A SARFAESI Auction That Backfired
On 10 September 2025, the Supreme Court of India called the conduct of Punjab National Bank (PNB) in a SARFAESI auction a “sorry state of affairs” and described the facts as “very gross” in Mohammad Zubair Ahmad v. Punjab National Bank & Anr., SLP (C) No. 7273/2025.
The case is a textbook example of how not to handle a SARFAESI auction, and a strong warning to both banks and borrowers about misusing legal forums and backdoor settlements.
The Core Facts: What Happened In This Case?
- PNB had given loan facilities to a borrower, secured by immovable property.
- After default, the bank invoked the SARFAESI Act, 2002 and put the secured asset to public auction.
- Mohammad Zubair Ahmad emerged as the successful auction purchaser and deposited around ₹42 lakh via RTGS as the full auction consideration.
So far, everything was standard SARFAESI practice.
Then things went off the rails:
- The borrower challenged the bank’s action before the Debt Recovery Tribunal (DRT).
- While that DRT case was pending, PNB and the borrower entered into a settlement in a National Lok Adalat, after the auction and after the auction purchaser had paid the entire amount.
- Instead of issuing a sale certificate to the auction purchaser, PNB refunded the money and behaved as if the auction could be quietly undone.
This effectively ignored the auction purchaser’s rights and tried to reset the clock as though the public auction had never happened.
DRT, Writ Petition And Forum Shopping
The DRT, seeing this messy sequence, summoned PNB officials and started examining the legality of the bank’s actions.
At this point, instead of:
- Responding fully before DRT, and
- If needed, going on appeal to DRAT,
PNB chose to file a writ petition under Article 226 before the Allahabad High Court against the DRT order.
The High Court entertained the writ and issued notice – exactly the kind of writ intervention in SARFAESI proceedings that the Supreme Court has repeatedly cautioned against.
Feeling completely sidelined, the auction purchaser approached the Supreme Court through SLP (C) No. 7273/2025.
Supreme Court’s Intervention:
On 09.09.2025, the bench of Justices J.B. Pardiwala and Sandeep Mehta passed a sharp order:
- Termed the facts “very gross”.
- Questioned why the High Court had entertained a writ petition at the instance of the bank in a SARFAESI matter.
- Directed the Chairman-cum-Managing Director (CMD) and the Chief General Manager (CGM) of PNB to appear personally before the Court the next day with the full record.
On 10.09.2025, after hearing the Attorney General for India for PNB, the Court noted:
- PNB admitted it was a mistake to:
- enter into a Lok Adalat settlement with the borrower after the auction, and
- file a writ petition in the High Court.
- The Court recorded that the writ petition in the Allahabad High Court would be withdrawn.
Crucially, the Supreme Court ordered:
- PNB must unconditionally withdraw its writ petition in the Allahabad High Court; and
- Within 48 hours of that withdrawal, the bank must issue the final sale certificate to the auction purchaser.
- If any conveyance deed is required, it must also be executed in accordance with law.
The borrower was told that if he is aggrieved by the auction or the sale certificate, he is free to take appropriate legal steps before the proper forum (DRT/DRAT).
Key Legal Messages From The Judgment
1. Sanctity Of SARFAESI Auctions
The Court’s underlying concern is clear: if banks are allowed to reverse auctions after taking full consideration, public confidence in SARFAESI auctions will collapse.
An auction purchaser who has:
- participated in a statutory auction, and
- paid the full amount,
has a strong vested right to get a sale certificate and clear title, unless serious illegality in the auction is proved before the proper forum.
2. Lok Adalat Cannot Sacrifice Third-Party Rights
The Lok Adalat settlement was between PNB and the borrower, not between PNB, borrower, and the auction purchaser.
The Court was clearly disturbed by a settlement that effectively sacrificed the auction purchaser’s rights without his participation.
Lok Adalats are meant to settle disputes between parties before them, not to wipe out the rights of an absent third party who has already paid for a property in a public auction.
3. Stop Misusing Writ Jurisdiction In SARFAESI Cases
The bench used this case to restate a principle the Supreme Court has hammered for years:
SARFAESI disputes must ordinarily go through DRT/DRAT, not short-circuited by writ petitions in High Courts.
What makes this case worse is that the bank itself – not the borrower – misused writ jurisdiction:
- PNB argued in other cases that borrowers should not bypass DRT.
- Yet here, PNB itself approached the High Court, contradicting its own usual stand.
The Court even suggested that PNB should adopt a policy decision internally to prevent such misuse in future.
4. Accountability Of Bank Officials
Reports from LawFinder and PrimeLegal note that the Court questioned whether departmental action would be taken against the bank officials responsible for this mishandling and forum-shopping.
Even though the Court ultimately left disciplinary measures to the bank, the message is blunt:
nationalised banks are expected to behave with higher legal discipline, not to play procedural games.
Why This Case Matters For Auction Purchasers
For anyone bidding in bank auctions under SARFAESI, this judgment is a strong shield:
- Your rights don’t vanish because the bank changes its mind later.
Once the auction is concluded and full payment is made, the bank cannot casually undo the sale via a private settlement with the borrower. - You can go straight to higher courts if your vested rights are sabotaged.
Here, the auction purchaser directly approached the Supreme Court and got clear, time-bound directions in his favour. - Bank and borrower cannot treat you as an extra.
Any settlement that ignores your rights as auction purchaser can be challenged and neutralised before the proper forum.
How Real Estate Buyers Can Protect Themselves In Bank Auctions
Even with strong Supreme Court protection, buyers must do their homework before bidding:
- Verify title and encumbrances – check EC, prior mortgages, court cases.
- Confirm the SARFAESI process – proper notices, rule-compliant auction, reserve price, etc.
- Document every payment and preserve all auction communication from the bank.
Before diving into the purchase of auction property read about the risks involved in such transactions Mini Glossary (For Non-Law Readers)
- SARFAESI Act – Law that allows banks to seize and sell secured assets (like property) without going through a full civil court trial, if the borrower defaults.
- DRT (Debt Recovery Tribunal) – Special tribunal that hears disputes under SARFAESI and other bank-recovery laws.
- DRAT (Debt Recovery Appellate Tribunal) – If a party (bank or borrower or even an affected third party) is unhappy with a DRT order in a SARFAESI matter, they normally appeal to DRAT instead of rushing to the High Court under writ jurisdiction.
- Lok Adalat – Settlement forum where pending cases can be resolved by compromise; its award has the effect of a court decree, but it cannot legally erase the rights of someone who isn’t a party.