Madras HC Upholds SARFAESI Auction Based on Valuation by Wealth-Tax Act Approved Valuer

CHENNAI – In a significant ruling that reinforces the procedural benchmarks for asset recovery, the Madras High Court has held that an auction conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, is valid when the property's valuation is performed by a valuer officially registered under Section 34AB of the Wealth-Tax Act, 1957.

The decision, delivered by a bench comprising Chief Justice Mohan Shrivastava and Justice G. Arul Murugan, dismisses a challenge from a borrower who contested the auction of their mortgaged property, alleging undervaluation. The court's judgment in M/s. Lucky Footwear Components v. The Authorized Officer, Indian Bank clarifies the judiciary's deference to valuations conducted by statutorily approved experts and sets a high bar for interfering with such proceedings under its supervisory jurisdiction.

Case Background: A Dispute Over Valuation

The case originated when the petitioners, M/s. Lucky Footwear Components, defaulted on a loan secured from the respondent, Indian Bank, for which they had mortgaged property. Following the default, the bank initiated recovery proceedings under the stringent provisions of the SARFAESI Act, which empowers financial institutions to auction assets to recover non-performing debts without extensive court intervention.

The bank proceeded to auction the mortgaged property. The petitioners challenged these proceedings, primarily on the ground that the property was sold for a price significantly lower than its actual market value. To support their claim, the borrowers presented a valuation report prepared by a licensed building surveyor, which suggested a much higher value for the property.

In its defense, the bank submitted that its valuation was conducted by an "approved valuer" duly registered under Section 34AB of the Wealth-Tax Act, 1957. The bank contended that the petitioner's valuation, performed by a surveyor not registered under this specific Act, lacked the same statutory weight and credibility.

The High Court's Analysis: The Primacy of an 'Approved Valuer'

The core legal question before the High Court was whether the bank's reliance on its chosen valuer was procedurally sound and whether the alleged discrepancy in valuation was sufficient to invalidate the auction sale.

The bench meticulously examined the credentials of the valuers involved. It noted a critical distinction between the bank's expert—an approved valuer registered under the Wealth-Tax Act—and the borrower's expert—a licensed surveyor who did not hold the same registration. Section 34AB of the Wealth-Tax Act, 1957, outlines a formal process for individuals to be recognized as official valuers, lending a significant degree of statutory authority to their assessments.

In its opinion, the court stated, "...out of the two valuation reports placed before the Tribunal, if the Tribunal has accepted the valuation made by approved valuer, registered under the provision of Wealth-Tax Act, it cannot be said to be patently illegal or perverse so as to interfere in the exercise of supervisory jurisdiction under Article 227 of the Constitution of India."

This statement underscores two key legal principles: 1. Preference for Statutorily Approved Experts: The court gave clear preference to the valuation conducted by an expert whose credentials were certified under a relevant statute (the Wealth-Tax Act). 2. High Threshold for Judicial Intervention: The court reiterated the limited scope of its supervisory jurisdiction under Article 227. For the High Court to intervene, the decision of the lower tribunal or authority must be "patently illegal or perverse." A mere disagreement over valuation, especially when the bank has followed prescribed procedures, does not meet this high threshold.

The bench further observed that the bank's valuation process was robust. The court highlighted, "The present is not a case where the bank got the property valued by one who was not authorised or was not having sufficient experience as required under the law... It is not even a case that while valuing the property, the superstructure/building of the property has been ignored." This confirmed that the bank had not only engaged a qualified professional but had also ensured a comprehensive assessment of the asset.

Ancillary Arguments Dismissed

The petitioners also raised a procedural objection, arguing that the bank had failed to properly consider their response to the initial demand notice issued under Section 13(2) of the SARFAESI Act. However, upon reviewing the communication, the court found the objection unconvincing. The bench opined that "the contents of the letter are more in the nature of seeking some more indulgence rather than raising any substantial objection." This finding suggests that for an objection to be legally significant under Section 13(3A), it must present a substantive legal or factual challenge to the recovery notice, rather than simply being a plea for more time.

Legal Implications and Takeaways for Practitioners

This judgment from the Madras High Court offers crucial guidance for banking and finance lawyers, insolvency professionals, and borrowers.

• For Lenders (Banks and FIs): The ruling validates the practice of engaging valuers registered under the Wealth-Tax Act for SARFAESI proceedings. It provides a "safe harbour" for lenders, indicating that adherence to this standard will make their valuation reports more resilient to legal challenges. Financial institutions should ensure their panel of valuers holds the requisite statutory registrations.

• For Borrowers and Their Counsel: The decision serves as a cautionary note. When challenging a SARFAESI auction on the grounds of undervaluation, it is imperative to counter the bank's valuation with a report from an equally or more credibly credentialed expert. Merely presenting a valuation from any licensed professional may not be sufficient. Counsel for borrowers must ensure their expert witnesses are registered as "approved valuers" to stand on an equal footing with the bank's expert.

• On Judicial Review: The case reinforces the judiciary's reluctance to step into the shoes of the secured creditor or the valuation expert in SARFAESI matters. The courts will primarily focus on procedural compliance and fairness rather than second-guessing the commercial aspects of the recovery process, such as the exact sale price, unless there is clear evidence of fraud, perversity, or patent illegality.

Ultimately, by dismissing the petition, the Madras High Court has underscored the importance of adhering to established statutory frameworks in financial recovery proceedings. The ruling prioritizes procedural correctness and the use of qualified, statutorily recognized professionals, thereby providing greater certainty and stability to the SARFAESI auction process.

Case Details:

* Case Title: M/s. Lucky Footwear Components v. The Authorized Officer, Indian Bank * Case Number: C.R.P.No.5237 of 2025

* Bench: Chief Justice Mohan Shrivastava and Justice G. Arul Murugan

* Counsel for Petitioner/Borrower: N. Muralikumaran

* Counsel for Respondent/Bank: T. Sundar Rajan, S. Charuhasan & S. Vanithalakshmi