Section 13(8) applies only if the auction purchaser deposits the entire bid amount within the prescribed timeline.

4. No Vested Rights Without Compliance:

   • The Court held that no vested rights accrued in favour of the appellant, as the sale was never confirmed due to non-compliance with auction conditions and the DRT's order.
   • The Court distinguished Celir LLP v. Bafna Motors (2024 SCC OnLine SC 4589), where the sale was confirmed and the entire bid amount was deposited, unlike the present case.

5. Section 60 of the Transfer of Property Act, 1882:

   • The Court reiterated that Section 60 of the Transfer of Property Act preserves the mortgagor's right of redemption until the sale is completed by registration. Since no sale deed was executed, the borrower's right of redemption subsisted.
   • The Court relied on Mathew Varghese v. M. Amritha Kumar (2014) 5 SCC 610, which held that the mortgagor's right of redemption survives until the sale is completed by a registered deed.

6. Mediation and Settlement:

   • The Court noted that mediation proceedings resulted in the full satisfaction of all stakeholders' claims, including those of the consortium banks. It emphasized the importance of mediation in resolving disputes under the SARFAESI Act.

"The object of proceedings under the SARFAESI Act is not the mere culmination of a sale in a mechanical manner, but the lawful realisation of the secured asset through a process that is fair, transparent and strictly compliant with the prescribed rules."

The Verdict

The Division Bench dismissed the appeal, holding that:

1. The appellant failed to comply with auction conditions by not depositing 25% of the bid amount on the auction date (19.08.2016).
2. The DRT's order dated 03.11.2016 necessitated a fresh auction, rendering the earlier auction void.
3. No vested rights accrued in favour of the appellant, as the sale was never confirmed.
4. The OTS entered into by SBI was valid, and all consortium banks' claims were fully satisfied during mediation.

The Court directed SBI to refund the amount deposited by the appellant (Rs. 18,58,75,058) along with accrued interest within 15 days of the judgment.

What This Means For Similar Cases

Strict Compliance with Auction Timelines Is Mandatory

• Auction purchasers must adhere strictly to deposit timelines specified in the auction notice. Failure to deposit 25% of the bid amount on the auction date can result in the extinguishment of rights, even if the amended Section 13(8) applies.
• Courts will not condone delays in depositing the bid amount, as seen in M.R. Vasumathi v. The Authorized Officer & Ors. (2026 INSC 633), where a five-day delay led to the auction being set aside.

Retrospective Applicability of Amended Section 13(8) Is Conditional

• The 2016 amendment to Section 13(8), which extinguishes the borrower's right of redemption upon publication of the auction notice, applies retrospectively to subsisting claims.
• However, this retrospective applicability is conditional upon the auction purchaser's compliance with auction conditions. If the purchaser fails to deposit the bid amount on time, the amended provision does not protect their rights.

Fresh Auction Required If Property Cannot Be Bifurcated

• If an auction is conducted for a larger property and a portion of it is later excluded (e.g., due to litigation), a fresh auction must be conducted for the remaining property. The earlier auction cannot confer rights on the purchaser for the excluded portion.
• Practitioners must ensure that auction notices clearly demarcate the property being sold to avoid disputes over title or encumbrances.

Mediation as a Tool for Resolving SARFAESI Disputes

• Mediation can be an effective tool for resolving disputes under the SARFAESI Act, particularly in consortium lending cases where multiple stakeholders are involved.
• Courts may encourage mediation to achieve amicable settlements, especially where the borrower's business viability is at stake.

Banks Must Act Transparently and Avoid Malafide Conduct

• Banks must act transparently in auction proceedings and avoid entering into settlements that undermine the sanctity of the auction process.
• Malafide conduct, such as colluding with the borrower to bypass auction conditions, can lead to legal challenges and invalidation of settlements.