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by sayum
28 July 2026 1:44 PM
"As the Authorised Officer failed to obtain a price higher than the reserve price, he cannot, without the consent of the borrower, confirm the sale at the reserve price," High Court of Andhra Pradesh, in a significant ruling, held that an Authorised Officer under the SARFAESI Act cannot confirm the sale of a secured asset at exactly the reserve price without obtaining the express consent of the borrower and the secured creditor.
A bench of Justice Cheekati Manavendranath Roy and Justice Venuthurumalli Gopala Krishna Rao observed that the second proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, 2002, makes such consent mandatory when the auction fails to generate a bid higher than the reserve price.
The case arose after a partnership firm, M/s. Best Sai Enterprises, defaulted on a loan from Union Bank of India, leading to the auction of a secured school building. The bank fixed the reserve price at Rs. 3.48 crores, and the sole bidder participated, offering exactly that amount. While the bank confirmed the sale, the Debts Recovery Tribunal (DRT) and the Debts Recovery Appellate Tribunal (DRAT) subsequently set it aside for lack of borrower consent, prompting the bank and the auction purchaser to approach the High Court.
The primary question before the court was whether the sale of a secured asset in a public auction can be confirmed at the reserve price without the consent of the borrower and the secured creditor. The court was also called upon to interpret the expression “at such price” used in the second proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, 2002.
Court Analyzes Three Scenarios Under Rule 9(2)
The Court noted that Rule 9(2) of the Security Interest (Enforcement) Rules, 2002, contemplates three distinct situations during the sale of a secured asset. The first is when the price obtained is higher than the reserve price, where the Authorised Officer can confirm the sale subject to the secured creditor's approval. The second is when the price is less than the reserve price, which is strictly prohibited by the first proviso to the rule.
Mandatory Requirement Of Consent For Reserve Price Sales
The third scenario, which applied to the present case, involves obtaining a sale price that is not higher than the reserve price—meaning it is exactly the reserve price. The Bench emphasized that the second proviso to Rule 9(2) specifically addresses this eventuality. It mandates that if the Authorised Officer fails to obtain a price higher than the reserve price, he may effect the sale "at such price" only with the consent of the borrower and the secured creditor.
"The sale can be confirmed at the reserve price only with the consent of the borrower and not otherwise. In other words, the sale of the secured asset in the auction exactly at the reserve price cannot be confirmed by the Authorised Officer without the consent of the borrower."
Parliamentary Intent Behind The Second Proviso
The Bench explained that there is a specific purpose behind the incorporation of this proviso by Parliament. Since the secured asset is the property of the borrower or guarantor, a price higher than the reserve price benefits the owner by potentially leaving a surplus after clearing the debt. If such a higher price is not achieved, the law grants the borrower the option to either consent to a sale at the reserve price or reject it in hopes of a better valuation later.
"When a provision in the statute or a rule in the statute mandates that a particular thing is to be done in a particular way, the same has to be done strictly in conformity with the requirement of the section or the rule and not in violation of the same."
Resolving The Conflict Between Various High Courts
The Court acknowledged a "cleavage of opinion" between various High Courts on this issue. It noted that the Kolkata High Court and Kerala High Court had previously suggested that borrower consent is not mandatory for sales at the reserve price. However, the Andhra Pradesh High Court explicitly disagreed with those views, choosing instead to align with the Division Benches of the Madras High Court in K. Raamaselvam v. Indian Overseas Bank and the Delhi High Court in Mahipal Singh Yadav v. Union of India.
Andhra Pradesh High Court Aligns With Madras And Delhi HC Views
The Court rejected the interpretation that the term “at such price” in the second proviso refers to a price lower than the reserve price. It reasoned that since the first proviso already prohibits sales below the reserve price, the second proviso must logically refer to the reserve price itself. The Court held that a harmonious construction of the rules requires the Authorised Officer to seek consent when the "highest" bid fails to exceed the floor price set by the bank.
"Accepting such an interpretation that 'at such price' means below the reserve price would amount to interpreting the provision contrary to the intention of the Parliament. In fact, we do not find any ambiguity in the second proviso to Rule 9(2) of the Rules."
Statutory Nature Of The Security Interest Rules
The Bench underscored that the rules framed under Section 35 of the SARFAESI Act carry statutory force and must be complied with strictly. Since the Authorised Officer confirmed the sale at Rs. 3.48 crores (the exact reserve price) without seeking the borrower's consent, the Court held that the confirmation was "wholly invalid" and a direct contravention of the legal mandate intended to protect the interests of the property owner.
The Court concluded that there was no legal flaw in the orders passed by the DRT and DRAT. By dismissing the writ petitions filed by both the bank and the auction purchaser, the High Court upheld the requirement for transparency and borrower participation in the recovery process. The ruling reinforces the principle that the power of sale under the SARFAESI Act is not absolute and must be exercised within the strict boundaries of the Enforcement Rules.
Date of Decision: 01 May 2026
