It is crucial for tenants to ensure that their tenancy is properly documented. Ideally, rental agreements should be registered to establish clear legal proof of the tenancy.

In cases where the arrangement is verbal, tenants should maintain supporting evidence such as rent receipts, bank transfer records, utility bills, or any written communication with the landlord.

Proper documentation plays a key role in protecting tenant rights, especially when disputes arise during bank recovery or auction proceedings.

Does a Bank Auction End the Tenancy?

Banks can take possession and auction mortgaged properties under the SARFAESI Act, 2002 when borrowers fail to repay their loans. However, an existing tenant cannot always be removed without examining the legality of the tenancy.

The tenant’s rights largely depend on whether the tenancy was created:

• before the property was mortgaged;
• after the mortgage but before the bank’s demand notice; or
• after the bank issued a notice under Section 13(2) of the SARFAESI Act.

Tenancy Created Before the Mortgage

A genuine tenancy created before the mortgage generally receives stronger legal protection. In Vishal N. Kalsaria v. Bank of India, the Supreme Court held that banks cannot use SARFAESI proceedings as a shortcut to evict tenants protected by rent-control laws. Such tenants can ordinarily be removed only through the legally prescribed eviction process.

The tenant must still prove the tenancy through documents such as a registered rental agreement, rent receipts, bank transfers, electricity bills or other evidence showing continuous occupation.

Tenancy Created After the Mortgage

A tenancy created after the mortgage is not automatically invalid. However, it must comply with the mortgage conditions and Section 65A of the Transfer of Property Act.

In Bajarang Shyamsunder Agarwal v. Central Bank of India, the Supreme Court clarified that the timing and validity of the tenancy must be carefully examined. A lease created against the terms of the mortgage may not bind the bank or the auction purchaser.

Tenancy Created After the Bank’s Demand Notice

Once a borrower receives a demand notice under Section 13(2), the borrower generally cannot lease or transfer the secured property without the bank’s written consent.

Therefore, a tenancy created after the SARFAESI notice may be treated as an attempt to delay recovery and is unlikely to protect the occupant from eviction.

Can an Auction Purchaser Evict the Tenant?

An auction purchaser does not automatically obtain the right to forcibly remove a genuine tenant. The purchaser normally steps into the position of the previous owner and must follow the applicable tenancy and eviction laws.

However, an auction purchaser may seek possession where:

• the tenancy has expired or been legally terminated;
• the lease violates the mortgage terms;
• the tenancy was created after the bank’s demand notice;
• the documents are fabricated or collusive; or
• the occupant cannot prove a genuine landlord–tenant relationship.

Where Can a Tenant Challenge Eviction?

Under Section 17(4A) of the SARFAESI Act, the Debt Recovery Tribunal can examine tenancy and leasehold claims relating to secured properties. The DRT can determine whether the tenancy has expired, violates the mortgage, conflicts with Section 65A or was created after the bank’s demand notice.

A tenant can approach the DRT to raise issues such as:

• Whether the tenancy is genuine and supported by valid documents such as a registered lease agreement or rent receipts
• Whether the tenancy was created prior to the mortgage or before the issuance of the bank’s demand notice
• Whether the lease complies with the terms of the mortgage and Section 65A of the Transfer of Property Act
• Whether the tenancy has legally expired or has been validly terminated
• Whether the bank or secured creditor has followed due process before taking possession
• Whether the tenancy is being wrongly treated as sham, collusive or fraudulent
• Whether the tenant is entitled to protection under applicable rent control laws
• Whether the auction purchaser is attempting eviction without following proper legal procedure

The Supreme Court reaffirmed in PNB Housing Finance Ltd. v. Manoj Saha that tenants challenging SARFAESI action ordinarily have an effective remedy before the DRT.

What Should Tenants Do?

A tenant who receives a possession or auction notice should immediately collect the rental agreement, rent receipts, bank statements, utility bills and proof showing the date on which the tenancy began. Delay can weaken the tenant’s ability to protect possession.

Create a Clear Rental Agreement Online

Landlords and tenants can use Verified.RealEstate’s Rental Agreement Generator to create a structured agreement by entering the parties’ details, property information, rent, deposit, duration, notice period, maintenance responsibilities and other agreed conditions. The completed agreement can be exported as a Word document, helping both parties clearly record the terms of the tenancy and reduce future misunderstandings. However, generating the document alone does not automatically make it legally registered; the parties should execute, stamp and register it wherever required under applicable law.

Conclusion

A bank auction does not automatically erase a valid tenancy. Genuine tenants may receive legal protection, particularly when the tenancy existed before the mortgage. However, sham, undocumented or recently created tenancies cannot be used to obstruct lawful recovery proceedings.

Both tenants and auction buyers should verify the tenancy records, mortgage date and SARFAESI notices before taking legal or financial decisions.

Disclaimer: This article provides general legal information and is not a substitute for advice based on the documents and facts of a particular case. Contact an experienced property lawyer to verify your tenancy rights and take timely legal action.

A borrower, guarantor, property owner or any other affected person can approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act when the bank takes measures such as possession or auction of the secured property. The application must generally be filed within 45 days of the challenged action.

Major Grounds for Challenging a SARFAESI Auction

Incorrect NPA Classification

SARFAESI proceedings can be initiated only after the secured loan has been classified as a ¹Non-Performing Asset in accordance with applicable RBI norms.

The owner may challenge the proceedings if payments were ignored, the overdue period was calculated incorrectly, the outstanding amount was wrong or the bank classified the account as an NPA despite the loan being regularised.

Defective Demand Notice

Before taking possession, the bank must issue a notice under Section 13(2), giving the borrower 60 days to repay the dues.

The proceedings may be questioned if the notice was not properly served, contained a materially incorrect amount, wrongly described the property or did not provide the required period.

Failure to Consider the Borrower’s Objections

A borrower can submit objections against the demand notice. Under Section 13(3A), the bank must consider them and communicate reasons when they are rejected.

In ITC Limited v. Blue Coast Hotels Limited, the Supreme Court stressed that banks must meaningfully consider the borrower’s representation instead of treating the process as an empty formality.

Improper Possession or Auction Notice

The auction may be challenged where the bank failed to:

• serve the possession or sale notice properly;
• publish the auction notice in the required newspapers;
• provide the mandatory notice period;
• correctly describe the property;
• disclose the reserve price and auction conditions; or
• issue a fresh notice when required.

In Mathew Varghese v. M. Amritha Kumar, the Supreme Court held that banks must strictly follow the statutory sale procedure and provide the borrower with the required notice before selling the property.

Gross Undervaluation of the Property

Before an auction, the bank must obtain a valuation from an approved valuer and fix a reserve price.

An owner may approach the DRT if the valuation is outdated, important property features were ignored, the reserve price was arbitrarily reduced or the property was sold substantially below its genuine market value.

A low sale price alone may not invalidate an auction. The owner must normally demonstrate serious valuation defects, procedural violations, collusion or lack of genuine competition.

In a Kodagu plantation auction case, the Karnataka High Court questioned how a 39-acre estate worth about ₹3.12 crore was valued at ₹61 lakh and sold for ₹99 lakh, also raising concerns about the valuer’s qualifications. The case highlights that major undervaluation and improper valuation can be grounds to challenge a SARFAESI auction, though it is still under judicial scrutiny.

Collusion or Manipulation During Auction

The auction can be questioned if genuine bidders were prevented from participating, bidding records were manipulated, the successful bidder was given special treatment or bank officials colluded to sell the property at an artificially low price.

Such allegations must be supported by documents and not merely suspicion.

Auction Purchaser Failed to Make Payment Properly

The successful bidder must pay the deposit and balance auction amount within the period prescribed under the Rules.

The owner may challenge the sale if the bank illegally extended the payment deadline, accepted delayed payment without authority or issued the sale certificate before receiving the full consideration.

In Agarwal Tracom Pvt. Ltd. v. Punjab National Bank, the Supreme Court recognised that even an auction purchaser affected by measures taken under the SARFAESI Rules may approach the DRT under Section 17.

Property Was Not Validly Mortgaged

A third-party property owner may challenge the auction where:

• no valid mortgage was created;
• the owner never signed the mortgage documents;
• documents were forged;
• the person creating the mortgage had no authority;
• the bank auctioned a property different from the secured property; or
• the mortgage covered only a portion of the property.

Section 17 is available to “any person” affected by the bank’s enforcement action and is not restricted only to the borrower.

Bank Ignored Full Payment or Settlement

An auction may also be challenged if the borrower had already discharged the loan, complied with an accepted settlement or made payments that the bank failed to credit.

However, a mere request for more time or an unaccepted settlement proposal will not usually stop a lawful auction.

Borrower’s Right to Redeem the Property

Under the amended Section 13(8), the borrower must tender the entire outstanding amount, together with applicable costs and expenses, before publication of the sale notice to exercise the statutory ²right of redemption.

In Celir LLP v. Bafna Motors, the Supreme Court held that under the amended provision, the borrower’s right of redemption ends once the auction notice is published. The judgment also made it clear that SARFAESI does not permit bank officials to act contrary to the law.

What Can the DRT Do?

When serious procedural or legal violations are proved, the DRT may:

• stay the proposed auction;
• stop confirmation of the sale;
• set aside the possession or auction notice;
• cancel an unlawful auction;
• order restoration of possession;
• direct the bank to obtain a fresh valuation; or
• require the bank to conduct a fresh auction according to law.

Act Quickly Before the Auction Is Completed

A property owner should not wait until the sale certificate is issued. A Section 17 application must generally be filed within 45 days of the relevant SARFAESI measure, along with an urgent interim application when the auction is approaching.

Financial hardship or a promise to pay later is usually not enough. A successful DRT challenge should identify a specific violation and support it with loan statements, payment receipts, notices, valuation reports, title documents and auction records.

This information is for general awareness and is not a substitute for advice based on the documents and facts of a particular case.

Important Judgments to Read

• ITC Limited v. Blue Coast Hotels Limited, 2018: Consideration of borrower objections and compliance with SARFAESI procedure.
• Mathew Varghese v. M. Amritha Kumar, 2014: Mandatory sale notice and protection against irregular property auctions.
• Celir LLP v. Bafna Motors, 2023: Borrower’s right of redemption and the legal finality of a valid auction.
• Agarwal Tracom Pvt. Ltd. v. Punjab National Bank, 2017: Scope of the remedy available before the DRT under Section 17.

1. A Non-Performing Asset (NPA) is a loan account in which principal or interest remains overdue for more than 90 days. ↩︎
2. The right to redeem allows a borrower to recover the mortgaged property by paying the full outstanding dues and costs before the legally prescribed deadline.
   ↩︎

The case has become important because it raises a direct question: can a mortgaged property be auctioned at a price that appears far below its actual or guidance value?

What Is the Case About?

The dispute relates to a plantation property at Mundrote village in Bhagamandala, Kodagu district. The borrower had mortgaged the plantation while availing a loan. After default in repayment, recovery proceedings were initiated under the SARFAESI Act, which allows banks and financial institutions to recover dues by enforcing security interest over mortgaged assets.

However, the controversy is not merely about the loan default. The larger issue is the valuation of the property before auction.

According to the reported details, the same property was valued at over ₹2.73 crore in 2014 by the bank while the loan was sanctioned. In 2024, as per the guideline value, the property value was ₹3.12 crore; however, before the auction process, it was allegedly reduced to around ₹61 lakh. The property was ultimately sold for ₹99 lakh.

Why Did the High Court Raise Concerns?

The High Court found the gap between the earlier valuation and the later auction valuation to be extremely serious. A property that was valued at over ₹2.73 crore in 2014 being valued at only around ₹61 lakh a decade later naturally raised questions.

The concern became stronger because the government guidance value of the land alone was reportedly around ₹2.73 crore in 2023. This figure did not even include the value of the standing coffee and cardamom crops on the plantation.

The court firmly questioned how a 39-acre plantation, carrying a significantly higher guidance value, could have been assessed at such a low figure for auction purposes.

The Main Issue: Alleged Undervaluation

The central issue in this case is alleged undervaluation of the secured property before auction.

In a bank auction, the valuation is crucial because it affects the reserve price and the final sale price. If the valuation is too low, the property may be sold for less than what it is reasonably worth. This can seriously affect the borrower, especially if the property value is much higher than the loan dues.

Undervaluation can also affect the fairness of the auction process. A bank has the right to recover its dues, but that recovery must be done through a legally fair and transparent process.

Why Proper Valuation Matters in SARFAESI Auctions

Under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, before selling an immovable secured asset, the authorised officer must obtain a valuation of the property from an approved valuer and then fix the reserve price in consultation with the secured creditor.

This rule exists for a reason. A bank auction is not supposed to be a distress sale without checks. The valuation must be done properly so that the borrower is not unfairly deprived of a valuable property and the sale process does not become questionable.

If the valuation itself is defective, the entire auction process may come under legal challenge.

Question Over the Valuer’s Qualification

Another serious part of the case is the question over whether the valuer appointed for the property was legally competent to value plantation properties.

According to the report, the High Court found that the registered valuer engaged by the bank may not have been qualified to value plantation properties. The court reportedly issued a show-cause notice asking why prosecution and criminal contempt proceedings should not be initiated against him.

This is a major point because plantation property is not the same as ordinary vacant land or a regular building. The value may depend on land extent, crop type, yield, location, access, market potential and standing plantation assets.

If a person who is not legally qualified values such a property, the valuation may become unreliable.

What This Case Means for Borrowers

This case is a reminder that borrowers should not ignore SARFAESI notices or bank auction proceedings. Once a bank starts recovery action, every notice, valuation and auction step should be checked carefully.

Borrowers should verify whether:

• The bank has followed the SARFAESI procedure correctly.
• The property valuation is reasonable.
• The valuer is properly qualified.
• The reserve price reflects the real value of the property.
• The guidance value and market value have been considered.
• The borrower has been given proper notice and opportunity to object.

If there is a serious defect, the borrower may have legal remedies before the Debts Recovery Tribunal or the High Court, depending on the facts of the case.

What Buyers Should Learn from This Case

Auction buyers should also be careful. A low-price bank auction may look attractive, but if the valuation or auction process is later challenged, the buyer may face legal complications.

Before buying any auction property, buyers should check:

• Whether the borrower has challenged the auction.
• Whether the valuation appears fair.
• Whether the property has title disputes.
• Whether possession is clear.
• Whether there are pending court or DRT cases.
• Whether the auction process followed SARFAESI rules.

Buying a property only because it is cheap can become risky if the legal process behind the auction is weak.

How Verified.RealEstate Can Help

Cases like this show why proper due diligence is important before buying or dealing with auction properties. Verified.RealEstate helps buyers and property owners with document checks, legal due diligence, encumbrance verification, ownership verification, market value understanding and litigation support through professional assistance.

For bank auction properties, it is especially important to verify whether the sale process, valuation, possession status and title documents are legally safe before making a decision.

Key Takeaway

The Karnataka High Court case is not just about one plantation in Kodagu. It highlights a bigger issue in property auctions: valuation cannot be treated as a formality.

Banks have the right to recover dues, but the process must be fair. A property cannot be pushed into auction at a value that appears shockingly lower than its earlier valuation, guidance value or market reality without proper justification.

Until the court finally decides the matter, it is safer to describe this case as one involving serious judicial scrutiny over alleged undervaluation in a SARFAESI bank auction.

Frequently Asked Questions

Can a bank auction a mortgaged property after loan default?

Yes. Under the SARFAESI Act, banks and financial institutions can take action against secured assets if the borrower defaults. However, they must follow the required legal procedure.

Can a borrower challenge a bank auction?

Yes. A borrower can challenge the auction if there are legal defects such as improper notice, wrong valuation, lack of possession procedure, irregular reserve price fixation or violation of SARFAESI rules.

Why is valuation important in a bank auction?

Valuation decides the reserve price and influences the final sale amount. If the valuation is too low, the property may be sold below its fair value, causing serious loss to the borrower.

What is the issue in the Kodagu plantation case?

The main issue is that a 39-acre plantation allegedly valued at over ₹3.12 crore earlier was later valued at only around ₹61 lakh and sold for ₹99 lakh, leading the High Court to question the valuation process.

Should buyers purchase bank auction properties?

Bank auction properties can be purchased, but only after proper legal due diligence. Buyers should check title, possession, pending cases, valuation, loan documents and auction procedure before investing.

Disclaimer

This article is for general information only and should not be treated as legal advice. Property buyers, borrowers and auction participants should consult qualified legal professionals before taking any decision related to SARFAESI proceedings, bank auctions or disputed property transactions.

A property does not enter a bank e-auction overnight. It reaches this stage only after a borrower defaults on a secured loan and the bank invokes its powers under the SARFAESI Act, 2002.

E-auction is the final recovery step, not the first action. For buyers, understanding this journey is critical — because any procedural gap before the auction can later invalidate the sale.

Bank e-auctions are usually published across official bank websites, authorised e-auction platforms (such as MSTC, e-Procurement portals, and bank-appointed service providers), and widely circulated newspapers as legally mandated sale notices, while aggregator portals may list them for visibility but the actual auction and legal authority always trace back to the lending bank’s official notice.

Step 1: Loan Account Becomes a Non-Performing Asset (NPA)

The process starts when:

• The borrower fails to repay EMIs
• The account remains overdue beyond the RBI-defined period
• The bank classifies the account as an NPA

Only after this classification can SARFAESI proceedings begin.

Step 2: Demand Notice Under Section 13(2)

Once the loan becomes an NPA, the bank issues a Demand Notice under Section 13(2) of the SARFAESI Act.

This notice:

• Mentions the total outstanding dues
• Gives the borrower 60 days to repay
• Allows the borrower to raise objections or representations

If the borrower submits objections, the bank must reply within 15 days with reasons.

This step is mandatory.
No valid 13(2) notice → the entire auction becomes legally weak.

Step 3: Possession Notice Under Section 13(4)

If dues are not cleared within 60 days, the bank proceeds to take possession of the secured asset by issuing a Possession Notice under Section 13(4).

This possession can be:

• Symbolic possession (most common)
• Physical possession (stronger but harder)

Symbolic possession means the bank has legally taken control on paper under SARFAESI, but the borrower or occupant may still be physically occupying the property.

The possession notice must:

• Be served to the borrower
• Be affixed on the property
• Be published in two newspapers within 7 days

This notice marks the formal takeover of the property for recovery purposes.

Step 4: Borrower’s Right to Approach DRT

After possession notice:

• The borrower has 45 days to approach the Debt Recovery Tribunal (DRT)
• Filing a case does not automatically stop the auction
• Only a specific stay order can pause the process

Many auctions continue because borrowers fail to secure interim relief.

Step 5: Valuation and Reserve Price Fixation

Before auctioning the property, the bank:

• Appoints an approved valuer
• Assesses market value considering distress conditions
• Fixes a reserve price

Reserve price is the minimum bidding value, not the market value.

Step 6: Issue of Sale Notice (Auction Notice)

The bank then issues a Sale Notice, which legally triggers the e-auction.

Key requirements:

• 30 clear days must exist between sale notice and auction date
• Notice must be:
  • Served to the borrower
  • Published in two newspapers
  • Uploaded on authorised e-auction portals

The sale notice contains:

• Property description
• Reserve price
• EMD amount
• Auction date and terms

Step 7: Property Enters the E-Auction Platform

Only after completing all prior steps does the property appear on:

• Bank websites
• Approved e-auction portals
• Aggregator platforms listing bank auctions

At this stage, the property is legally offered for sale, but still subject to procedural scrutiny.

Buyers Must Focus On

Buyers must focus not only on the price of the property but also on details

• Whether all SARFAESI timelines were followed
• Whether possession is symbolic or physical
• Whether borrower litigation is pending
• Whether statutory dues remain unpaid

Banks sell properties on an “as-is-where-is” basis, meaning due diligence responsibility lies entirely with the buyer.

Sale on “As Is Where Is, As Is What Is, Whatever There Is & No-Recourse Basis”

Bank e-auction properties are sold with zero guarantees from the bank. This clause shifts all risk to the buyer and protects the bank completely. In practical terms, it means:

• As Is Where Is – The property is sold in its existing physical condition and location, including any occupation, encroachments, or structural issues.
• As Is What Is – The bank does not assure quality, approvals, or legality of construction, layout, or usage.
• Whatever There Is – The sale includes only whatever rights, title, and interest the bank actually holds—nothing more.
• No-Recourse Basis – After purchase, the buyer cannot claim refund, compensation, or correction from the bank for defects, disputes, or deficiencies.

Bottom line: price may look attractive, but due diligence is non-negotiable.

How Verified.RealEstate Helps

Verified.RealEstate assists buyers by:

• Verifying SARFAESI compliance timelines
• Reviewing possession and sale notices
• Flagging procedural and legal risks
• Helping buyers assess whether the auction price justifies the risk

Bank auctions can be opportunities — only when legal clarity is established first.

The Bombay High Court’s decision in Arrow Business Development Consultants Pvt. Ltd. vs Union Bank of India & Ors. (WP No. 11132 of 2025) delivers crucial clarity on a question that increasingly troubles banks, borrowers, and auction purchasers—

Whether a SARFAESI sale — especially a transfer of ownership of a secured asset — can be completed when an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 (IBC) kicks in before the statutory sale certificate is fully issued.

📌 Case Snapshot

Court: Bombay High Court (Division Bench)
Citation: 2025:BHC-AS:54045-DB
Date of Judgment: 10 December 2025
Parties:

• Petitioner: Arrow Business Development Consultants Pvt. Ltd. — successful auction purchaser under SARFAESI
• Respondent No.1: Union Bank of India — secured creditor
• Respondent Nos.2 & 3: Insolvency Professional & co-owners/guarantors (personal insolvency under IBC)

Background of the Dispute

📜 Legal Issues Before the Court

1. Does issuing a SARFAESI sale notice (Rule 8(6)) or confirming the auction itself extinguish the borrower’s rights and transfer ownership?
2. If the interim moratorium under Section 96 IBC is in force before the sale certificate is fully issued:
   • Can the Bank complete the SARFAESI sale by accepting final payments and issuing the sale certificate?
   • Can the auction purchaser claim ownership and seek possession?

Understanding IBC (Insolvency and Bankruptcy Code)

IBC (Insolvency and Bankruptcy Code) is a law that protects people or companies who cannot repay loans.

Once someone files an insolvency application:

• The law pauses all recovery actions
• No one can sell, transfer, or take over the person’s assets
• This pause is called a moratorium

Think of it as a legal ‘pause button’.

What the Bombay High Court Held

The Court drew a clear legal line:

• Winning a bank auction does not mean ownership unless the full payment is made and the sale certificate is issued.
• Even if the borrower loses the right to redeem the property, ownership continues until the sale is legally completed.
• If an IBC moratorium starts before the sale certificate is issued, the bank must stop the sale process.
• Because the sale was incomplete, the auction buyer did not become the legal owner and could not get possession.

Why This Judgment Is Important

This ruling settles an important misconception in recovery law:

• SARFAESI sales are not “complete” merely because an auction is held.
• Timing of the IBC moratorium is decisive.
• IBC cannot undo a completed sale—but it can block an incomplete one.

For banks and bidders, the message is blunt:

Delay in completing SARFAESI formalities can be fatal.

