SARFAESI Auction Purchasers Cannot Be Thrown On Streets On Account Of Dispute Between Banks: Bombay High Court

Successful auction purchasers holding a registered sale certificate under the SARFAESI Act cannot be thrown on the streets because of an inter se dispute between two secured creditors, the Bombay High Court held on Tuesday.

"The petitioners, who are successful auction purchasers having registered sale certificate in respect of the said flat in their favour and who have been in valid and legal possession of the aforesaid flat for more than eight years, cannot be thrown on the streets, on the basis of the aforesaid action undertaken by respondent – Saraswat Bank," the court observed.

A division bench of Justices Manish Pitale and Shreeram V. Shirsat directed Saraswat Co-operative Bank to restore possession of a mortgaged flat within four weeks. It also ordered the bank to return all the purchasers' belongings and restrained it from dealing with the property. The court clarified that Saraswat Bank was free to invoke Section 11 of the SARFAESI Act to resolve its dispute with State Bank of India through the mechanism provided under the law.

"It would be a travesty of justice, if this Court, exercising writ jurisdiction, does not come to the aid of the petitioners, who have suffered such a drastic consequence," the court held.

The case concerned a flat that had been mortgaged to SBI in September 2004. Eight years later, the borrower obtained separate credit facilities from Saraswat Bank by offering the same property as security.

Saraswat Bank classified the account as a non-performing asset, issued a demand notice in January 2013 and took symbolic possession of the flat in April that year. It, however, did not take any further steps for more than eleven years.

SBI initiated its own recovery proceedings in May 2013. It took physical possession of the flat in November 2014 after obtaining orders from the competent magistrate. The bank auctioned the property in April 2017 and issued a registered sale certificate to the purchasers in August that year. They took possession and lived in the flat with their family for more than eight years before they were dispossessed on August 20, 2025, pursuant to proceedings initiated by Saraswat Bank.

The court held that Saraswat Bank's prolonged inaction could not justify dispossessing the purchasers after SBI had completed the entire enforcement process.

It noted that SBI had already enforced its security interest, sold the property through auction, and transferred it by issuing a registered sale certificate. Any dispute regarding entitlement to the auction proceeds, the court held, lay between the two banks and had to be resolved separately.

"But, we are of the opinion that the said argument works against respondent – Saraswat Bank itself. As noted hereinabove, the said respondent chose to suspend its own actions under the Securitisation Act, after invoking Section 13(4) of the Securitisation Act, having gone into deep slumber for eleven years.", it noted

The court also rejected Saraswat Bank's contention that recognising SBI's mortgage would encourage collusion between borrowers and creditors. It observed that such concerns had to be examined on the facts of each case. It further noted that Saraswat Bank itself accepted that the auction purchasers could not be accused of conspiring with SBI and were instead caught in a dispute between the two secured creditors over recovery of dues.

"We also do not find any substance in the contention raised on behalf of the respondent – Saraswat Bank that if the mortgage executed in favour of respondent – SBI is accepted, it will open the doors for unscrupulous borrowers and creditors to conspire to deprive genuine creditors of their rights protected under the Securitisation Act. We are of the opinion that each case has to be decided on its own facts and if in a given case, the Court finds that such unscrupulous elements are seeking to mislead the Court, appropriate orders would be passed."

For Petitioners: Advocates Shadab Jan, Pranay Patil, Shreyas Deshpande

For State: G. R. Raghuwanshi, AGP

For Respondents: Advocates Charles D'souza, Aayush Kothari, Rupak Sawangikar, Nikhil Rajani, Navin Arora, i/b. Sagar & Sagar Law Officers, M/s. V. Deshpande & Co,