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2026 Supreme(SC) 746
SUPREME COURT OF INDIA
SANJAY KAROL, NONGMEIKAPAM KOTISWAR SINGH, JJ.
Bihar State Financial Corporation & Anr. – Appellants
Versus
Bhushan Singh & Ors. – Respondents
Civil Appeal Nos. 8781-8782 of 2026 (Arising out of SLP (C) Nos. 16552-53 of 2025) With Civil Appeal No. 8783 of 2026 (Arising out of SLP (C) No. 24073 of 2025)
Decided On : 09-07-2026
For the Petitioner(s): Ms. Ruchi Kohli, Sr. Adv. Mrs. Yugandhara Pawar Jha, AOR Mr. Harshvardhan Jha, Adv. Ms. Shristi Mishra, Adv. Ms. Shruti Sharma, Adv. Mr. Sridhar Potaraju, Sr. Adv. Mr. Babul Kumar, Adv. Mr. Bashistha Kumar Ambasta, Adv. Mr. Arun Kumar Sinha, Adv. Ms. Aswathi M.k., AOR
For the Respondent(s): Mr. Binod Kumar Singh, Adv. Mr. Binod Kumar, Adv. Mr. Smarhar Singh, AOR Ms. Vagisha Pragya Vacaknavi, Adv. Ms. Vagisha Vacknavi, Adv. Mr. Dhananjaya Kumar Tyagi, Adv. Mr. Mohd. Asim, Adv. Mr. Mohd Asim, Adv. Mr. Pankaj Prakash, Adv. Mr. Manoj Kumar, Adv. Dr. Sumant Bharadwaj, Adv. Dr. Vedamt Bharadwaj, Adv. Ms. Mridula Ray Bharadwaj, AOR Mr. D. M. Sharma, Adv. Mrs. Amrita Behera, Adv. Mrs. Pooja Gupta, Adv. Ms. Iffat Fatima, Adv. Ms. Ruchi Kohli, Sr. Adv. Mrs. Yugandhara Pawar Jha, AOR Mr. Harshvardhan Jha, Adv. Ms. Shristi Mishra, Adv. Ms. Shruti Sharma, Adv.
IMPORTANT POINTS
(1) Auction of mortgaged property – Fairness required of a Financial Corporation cannot be carried to the extent of disabling it from recovering what is due to them.
(2) Auction of mortgaged property – Mere suspicion, in absence of any cogent material, cannot lead to any inference of collusion.
Headnote:
(A) State Financial Corporations Act, 1951 – Sections 29 and 30 – Recovery of debt – Auction of mortgaged property – Fairness is not a one-way street – Whether action taken by Financial Corporation was bona fide and reasonable or not would depend on surrounding circumstances – Fairness of auction sale cannot be examined in isolation from conduct of borrowers themselves – Financial Corporations being an instrumentality of State is expected to act fairly and reasonably qua its borrowers/debtors, but it is not expected to flounder public money for promoting private interests – Fairness required of a Financial Corporation cannot be carried to the extent of disabling it from recovering what is due to them. (Paras 9.2, 9.4, 10 and 11)
(B) State Financial Corporations Act, 1951 – Sections 29 and 30 – Partnership Act, 1932 – Section 69(2) – Civil Procedure Code, 1908 – Section 11 – Recovery of debt – Auction of mortgaged property – Borrowers miserably failed to discharge their obligation to repay loan – BSFC repeatedly called upon them to clear their outstanding dues, however, borrowers failed to do so – Rather than honouring their obligations, despite orders passed by High Court, they chose to initiate successive rounds of litigation – Pursuant to public advertisement, auction purchasers submitted their bid – Transaction is not cloaked in secrecy – Mere suspicion, in absence of any cogent material, cannot lead to any inference of collusion – Present suit was essentially filed against statutory action taken by BSFC and was not seeking enforcement of any contractual right against a third party – Neither bar of res judicata nor statutory bar contained in Section 69(2) of Indian Partnership Act would operate in facts of present case – Borrowers never made any meaningful effort to discharge their liability despite being offered numerous opportunities – Conduct of borrowers of embarking upon successive rounds of litigation, is one which disentitles them from claiming any equitable relief – Courts below erred in setting aside auction sale – Impugned judgment and order set aside. (Paras 10, 13, 15, 16, 17 and 18)
Facts of the case:
Present appeals arise out of the impugned judgment and order dated 18.03.2025 passed by High Court of Judicature at Patna in First Appeal No.268 of 1999 and First Appeal No.272 of 1999, whereby High Court dismissed both the First Appeals and affirmed the judgment and decree dated 19.05.1999 passed by Court of 5th Subordinate Judge, Begusarai in Title Suit No.39/96.
