Bank of India's SARFAESI Auction Upheld by Telangana High Court, 30-Day Rule Met

Bank of India's SARFAESI Auction Upheld by Telangana High Court, 30-Day Rule Met

A division bench of the Telangana High Court has reversed an order of the Debts Recovery Appellate Tribunal (DRAT) that had set aside an e-auction of a secured property conducted by Bank of India under the SARFAESI Act. The High Court ruled that the bank fully complied with the mandatory 30-day notice period prescribed under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.

The bench, comprising Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar, allowed writ petitions filed by the auction purchaser, Sri Jagan Mohan Pyrasani, and the Bank of India, thereby validating the auction sale held on June 27, 2022.

The Loan and the Default

The story began in 2017 when the borrower, Sri Srikanth Reddy Kasu, availed a housing loan of ₹1.27 crore to purchase a plot and construct a residential house in Kukatpally, Hyderabad. After the account was classified as a Non-Performing Asset in January 2022, the bank issued a demand notice under Section 13(2) of the SARFAESI Act. The borrower's objections were rejected, and the bank took symbolic possession in April 2022.

On May 23, 2022, the bank issued a sale notice fixing the e-auction for June 27, 2022. The notice was affixed on the property on May 24, served on the borrower on May 25, and published in newspapers on May 26. The auction proceeded, and Pyrasani emerged as the highest bidder at ₹2.32 crore—far above the reserve price of ₹80.10 lakh. He deposited the full sale consideration, and a sale certificate was issued.

The Legal Challenge and DRAT's Intervention

The borrower moved the Debts Recovery Tribunal-I, Hyderabad, seeking to set aside the auction. The DRT dismissed his application in December 2022, finding no merit. On appeal, the DRAT, Kolkata, reversed the DRT's order in April 2024, holding that the bank had violated Rules 8(6) and 9(1) of the 2002 Rules. The DRAT reasoned that there must be a separate 30-day gap between the notice under Rule 8(6) and the publication under Rule 9(1).

Aggrieved, both the auction purchaser and the bank filed writ petitions.

The Borrower's Inconsistent Stand

A significant factor that weighed against the borrower was his shifting stance on the date of service of the sale notice. Before the DRT, he claimed no notice under Rule 8(6) was served. Before the DRAT, he argued the notice was served on May 31, 2022. In the writ proceedings, he changed his position again, asserting service on June 4, 2022.

The High Court observed that such contradictory statements, without any cogent explanation, damaged the borrower's credibility. The court noted that the material on record clearly established first service on May 25, 2022, as evidenced by the postal acknowledgment. The alleged service on June 4 was merely a subsequent or supplementary communication.

Supreme Court Precedent Clarified

The core legal question was whether the 30-day gap mandated by Rule 9(1) had been maintained. The High Court relied heavily on the Supreme Court's recent decision in M. Rajendran v. KPK Oils and Proteins India Private Limited (2025), which clarified that Rules 8(6), 8(7), and 9(1) do not require separate notices. Instead, they are part of a single composite "notice of sale." The 30-day period is to be reckoned from the date of issuance of the notice, which includes service, publication, and affixture—whichever is later.

Applying this principle, the court held: "Even taking the latest of these dates into consideration, the statutory requirement of maintaining a clear thirty-day gap stands duly satisfied." The sale notice was issued on May 23, affixed on May 24, served on May 25, and published on May 26. The auction on June 27 fell well within the 30-day window from each of these dates.

The High Court thus found that the DRAT had proceeded on an erroneous premise that there must be a separate 30-day gap between the Rule 8(6) notice and the Rule 9(1) publication—an interpretation "contrary to the law laid down by the Hon’ble Supreme Court."

Rights of the Bona Fide Auction Purchaser

The court underscored that the auction was conducted transparently and that the auction purchaser, a stranger to the debt, had paid the entire consideration. Quoting settled law, the bench stated: "It is well settled that the rights of a bona fide auction purchaser cannot be lightly interfered with, particularly when the sale is otherwise conducted in accordance with law."

The borrower's belated attempt to assert a right of redemption was also rejected. The court noted that once the sale notice is published in accordance with law, the borrower loses the statutory right to redeem the secured asset under Section 13(8) of the SARFAESI Act.

The Final Verdict

The High Court allowed both writ petitions, setting aside the DRAT's order dated April 22, 2024, and restoring the DRT's order that had dismissed the borrower's challenge. The auction sale in favor of Sri Jagan Mohan Pyrasani stands confirmed. The court directed that pending miscellaneous petitions be closed, with no order as to costs.

Key Observations from the Judgment

• "The material placed on records shows that authorized officer of the bank issued demand notice... The foundational procedural requirements preceding the sale stand duly complied with."

• "The licensed DRAT, however, proceeded on an erroneous premise that there must be a separate thirty-day gap between the notice under Rule 8(6) and publication under Rule 9(1), which interpretation runs contrary to the law laid down by the Hon’ble Supreme Court."

• "The material on record clearly establishes that the sale notice was first served upon the borrower on 25.05.2022... Acceptance of the borrower’s contention would result in uncertainty and enable manipulation of timelines."

• "It is well settled that the rights of a bona fide auction purchaser cannot be lightly interfered with, particularly when the sale is otherwise conducted in accordance with law."