Implications for Property Buyers , Banks & Borrowers

• Auction purchasers must ensure full payment and immediate issuance of the sale certificate.
• Banks must act swiftly post-auction to avoid insolvency-triggered roadblocks.
• Borrowers can still invoke IBC protection if the sale is legally incomplete.

This judgment strengthens IBC’s role as a protective shield, not a retroactive weapon.

Conclusion

The Arrow Business Development Consultants case reinforces a crucial legal principle:
IBC moratorium prevails over SARFAESI enforcement if ownership has not legally transferred.

In property auctions and secured asset sales, procedural timing is everything—and overlooking it can collapse even a successful auction.

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:

1. 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.
2. 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.
3. 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.

1. Ancient Inscription Practices

Land documentation in India dates back over 2,000 years. In Tamil Nadu, land grants were documented in ancient Tamil Jain caves and hills through inscriptions. These inscriptions provided a formal record of land grants given to individuals or institutions, setting the foundation for land ownership documentation.

2. Temple Inscriptions

After 500 AD, a common practice was to record land grants on the stone walls of temples. These inscriptions served as legal proof of land donations or transactions, primarily involving religious or charitable institutions. The widespread use of temples as a repository for land documentation reflects the central role these institutions played in community life.

3. Metal Inscription Records

In addition to stone inscriptions, land grants were also documented on metal plates like copper and brass. These metal plates, some of which are preserved in museums today, provide an enduring record of land ownership and transactions. These documents were typically more durable and offered more security against tampering or deterioration compared to stone or palm leaves.

4. Other Forms of Documentation

Leather and palm leaves were also used for record-keeping, though records of land grants on leather are rare today. Palm leaf manuscripts were more commonly used for non-land-related documentation, including trade, governance, and religious activities.

5. Historical Record-Keeping

In the ancient Tamil text “Periyapuranam,” the existence of dedicated record-keeping centers, or “Aavanam Kalari,” is mentioned. These chambers stored original documents and helped preserve important land deeds and agreements for future generations.

6. Title Deeds in Ancient Times

Land transactions by landlords, zamindars (landowners), and inamdars (grantees of land) were meticulously recorded. Documents such as “Nila Olai” (land deeds), “Ada Olai” (mortgage deeds), and “Aal Olai” (human deeds) were maintained in state archives. These early deeds show that a system of formal land documentation existed long before modern times.

7. Upper-Class Land Transactions

During the reign of kings and through the zamindari era, land ownership and transactions were often restricted to temples, religious schools, and nobles. These high-class transactions were documented on copper plates and palm leaves. However, land rights for the common people were virtually non-existent, as land was primarily controlled by the ruling elite and religious institutions.

8. No Permanent Rights for Commoners

Until the 18th century, common people, or “kudiyanavargal,” did not possess permanent land rights. They were only given temporary usage rights, typically for three to five years, under a “Patta Mutchalika” (land lease document). This prevented most people from having long-term control over the land they worked on.

9. Permanent Settlement Act of 1802

A significant change came with the British East India Company’s introduction of the Permanent Settlement Act in 1802. This landmark legislation allowed common people to buy, sell, mortgage, and divide their land, establishing a formal system of land ownership. The act also led to the creation of a registration department, which formalized the process of land transactions.

10. French India Practices

In French territories like Pondicherry, land transactions began in phases under administrators like Francois Martin and Dupleix. Documents were handled by licensed “Notaires” (document writers), who registered these transactions with the French government. This system was separate from British India and reflected the distinct administrative approaches in colonial regions.

11. British and French Indian Registration

In British India, land registration for nobles and zamindars was overseen by court-appointed registrars, known as “Diwan-e-Adalat.” French India followed a different process, where landowners had to travel to France to register their properties, highlighting the contrasting methods between the two colonial powers.

12. Legal Integration of Registration Departments

In British India, the registration department initially fell under the judiciary, aimed at reducing the judiciary’s workload. Over time, the department expanded, becoming a separate entity that handled the growing complexity of land transactions.

13. Establishment of Registration Offices

The first registration offices were set up in Calcutta in 1840 and later in Madras (now Chennai) in the 1860s, marking the beginning of formalized land registration in India. These offices provided an official space for the documentation of land ownership and transactions.

14. The 1908 Registration Act

In 1908, the Registration Act was enacted, consolidating earlier laws into a comprehensive framework. This act laid the foundation for the modern land registration process in India, and it continues to govern land transactions today. The act made registration mandatory for certain types of property transfers, bringing transparency and accountability to land dealings.

15. Modernization of Registration Systems

Over time, land registration processes evolved from handwritten and typed documents to fully computerized systems. Today, online registration portals have made the process more accessible, faster, and more secure. Modernization has helped reduce the potential for fraud and has streamlined property transactions.