Findings of Court:
Impugned judgment and order dated 18.03.2025 passed by High Court of Judicature at Patna in First Appeal No.268 of 1999 and First Appeal No.272 of 1999, as well as judgment and decree dated 19.05.1999 passed by the Trial Court in Title Suit No.39/1996, are set aside.
Result : Appeals allowed.
| Table of Content |
|---|
| 1. introduction to procedural history and scope of appeal. (Para 1 , 2) |
| 2. detailed sequence of loan default, legal notices, and auction process. (Para 3) |
| 3. contentions regarding fairness, limitation, and recovery powers. (Para 4 , 5 , 6) |
| 4. statutory scope of section 29 and precedents on judicial review. (Para 7 , 8 , 9) |
| 5. application of fairness doctrine to borrower conduct and auction validity. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16) |
| 6. final adjudication on res judicata, technical bars, and auction validity. (Para 17 , 18) |
JUDGMENT :
SANJAY KAROL, J.
1. Leave Granted.
The instant appeals present a classic case where the borrowers have persistently failed to regularize their account and discharge their liabilities despite being granted multiple opportunities. Their continued defaults ultimately led the Financial Corporation to exercise its statutory power under Section 29 of the State Financial Corporations Act, 19511[‘SFC Act’ for short.] and auction the mortgaged property to recover its dues. We are called upon to decide whether, in such circumstances, the concurrent findings recorded by the Courts below setting aside the auction sale, by way of a civil suit, can be sustained in law.
2. The present appeals arise out of the impugned judgment and order dated 18.03.2025 passed by the High Court of Judicature at Patna in First Appeal No.268 of 1999 and First Appeal No.272 of 1999, whereby the High Court dismissed both the First Appeals and affirmed the judgment and decree dated 19.05.1999 passed by the Court of 5th Subordinate Judge, Begusarai2[Hereinafter referred to as the ‘Trial Court’.] in Title Suit No.39/96.
FACTUAL MATRIX
3. The facts, shorn of unnecessary details, giving rise to the present appeal are as follows:
3.1. Ranjeet Motel & Ors. (Original Plaintiffs) 3[Hereinafter referred to as the ‘borrowers’.], for the purpose of setting up an industrial unit approached Bihar State Financial Corporation (Original Defendant No.1) 4[‘BSFC’ for short.] for a loan of Rs.15 Lakhs. BSFC initially sanctioned an amount of Rs.8.50 Lakhs on 29.05.1982, followed by an additional loan of Rs.3.15 Lakhs on 12.07.1984, against which the borrowers deposited the original title deeds of land and building and created an equitable mortgage over them. Upon default in repayment by the borrowers, BSFC issued a notice dated 24.11.1988 under Section 29 of SFC Act.
3.2. Aggrieved thereby, the borrowers filed a writ petition bearing number CWJC No.6104 of 1990 before the High Court also assailing the notification issued by BSFC for sale of the mortgaged property. The High Court, vide order dated 06.11.1990, disposed of the said writ petition by fixing a repayment schedule requiring the borrowers to repay their dues in several instalments, beginning from 31.12.1990 and ending on 31.10.1991. The Court also reserved the liberty for BSFC to sell the mortgaged assets in the event of default. Relevant part of the order reads as under:
“According to the petitioner, the total dues up to 31st August, 1990 including interest was Rs. 12, 86,770.52p. (Twelve lakhs eighty-six thousand seven hundred seventy and fifty-two pase).
Mr. Siyaram Shahi, learned counsel for the petitioner informed that pursuant to the aforesaid order dated 17.09.1990. Rs. 3,00000/-( three lacs) was deposited on 31st October,1990,
Mr. Shanker Prasad who was appeared for the respondent - Corporation urged that the petitioner should be directed to clear 50 per cent of the due with interest as it stood on 31st August, 1990 by and of this year.
Taking all the facts and circumstances of the case into consideration, we direct the petitioner to deposit Rs, 1,50,000/- (One lacs fifty thousand ) on or before 31st December ,1990, yet another amount of Rs. 1,50,000/- (One lac fifty thousand ) on or before 31st January, 1991. An Amount of Rs. 2,00000/- (two lacs) should be deposit on or before 31st March, 1991. We further direct the petitioner to deposit an amount of Rs. 2,00,000/- (two lacs ) on o
