Rule 9(4) Breach Leads to SARFAESI Auction Invalidation — Supreme Court Dismisses Appeals, Madras HC Relief Stands

Case Overview

Case Name: E. Muthurathinasabathy & Ors Vs Sri International & Ors. (Supreme Court of India)

Court: Supreme Court of India

Bench: Hon'ble Mr. Justice Dipankar Datta and Hon'ble Mr. Justice Satish Chandra Sharma

Note: The full signed judgment of the Supreme Court is non-reportable. The detailed reasoning of the Supreme Court Bench is not available in the source material, and accordingly no independent reasoning is attributed to the Bench beyond what is expressly recorded in the order.

Background and Factual Matrix

This matter arose from a chain of proceedings before multiple forums — the Debt Recovery Tribunal (DRT), the Debt Recovery Appellate Tribunal (DRAT), and the Madras High Court — relating to enforcement action taken by a bank against the borrowers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The key facts forming the foundation of the dispute are as follows:

  • The loan facilities in question were renewed on 29.03.2019, with the outstanding amount revised to Rs. 4 crores.
  • Four properties were mortgaged as security for the loan.
  • The loan account was classified as a Non-Performing Asset (NPA) on 25.11.2018.
  • A demand notice under Section 13(2) of the SARFAESI Act was issued on 10.02.2020.
  • Symbolic possession of the mortgaged properties was taken under Section 13(4) on 21.04.2020.
  • The auction of the secured assets was conducted on 04.09.2020.

Proceedings Before the High Court, DRT and DRAT

Following the auction, successive proceedings were initiated before the DRT, DRAT, and the Madras High Court, with various interim directions issued at different stages governing the confirmation and further steps in the sale.

Madras High Court Interim Order (15.12.2020)

By an order dated 15.12.2020 in C.R.P. No. 2187 of 2020, the Madras High Court permitted the bank to accept the balance sale consideration from the auction purchasers. However, the Court simultaneously directed that no further steps in furtherance of the sale would be taken until the disposal of S.A. No. 263 of 2020.

DRT Order and Sale Confirmation (31.03.2022)

The DRT dismissed the securitisation appeals on 31.03.2022. On that very date:

  • The sale was formally confirmed.
  • The balance 75% of the auction consideration was appropriated from the fixed deposits of the auction purchasers.
  • A sale certificate was issued and registered on 18.04.2022.

DRAT's Common Order (24.11.2022)

By a common order dated 24.11.2022, the DRAT upheld the auction sale, thereby affirming the DRT's findings and the actions taken by the bank.

When the matter came up before the Madras High Court in a subsequent round, two distinct and opposing positions were presented:

Borrowers' Contention

The borrowers argued that: