SARFAESI Sale Vitiated If Balance 75% Bid Amount Is Paid Beyond 15 Days Without Written Extension Agreement: Supreme Court

"The failure to repay without being informed of an extension being granted to the auction purchaser, by itself, cannot validate proceedings that are otherwise vitiated in law, " Supreme Court, in a significant ruling, held that the timeline for depositing the balance 75% of the auction purchase price under the SARFAESI Rules is mandatory.

A bench of Justice Dipankar Datta and Justice Augustine George Masih observed that any delay in payment beyond the 15-day statutory period, in the absence of a written agreement for extension between the parties, renders the auction sale legally infirm. The Court emphasized that the validity of a statutory auction must be tested strictly on the mandate of the law rather than equitable considerations or the conduct of the borrower.

The dispute originated from a 1984 loan where the appellant’s father stood as a guarantor and mortgaged his property. Following a default and a 1997 preliminary decree, the Indian Bank initiated proceedings under the SARFAESI Act in 2009, culminating in an auction sale on March 11, 2010. The appellant, the daughter of the deceased guarantor, challenged the sale on the ground that the auction purchaser failed to deposit the remaining 75% of the bid amount within the 15-day limit prescribed under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002.

The primary question before the Court was whether the auction sale stood vitiated due to non-compliance with the payment timelines prescribed under Rule 9 of the SARFAESI Rules. The Court was also called upon to determine if the secured creditor could unilaterally waive the delay in payment without a written agreement for extension involving the borrower and the purchaser.

Mandatory Character Of Rule 9 SARFAESI Rules

The Court analyzed the structure of Rule 9 of the SARFAESI Rules, noting that the provisions governing the confirmation of sale and the manner of payment are not merely directory. The bench observed that these rules go to the root of the validity of the auction process. The Court noted that under Rule 9(3), the purchaser must immediately deposit 25% of the sale price, and under Rule 9(4), the balance must be paid within fifteen days of the confirmation of sale.

Rule 9(4) Timeline Can Only Be Extended Via Written Agreement

Referring to the unamended SARFAESI Rules applicable at the time of the sale, the Court highlighted that the 15-day period for depositing the balance 75% is extendable only if there is a "written agreement" between the parties. The bench clarified that "parties" in this context includes the secured creditor, the borrower, and the auction purchaser. The Court found that in the present case, the balance was paid on March 31, 2010, while the 15-day window had expired on March 26, 2010.

"Any deviation therefrom, absent legally sustainable justification, would render the process vitiated."

Lack Of Written Agreement Renders Sale A Nullity

The Court rejected the contention of the bank and the auction purchaser that the delay was minor or had been regularized by the bank's acceptance of the money. The bench noted that nothing on record demonstrated a prayer for extension by the purchaser or a written agreement for the same prior to the expiry of the deadline. The Court held that the bank could not unilaterally waive the delay as the statutory requirement for a written agreement is a safeguard for the borrower's interests.

"The period of deposit stipulated therein is not absolute rather extendable with the agreement of the parties."

Equity Cannot Validate Legally Infirm Proceedings

The Bench criticized the approach of the High Court and the Tribunals for focusing on the "indolent" conduct of the heirs of the guarantor. While acknowledging that the heirs had failed to liquidate the dues for years, the Supreme Court held that such inaction cannot sanctify a process that violates statutory mandates. The Court observed that the lawful realization of a secured asset must be through a process that is fair, transparent, and strictly compliant with prescribed rules.

"The validity of an auction conducted under the statutory regime is not to be tested on equitable considerations but strictly on the ground whether the mandate of the statute and the rules has been breached or not."

Restitution Of Auction Purchaser & Opportunity To Redeem

Exercising its jurisdiction under Article 142 of the Constitution to balance the equities, the Court quashed the auction sale but ordered the bank to refund the purchaser's deposit with 7% interest per annum. Furthermore, the Court granted the appellant a one-time opportunity to redeem the mortgage. The appellant was directed to pay the original quantified dues of approximately Rs. 95.42 lakh along with 5% interest from the date of the demand notice to secure the restoration of the property.

In conclusion, the Supreme Court set aside the judgments of the Madras High Court, the DRAT, and the DRT. The Court held that statutory compliance in SARFAESI proceedings is non-negotiable, and the failure to adhere to the payment timelines under Rule 9(4) without a formal written extension renders the entire auction process void. The property will be subject to a fresh auction if the appellant fails to utilize the redemption window provided by the Court.

Date of Decision: June 09, 2026