Debtors’ Consent to Auction Waives Procedural Objections Under SARFAESI Act: Delhi HC Sets Aside DRAT Order in Favour of Canara Bank [Read Order]

The Delhi High Court in a recent case has set aside an order of the Debts Recovery Appellate Tribunal (DRAT) and restored the findings of the Debts RecoveryTribunal (DRT), holding that borrowers who have expressly consented to the auction of a mortgaged property cannot subsequently challenge the sale on procedural grounds under the SARFAESI Act.

The Writ Petition arose from a long‑running dispute between Canara Bank (Petitioner) (erstwhile Syndicate Bank) and the borrowers, M/s Karishma Enterprises (Respondents) and its guarantor.

The case stemmed from a credit facility of ₹100 lakh sanctioned in 2007, secured by a mortgage of three properties in Shahdara, Delhi. Over the years, the borrowers repeatedly defaulted, and by December 2012, their overdraft and cash‑credit accounts had exceeded sanctioned limits.

Despite reminders, the accounts were not regularised, leading the bank to classify them as Non‑Performing Assets (NPA) on 31 March 2013. The borrowers challenged the bank’s actions under the SARFAESI Act, initiating multiple rounds of litigation before the DRT and DRAT.

A key turning point occurred on 16 April 2014, when the borrowers themselves submitted before the DRT that auctioning one of the mortgaged properties would be sufficient to satisfy the bank’s dues.

Acting on this express submission, the DRT directed the bank to auction only one property. The bank complied and sold the 275‑sq‑yd property for ₹2.14 crore, an amount significantly higher than the recovery demand of ₹1.06 crore. Despite this, the borrowers later challenged the sale and the DRT’s orders before the DRAT.

The Division Bench comprising Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar found that the DRAT had erred in ignoring the borrowers’ explicit consent to the auction. The Court held that procedural safeguards under the SARFAESI Act, such as valuation, publication of sale notices, and compliance with Rules 8 and 9, exist primarily for the borrower’s benefit.

When a borrower voluntarily assents to the sale of the secured asset, either through written consent or submissions before the tribunal, such consent operates as a waiver of objections relating to minor procedural irregularities. Unless the borrower demonstrates mala fides or prejudice, the sale cannot be invalidated on technical grounds.

The Court also examined the borrowers’ challenge to the NPA classification. Applying RBI’s IRACP norms, the Bench held that the bank had correctly computed the 90 days of continuous irregularity.

Since the account remained in excess of sanctioned limits from 31 December 2012 through March 2013, the bank’s declaration of NPA on 31 March 2013 was lawful and timely. The borrowers failed to produce any material showing regularisation during this period, and the Court emphasised that the burden of disproving NPA classification lies on the borrower once the bank establishes continuous irregularity.

The High Court further noted that the borrowers had been given multiple opportunities to deposit dues, including a final chance on 13 April 2015 to save their property, an opportunity they did not utilise. Their conduct, the Court observed, reflected a pattern of delay and inconsistent litigation, including filing appeals that were later withdrawn as infructuous.

In conclusion, the Court held that the DRAT had overlooked critical facts, including the borrowers’ consent, their failure to regularise the account, and the lawfulness of the bank’s actions. Setting aside the DRAT’s order, the High Court restored the DRT’s findings, thereby upholding the auction sale and Canara Bank’s NPA classification.

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