Conclusion

The evolution of land registration and documentation in India reflects a complex history of legal and administrative reforms aimed at formalizing land ownership. From ancient inscriptions to modern-day online systems, this journey underscores the importance of record-keeping in establishing property rights. As India continues to develop, the modernization of land documentation will play a crucial role in ensuring secure and transparent property transactions for future generations.

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What is the SARFAESI Act?

The SARFAESI Act empowers financial institutions to auction residential, commercial, or industrial properties without court intervention when a borrower defaults on a secured loan. It streamlines the recovery of debts by providing creditors with the ability to seize and sell the borrower’s assets. This process can be beneficial for banks, but for buyers looking to purchase such properties, due diligence is key.

Step-by-Step Guide to the SARFAESI Auction Process

1. Identification of Loan Default When a borrower misses multiple payments, typically three or more, the bank marks the loan as a Non-Performing Asset (NPA) under the RBI’s guidelines, which state that any loan with overdue interest or principal for more than 90 days is an NPA.
2. Issuance of Demand Notice Once the loan is classified as an NPA, the bank sends a demand notice under Section 13(2) of the SARFAESI Act. This notice gives the borrower 60 days to repay the outstanding loan amount. Failure to settle within this period leads to the next step.
3. Possession of Property If the borrower does not repay or negotiate within the stipulated 60 days, the bank takes possession of the property under Section 13(4). This can be:
   • Physical Possession: The bank takes physical control of the property.
   • Symbolic Possession: The bank takes legal control, but the borrower or tenants may still occupy the property.
4. Valuation of Property The bank appoints an independent valuer to assess the property’s market value. The valuer looks at factors such as location, condition, and market demand to determine the reserve price, which is the minimum bid amount for the auction.
5. Public Notice of Auction The bank then publishes a public notice in at least two newspapers (one in a local language and one in English) as per Rule 8(6) of the SARFAESI Rules. This notice includes:
   • Property description
   • Auction date, time, and venue
   • Reserve price and Earnest Money Deposit (EMD)
   • Borrower’s loan account details
6. Earnest Money Deposit (EMD) Prospective buyers must deposit an EMD, typically 10% of the reserve price, to participate in the auction. The EMD can be submitted via bank transfer or demand draft and is refundable to non-winning bidders.
7. Auction Process The auction is usually held online through an e-auction platform. Bidders submit their bids above the reserve price. The highest bid wins, but only if it meets or exceeds the reserve price.
8. Winning the Auction The winning bidder must pay 25% of the bid amount within 24 hours. The remaining 75% must be paid within 15-30 days. If the bidder fails to pay the full amount on time, the EMD and any additional payments are forfeited, and the bank may re-auction the property.
9. Issuance of Sale Certificate Once the full payment is made, the bank issues a Sale Certificate, transferring legal ownership to the buyer. The buyer must then register the sale certificate with the local sub-registrar’s office to complete the transfer.
10. Possession of Property After the sale certificate is issued, the buyer can take physical possession of the property. If the property is still occupied, the bank helps the buyer take control through legal means.
11. Use of Sale Proceeds The bank uses the proceeds from the auction to recover the borrower’s dues. Any surplus after covering the loan, interest, and legal fees is returned to the borrower. If the sale does not fully cover the loan, the bank may pursue further legal action to recover the remaining balance.

Risks and Disadvantages of Buying SARFAESI Auction Properties

1. Limited Inspection Opportunities Buyers may not have sufficient access to the property for thorough inspection before bidding. This could result in unknown structural damages, illegal constructions, or maintenance issues, which the buyer will be responsible for fixing.
2. Legal Disputes and Encumbrances Auctioned properties may have unresolved legal issues. Borrowers may contest the auction, and there may be claims from other creditors or disputes involving tenants. These can result in delays or even cancellation of the sale.
3. No Warranty or Guarantees Auction properties are sold “as-is, where-is,” meaning the bank provides no warranties regarding the property’s condition or title. If there are hidden defects, unpaid taxes, or other problems, the buyer is responsible for resolving them.
4. Possession Issues Taking possession of auctioned properties can be challenging if the borrower or tenants are still occupying it. Eviction proceedings may be necessary, which can be costly and time-consuming.
5. Unclear Title There is always a risk of unclear or disputed titles. The property could have multiple claims against it, or it could be mortgaged to multiple institutions. Buyers should conduct a thorough title search to avoid future litigation.
6. Upfront Payment and Forfeiture Winning bidders must make a significant payment upfront (25% within 24 hours) and complete the full payment within a short period (15-30 days). Failure to do so results in forfeiture of the EMD and any additional payments.
7. No Price Negotiation Auctions don’t offer room for negotiation. Bidders must pay the full bid amount even if it exceeds the market value.

