Sale By Way Of Public Auction Can't Be Set Aside Unless There's Material Irregularity Or Fraud/Collusion : Supreme Court

The Supreme Court has reiterated the principle that sale by way of public auction cannot be set aside until there is any material irregularity and/or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion. 

Reference was made to the judgment in V.S. Palanivel vs. P. Sriram 2024 LiveLaw (SC) 662 which held that unless there are some serious flaws in the conduct of the auction as for example perpetration of a fraud/collusion, grave irregularities that go to the root of such an auction, courts must ordinarily refrain from setting them aside keeping in mind the domino effect such an order would have.

Reference was also made to the recent judgment in Celir LLP vs Ms Sumati Prasad Bafna and others 2024 LiveLaw (SC) 991 which held that mere procedural irregularities or deviation from rules are not grounds to set aside a confirmed sale unless such errors are fundamental in nature, such as fraud, collusion, inadequate pricing or underbidding.

Citing these precedents, a bench comprising Justice BV Nagaratna and Justice NK Singh observed : "It is now a well-settled principle that a sale by way of public auction cannot be set aside until there is any material irregularity and/or illegality committed in holding the auction or if such auction was vitiated by any fraud or collusion."

The bench made these observations while setting aside a judgment of the Delhi High Court which cancelled the auction sale of the secured asset conducted as per the SARFAESI Act 2002. Allowing the appeal filed by the auction-purchaser, the Supreme Court observed that the High Court could not have set aside the sale.

The Supreme Court noted that the the borrower was given ample opportunities to redeem the mortgage. It also rejected an objection raised by a person who claimed to be in possession of the property, after noticing that the right was claimed on the basis of an unregistered sale agreement.

The Court noted that when the original owner/borrower failed to repay the loan, the bank ssued a notice under Section 13 of the SARFESI Act. Thereafter, physical possession of the secured asset was taken over and a Receiver was appointed in terms of Section 14 of the SARFESI Act. Thereafter, a notice was issued regarding the public auction of the basement being the secured asset as per Section 13 of the Act. The appellant herein participated in the said auction and was declared the highest bidder. Ultimately, the bank also issued a sale certificate in favour of the appellant.

"Thus, the auction was in due compliance with the statutory requirements and constituted a valid sale," the Court observed.

Also from the judgment- Until Sale Deed Is Registered, Ownership Of Immovable Property Isn't Transferred : Supreme Court

Case Title : Sanjay Sharma v. Kotak Mahindra Bank Ltd.