In SARFAESI matters, borrowers often assume that once an auction is conducted, the outcome is final. A recent order of the Debts Recovery Appellate Tribunal, Allahabad shows that even at that stage, the process remains open to scrutiny.

The matter arose from an auction sale of a residential property. The borrower challenged the sale before the Debts Recovery Tribunal, not on the debt itself, but on the manner in which the auction had been carried out.

The challenge turned on Rule 9(3) of the Security Interest (Enforcement) Rules, 2002. As it stood prior to the 2016 amendment, the Rule required the auction purchaser to deposit 25% of the bid amount “immediately” upon conclusion of the sale. After the 2016 amendment, the position has been made more explicit—requiring such deposit “immediately i.e. on the same day or not later than one working day.”

In the present case, the auction was conducted on 30 October 2015. The successful bidder did not deposit the amount on the same day. Instead, cheques were deposited subsequently, and the amount was realised after a few days.

The DRT accepted the borrower’s contention that this did not satisfy the requirement of the Rule and set aside the auction sale.

The secured creditor carried the matter in appeal. However, the Appellate Tribunal found no reason to interfere.

It noted that the auction had concluded during working hours, leaving sufficient time for compliance on the same day itself. The Tribunal also observed that a cheque cannot be treated as a paid instrument, particularly when its realization takes place after a gap of time. In that view, the requirement of “immediate” deposit was held not to have been complied with.

The appeal was accordingly dismissed.

What emerges from this order is a simple but important point. Even where recovery proceedings have progressed to the stage of auction, the validity of such action depends on strict adherence to the procedure laid down under the Act and the Rules. A deviation, even in timing of deposit, can be sufficient to invalidate the sale.

For borrowers, this reinforces that procedural safeguards are meaningful. Where they are not followed in the manner required, the law does recognize and grant relief.