Telangana HC Upholds DRAT's Cancellation of Auction: Petitioner’s Writ Fails Amid SARFAESI Rule Violations [Read Order]

The matter revolved around a long-standing dispute involving M/s Vasantha Surgical Equipments, the borrower, SBI, the secured creditor, and Classic Chemicals Ltd., the auction purchaser of the mortgaged property.

On 22 March 2013, Classic Chemicals Ltd. was declared the highest bidder in an e-auction conducted by SBI to sell assets of Vasantha Surgical Equipments. The property was sold at ₹5.16 crore, marginally above the reserve price of ₹5.15 crore. As per Rule 9(3) of the Security Interest (Enforcement) Rules, the auction purchaser was required to deposit 25% of the bid amount immediately, i.e., on the same day or the next working day.

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Classic Chemicals, however, deposited a cheque for ₹77.5 lakh (25% of the bid amount) on the day of the auction, which was realized only five days later, on 27 March 2013. This delayed realization violated the e-auction notice, which explicitly prohibited cheque payments, stating that only RTGS/NEFT/Fund Transfer would be accepted. Despite this, SBI confirmed the sale on the same day the cheque was handed over, i.e., 22 March 2013, without waiting for it to clear. The High Court deemed this a blatant procedural violation.

In addition to the cheque issue, Classic Chemicals requested an extension to pay the remaining 75% of the sale price, which was due within 15 days as per pre-amended Rule 9(4). SBI unilaterally granted an extension up to 30 June 2013, an additional 86 days, without informing or obtaining consent from the borrower, a requirement clearly laid out in the applicable SARFAESI Rules at the time. Classic Chemicals eventually paid the remaining ₹3.87 crore via cheques on 27 and 28 June 2013, and SBI issued the sale certificate on 29 June 2013.

Vasantha Surgical Equipments challenged the auction by filing a securitisation application before the DRT. After multiple appeals, remands, and a Supreme Court status quo order, the DRAT Kolkata, in January 2025, ruled that the auction was invalid due to violations of Rules 9(3) and 9(4).

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Classic Chemicals approached the High Court through W.P. No. 4623 of 2025, challenging the DRAT’s decision and seeking to validate the auction sale.The Division Bench of Justice Moushumi Bhattacharya and Justice B.R. Madhusudhan Rao rejected Classic Chemicals’ arguments. It was observed that the auction terms clearly barred cheque payments, and accepting a cheque that was realized five days later undermined the transparency and legality of the sale. It was held that the confirmation of sale before the cheque was honored violated both Rule 9(3) and the terms of the sale notice. The extension granted by SBI for the final 75% payment was done unilaterally, violating Rule 9(4), which required mutual written consent of both the purchaser and the borrower.

The court upheld the doctrine of lis pendens, adding that improvements made by Classic Chemicals on the property did not entitle it to equity, as the auction occurred amid ongoing litigation. Classic Chemicals argued that it had invested in the property and paid substantial taxes and improvement costs. The Court ruled that equity cannot override the law, citing multiple Supreme Court decisions, and dismissed the writ petition.

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