SARFAESI | Confirmed Sale Can't Be Set Aside For Mere Irregularities Except Fraud, Collusion, Inadequate Pricing, Under-bidding Etc

The Supreme Court recently explained the circumstances under which a sale of property by auction or other means under the SARFAESI Act can be set-aside after its confirmation.

The Court 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.

A bench comprising Justice JB Pardiwala and Justice Manoj Misra explained :

"Any sale by auction or other public procurement methods once already confirmed or concluded ought not to be set-aside or interfered with lightly except on grounds that go to the core of such sale process, such as either being collusive, fraudulent or vitiated by inadequate pricing or underbidding. Mere irregularity or deviation from a rule which does not have any fundamental procedural error does not take away the foundation of authority for such proceeding."

The Supreme Court advised Courts to not entertain challenges to confirmed sale which could have been raised before the confirmation of the sale or where the irregularities do not result in substantial injury.

"In such cases, courts in particular should be mindful to refrain entertaining any ground for challenging an auction which either could have been taken earlier before the sale was conducted and confirmed or where no substantial injury has been caused on account of such irregularity."

Reference was made to the recent judgment in V.S. Palanivel v. P. Sriram 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.

In the present case, the Court noted that apart from the lack of any 15-days gap between the notice of sale and the notice of auction, no other illegality has been imputed to the auction proceedings. It was also not the case of the Borrower that due to the absence of the aforesaid statutory period, any prejudice was caused or that it was prevented from effectively exercising its rights due to such procedural infirmity.

Accordingly, the Court rejected the challenge to the auction proceedings.

Other reports about the judgment can be read here.

Case : Celir LLP v. Ms Sumati Prasad Bafna and others