How can I challenge an irregular SARFAESI mortgage foreclosure auction sale?

Question

My property was auctioned by the bank under SARFAESI at what I believe was an unreasonably low price without proper publicity. Can I get the sale set aside? I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "How can I challenge an irregular SARFAESI mortgage foreclosure auction sale?" turns on SARFAESI Act 2002, Section 13(4), Security Interest (Enforcement) Rules 2002, Rule 8, Security Interest (Enforcement) Rules 2002, Rule 9 and SARFAESI Act 2002, Section 17. The points below set out the position and then what to do about it, in the order it should be done.

Rule 8 of the Security Interest (Enforcement) Rules 2002 requires the secured creditor to issue a 30-day sale notice, obtain a proper valuation and publish the auction in at least one vernacular and one national newspaper before conducting the sale.

Rule 9 mandates that the sale price should not ordinarily be below the reserve price fixed after valuation, and the borrower must be given a fresh opportunity to redeem the property by paying the dues before confirmation of sale.

Courts have repeatedly set aside auction sales where the reserve price was fixed without a fair valuation, where publicity was inadequate, or where the borrower's right to redeem before confirmation was denied.

An aggrieved borrower or guarantor can challenge the auction as an illegal 'measure' taken under Section 13(4) by filing an application before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act 2002.

The DRT can set aside the sale and direct a fresh auction if it finds material irregularity or fraud, but delay in challenging the sale, especially after confirmation and registration in favour of the auction purchaser, weakens the borrower's case considerably.

In practice, in this order: 1) Obtain the valuation report, sale notice and proof of publication to check compliance with Rules 8 and 9; 2) Calculate the shortfall between the sale price and the fair market valuation to build your case of undervaluation; 3) File a Section 17 application before the DRT promptly, seeking to set aside the sale for procedural irregularity; 4) Simultaneously offer to redeem the property with the outstanding dues if you can arrange the funds.

Timing matters here: SARFAESI Act 2002, Section 13(4) works on limitation periods, so a sarfaesi auction challenge claim that is right on the merits can still fail if it is brought late. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in banking law.