Precautions for Buyers

1. Title Search and Legal Due Diligence Hire a legal expert to verify the title and check for any legal encumbrances, unpaid taxes, or liens on the property.
2. Review the Auction Notice Carefully review the auction notice for terms of sale, reserve price, auction date, and other essential details.
3. Inspect the Property Conduct a physical inspection, if possible, to assess the condition of the property and estimate any repairs or renovations needed.
4. Check the Possession Status Determine whether the bank has physical or symbolic possession of the property. If it’s symbolic, be prepared for possible legal action to take physical possession.
5. Verify Bank’s Authorization Ensure the bank is legally authorized to auction the property under the SARFAESI Act.
6. Check Financing Options Confirm whether the bank offers loans for auction properties and get pre-approval before bidding.

Conclusion

The SARFAESI property auction process offers opportunities to purchase properties at competitive prices but comes with inherent risks. Understanding the legal and financial challenges is essential for making an informed decision. Conduct thorough due diligence, consult with experts, and be cautious throughout the auction process to ensure a successful purchase.ss, and proper preparation.

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The SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), 2002, grants banks and financial institutions the power to auction properties, such as residential, commercial, or industrial, in the event of borrower defaults. This process allows banks to recover the unpaid loan amount by selling the mortgaged property, without involving the courts. Below is a step-by-step breakdown of the SARFAESI property auction process, and essential considerations for both buyers and borrowers.

1. Identification of Loan Default

When a borrower defaults on their loan—typically after missing three consecutive payments—the bank classifies the loan as a Non-Performing Asset (NPA), as per RBI guidelines. A loan becomes an NPA if the interest or principal remains unpaid for more than 90 days.

2. Issuance of Demand Notice

Once classified as an NPA, the bank sends a demand notice under Section 13(2) of the SARFAESI Act. The borrower is given 60 days to settle the outstanding loan. This notice clearly states the intention to seize the property if the loan remains unpaid.

3. Possession of Property

If the borrower fails to repay or negotiate within 60 days, the bank proceeds to take possession of the property. Under Section 13(4) of the Act, the bank issues a possession notice, either taking:

• Physical Possession: The bank physically takes control of the property.
• Symbolic Possession: The bank holds the legal title, but the borrower or tenants may still occupy the property.

4. Valuation of Property

The bank appoints an independent valuer to determine the fair market value of the property. This assessment considers factors like the property’s location, condition, market demand, and legal clearances. The valuation report helps set the reserve price for the auction, which is the minimum bid amount.

5. Public Notice of Auction

The bank issues a public notice of the auction in two leading newspapers (one in the local language and one in English), detailing:

• Description of the property.
• Auction date and time.
• Reserve price and earnest money deposit (EMD) details.
• Borrower’s loan status.
• Contact information for inquiries.

This public notice is usually published 30 days before the auction date.

6. Earnest Money Deposit (EMD)

Interested buyers must submit an EMD, typically 10% of the reserve price, to participate in the auction. The EMD can be paid via demand drafts, electronic transfers, or other bank-approved methods. The EMD is refunded to non-winning bidders.

7. Conducting the Auction

Auctions are held offline or via e-auction platforms managed by the bank. E-auctions allow bidders to participate from any location. During the auction, participants bid higher amounts than the reserve price, and the highest bid wins.

8. Winning the Auction

After winning the auction, the bidder must pay 25% of the winning bid amount (including the EMD) within 24 hours. The remaining 75% must be paid within 15-30 days. Failure to pay the full amount results in forfeiture of the EMD, and the property may be re-auctioned.

9. Issuance of Sale Certificate

Once full payment is made, the bank issues a Sale Certificate to the successful bidder, legally transferring the ownership. The buyer must register the sale certificate with the local sub-registrar’s office to complete the property transfer.

10. Possession of Property

After the sale certificate is issued, the buyer can take possession. If the bank had taken symbolic possession, they assist the buyer in obtaining physical possession, even if the property is occupied by the borrower or tenants.

11. Use of Sale Proceeds

The sale proceeds are used to clear the borrower’s outstanding loan, interest, penalties, and legal fees. If the proceeds exceed the loan amount, the surplus is returned to the borrower. Conversely, if the auction falls short of covering the debt, the bank may pursue legal action to recover the remaining balance.

Important Considerations for Buyers

1. Legal Due Diligence: Buyers must thoroughly verify the property’s legal status, ensuring clear title and checking for encumbrances.
2. Property Inspection: Conduct a physical inspection of the property to assess its condition.
3. Loan Financing: Banks may offer loans to auction participants, but these loans often have stricter terms and conditions.

Conclusion

The SARFAESI property auction process offers a structured way for banks to recover dues while providing opportunities for buyers to purchase properties, often at a discount. However, buyers must perform careful due diligence to avoid any potential legal issues after the purchase.

If you’d prefer to have everything handled for you seamlessly, you can click  here and contact us at verified.realestate. Our team of experts is here to provide comprehensive support and ensure a smooth and secure property buying experience.