The Supreme Court recently clarified the conditions under which a property sale conducted through auction or other means under the SARFAESI Act can be set aside after its confirmation.
The Court emphasized that procedural irregularities or deviations from prescribed rules are insufficient grounds to annul a confirmed sale unless such irregularities are fundamental, involving issues like fraud, collusion, inadequate pricing, or underbidding.
A bench comprising Justice J.B. Pardiwala and Justice Manoj Misra observed:
“Once a sale by auction or other public procurement methods is confirmed or concluded, it should not be set aside or interfered with lightly unless the issues raised are fundamental to the sale process, such as fraud, collusion, or inadequacies like underpricing or underbidding. Procedural irregularities or deviations from rules that do not result in significant procedural errors do not undermine the legitimacy of such proceedings.”
The Supreme Court also advised courts to avoid entertaining challenges to confirmed sales when such issues could have been raised prior to confirmation or when irregularities do not cause substantial harm.
“In such instances, courts should exercise caution in allowing challenges to auctions that could have been raised before the sale was finalized or where no significant prejudice or injury has occurred due to the alleged irregularities,” the Court stated.
The Court referred to the recent judgment in V.S. Palanivel v. P. Sriram, which underscored that unless serious flaws such as fraud, collusion, or grave procedural irregularities affecting the core of the auction are evident, courts should refrain from interfering, considering the potential domino effect of such decisions.
In the present case, the Court observed that apart from the absence of a mandatory 15-day gap between the notice of sale and the notice of auction, no other illegality was alleged in the auction process. Furthermore, it was not argued by the borrower that this procedural lapse caused any prejudice or hindered the effective exercise of their rights.
As a result, the Court dismissed the challenge to the auction proceedings.
Case: Celir LLP v. Ms. Sumati Prasad Bafna and Others
