Auction Purchaser Has No Absolute Right: Calcutta High Court Upholds Borrower's Right of Redemption Under SARFAESI Act

"Mere Non-Issuance of Sale Certificate Doesn’t Attract Criminal Breach of Trust or Cheating" – Calcutta High Court delivered a significant ruling reaffirming the primacy of borrowers’ statutory right of redemption under the SARFAESI Act, 2002, over the expectations of auction purchasers. Justice Ajay Kumar Gupta, while dismissing a criminal revisional application challenging rejection of a protest petition, held that the dispute arising from a SARFAESI auction was “purely civil in nature” and that continuation of criminal proceedings in such matters would amount to an abuse of process of law.

Allegations of Fraud by Auction Purchaser Against Bank Officials Rejected

The case arose from a criminal complaint filed by Gajanan Highrise Private Limited, which had participated in an auction conducted by UCO Bank under the SARFAESI Act for a mortgaged property. The petitioner claimed to have been declared the highest bidder, having deposited the full consideration amount of ₹70 lakhs. However, no sale certificate was issued. Instead, the Bank allegedly returned the property to the original borrower, Parasnath Resorts & Hotels Pvt. Ltd., following a private settlement, allegedly in collusion with bank officials.

Aggrieved, the petitioner filed a criminal complaint alleging offences under Sections 409 (Criminal Breach of Trust), 420 (Cheating), and 120B (Criminal Conspiracy) of the Indian Penal Code, asserting that bank officials acted fraudulently to benefit the borrower and defraud the petitioner. The investigating agency, however, submitted a final report stating the matter was civil in nature. The Magistrate accepted the closure report and rejected the protest petition (Narazi petition). This was affirmed in revision by the Sessions Court.

Petitioner's Stand: Criminal Misconduct Behind the Settlement

The petitioner contended that:

“Even after depositing the full bid amount, the Bank, in a fraudulent and dishonest manner, returned the mortgaged property to the borrower behind our back without refunding the money.”

Counsel argued that the acts constituted criminal breach of trust and were not mere contractual breaches. The petitioner also accused the investigating officer of conducting a biased investigation “under orders of superiors,” without recording statements under Sections 161 or 164 CrPC.

Bank’s Defence: Right of Redemption Validly Exercised Before Sale Certificate Was Issued

Opposite party no. 6, representing the bank’s side, argued that:

“The borrower had repaid all dues before issuance of the sale certificate. As per Section 13(8) of the SARFAESI Act, the bank was legally obligated to return the property to the borrower.”

It was further submitted that the entire auction process was subject to DRT proceedings, and that refund communications were made to the petitioner, who was fully aware of the ongoing settlement.

Court's Findings: Redemption Right Prevails Over Auction Bid

The High Court meticulously examined the statutory framework and previous litigation between the parties and observed:

“The SARFAESI Act provides a provision for redemption of the property at any time before the date fixed for sale or transfer... the borrower repaid the entire amount as claimed by the Bank, the latter is bound to release the property.”

Justice Gupta highlighted Section 13(8) of the SARFAESI Act, which grants the borrower the right to reclaim the property by repaying dues before the sale is completed. The Court emphasized:

“There is no doubt, under the law, that an auction purchaser has a right upon participation in the bidding process... however, this right is not absolute, and it cannot take away the mortgagor’s right of redemption.”

The Court referred to Clause 8 of the auction notice, which explicitly reserved the bank’s right to cancel or modify the auction at any stage, reinforcing that:

“The Bank has every right to release the mortgaged property upon repayment of dues amount.”

Further, the Court noted that the petitioner's civil challenge before the Debt Recovery Tribunal had already been dismissed, and a civil revision was pending before the High Court, evidencing the civil nature of the dispute.

No Mens Rea, No Cognizable Offence

In rejecting the claim that bank officials acted fraudulently, the Court held:

“Mere allegation that the Bank officers received a huge sum of money from the borrower and guarantors for such negotiation and settlement, without any sufficient material, is not sufficient to continue proceeding.”

The Court relied on the Supreme Court decision in State of Kerala vs. A. Pareed Pillai, (1972 Cri LJ 1243), where it was held:

“To hold a person guilty of cheating, it has to be shown that his intention was dishonest at the time of making the promise. Such a dishonest intention cannot be inferred from the mere fact that he could not subsequently fulfill the promise.”

Applying this to the present facts, the Court concluded that:

“The allegations in the complaint do not spell out any essential ingredients for the commission of an offence under Sections 409 and/or 420 or 120B of the IPC.”

Criminal Proceedings Quashed, Courts Below Upheld

Upholding the concurrent findings of the Magistrate and Sessions Court, Justice Gupta ruled:

“The disputes between the parties are purely civil in nature, and criminal proceedings in such a civil nature case should not be allowed to continue any further otherwise it would be an abuse of the process of law.”

The revisional application was thus dismissed, and all interim orders stood vacated.

The Calcutta High Court’s judgment reiterates a crucial legal position: auction purchasers under SARFAESI Act acquire no absolute right until the sale certificate is issued, and that the borrower’s right of redemption prevails until that point. Importantly, the Court reaffirmed that civil disputes cannot be criminalized merely to gain leverage or seek redress through penal consequences.

By drawing a sharp line between civil wrongs and criminal liability, the judgment serves as a vital precedent in preventing the misuse of criminal law in matters governed by SARFAESI and property redemption statutes.

Date of Decision: January 7, 2026