SARFAESI E-Auction Purchaser Cannot Be Prosecuted For Undervaluation When DRT Has Affirmed Valuation: Jharkhand High Court

"Misuse of process to permit the continuation of the FIR against the petitioner, who is an auction purchaser and the auction has not been set aside by any competent court." In a ruling that shields bona fide auction purchasers from criminal harassment arising out of SARFAESI proceedings, the Jharkhand High Court on March 9, 2026 quashed an FIR lodged against a property purchaser who had acquired mortgaged property in an e-auction conducted by Union Bank of India, holding that when the Debt Recovery Tribunal has affirmed the valuation of the auctioned property and that order has attained finality, continuing criminal proceedings against the auction purchaser on identical allegations of undervaluation amounts to a misuse of the process of court.

Justice Gautam Kumar Choudhary, sitting in the Criminal Writ Jurisdiction, allowed the writ petition filed by Madhav Khandelwal, quashing Argora P.S. Case No. 24 of 2025 registered against him under Sections 406, 420, 467, 468, 469, 471, 500, 501 read with Section 120B of the Indian Penal Code — offences of criminal breach of trust, fraud, forgery and criminal conspiracy.

Background of the Case

The informant had mortgaged his immovable property with Union Bank of India against a loan. When the loan turned delinquent, the Bank issued an e-auction notice on October 29, 2024 in daily newspapers for two properties. The petitioner Madhav Khandelwal participated as a bidder, deposited 10% earnest money of Rs. 4,13,355/-, emerged as the highest bidder (H-1) on October 30, 2024, paid the full consideration of Rs. 44,64,230/- on November 12, 2024, and was issued a sale certificate by the Bank's authorised officer on January 14, 2025. The informant, who was the original owner of the property, thereafter lodged an FIR alleging that the petitioner had colluded with bank officials and the panel valuer to purchase the property at a deliberately undervalued price.

Legal Issues

The Court was called upon to determine whether an FIR alleging fraud, forgery, criminal breach of trust and criminal conspiracy could be sustained against a bona fide e-auction purchaser when the principal charge of undervaluation had already been examined and negatived by the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, and when the FIR against the co-accused bank officials on identical charges had already been quashed by a coordinate bench of the same Court.

Court's Observations and Judgment

"The principal charge of undervaluation is not against this petitioner and in any case, the valuation of property was done before he participated in the e-auction"

The Court opened its analysis by noting the sequence of events that made the FIR against the petitioner legally untenable. When the informant had first approached the High Court challenging the auction in W.P.(C) Filing No. 13350 of 2024, the Court had directed him to pursue the remedy available under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal, Ranchi. The DRT, after hearing all parties, dismissed the informant's petition in S.A. No. 88 of 2024, affirming that there was no error in the valuation of the property. This order, the Court categorically noted, attained finality — it was never challenged before any higher forum.

"The Debt Recovery Tribunal, Ranchi dismissed the petition of the informant in S.A. No. 88 of 2024 affirming the valuation of the property. This order attained finality."

The informant had contended in his counter affidavit that there was intentional undervaluation, pointing out that the same plot had been valued by the Bank's panel valuer Arvind Kumar at Rs. 1,50,000/- per decimal in 2017 for a total area of 255.25 decimals, but that after more than seven years, the same land was valued at only Rs. 75,000/- per decimal — effectively half the earlier valuation. It was also argued that the petitioner was the sole bidder in the e-auction, suggesting the process was engineered in his favour.

The Court, however, was unmoved by these contentions. On the question of whether the criminal allegations were at all maintainable against the petitioner, the Court drew a critical legal distinction: the principal charge in the FIR was one of undervaluation — and that charge was not directed against the auction purchaser, since the valuation exercise had been conducted by the Bank's panel valuer before the petitioner ever participated in the e-auction. The petitioner's only alleged role was that of criminal conspiracy — that he had colluded with the bank officials in bringing about the undervaluation. But with the DRT having independently examined and affirmed that valuation, and with that finding having attained finality, the very foundation of the conspiracy allegation collapsed.

"No offence under Section 420 of the Indian Penal Code of fraud or forgery is made out on the basis of the averments made in the FIR against this petitioner."

The Court further noted a compelling circumstance: a coordinate bench of the Jharkhand High Court had already quashed the very same FIR against two bank officials — the persons with whom the petitioner was allegedly conspiring — in W.P.(Cr.) Nos. 158 and 159 of 2025. When the FIR against the principal accused bank officials themselves had been found legally unsustainable and quashed, permitting the criminal machinery to continue grinding against the auction purchaser on the self-same allegations was, in the Court's assessment, indefensible.

Reiterating the settled position that quashing of an FIR in writ jurisdiction is reserved only for exceptional cases where the FIR itself does not disclose an offence, the Court found this to be precisely such an exceptional case. The auction had not been set aside by any competent court. The DRT had affirmed the valuation. The FIR against the co-conspirators had been quashed. In these circumstances, the Court held that permitting the continuation of the FIR against the petitioner would constitute a misuse of the process of court, and quashed it accordingly.

The Jharkhand High Court's ruling provides important protection to participants in SARFAESI e-auctions, clarifying that a bona fide auction purchaser who has followed the prescribed procedure — depositing earnest money, emerging as the highest bidder and paying full consideration — cannot be dragged into criminal proceedings on the ground of alleged undervaluation when that very valuation has been upheld by the Debt Recovery Tribunal in proceedings attaining finality. The judgment also reinforces the principle that when the FIR against co-accused persons on identical facts has already been quashed, the criminal proceedings against the remaining accused on the same allegations are equally unsustainable.

Date of Decision: March 9, 2026