Supreme Court: In a civil appeal arising from the Madras High Court’s judgment dated 06 February 2020, it upheld the validity of the auction sale conducted in recovery proceedings but remitted the matter to the Debts Recovery Tribunal (DRT) for reconsideration of the valuation of the mortgaged properties, a Division Bench of J.B. Pardiwala and R. Mahadevan,* JJ., affirmed the impugned order of the High Court and held that finality of confirmed auction sale does not bar judicial examination of adequacy of valuation or fixation of reserve price, particularly, where it was necessary to ensure that secured asset had fetched best possible price.
In the instant matter, the Indian Bank had granted an “at par facility” to the borrower subject to maintenance of a cushion fund. The borrower failed to maintain the required balance, resulting in shortfall. As security for the liability, the guarantors created an equitable mortgage by deposit of title deeds relating to Schedule A to E properties. When the borrower failed to repay the outstanding amount, the bank-initiated proceedings before the DRT for recovery of Rs. 45,66,923.83 with interest from the borrower company and its guarantors.
By final order dated 12 January 2010, the DRT issued a recovery certificate and directed attachment of the mortgaged properties. The Recovery Officer issued a proclamation of sale, and the auction was conducted on 29 October 2010. The appellant emerged as the highest bidder for Rs. 2,10,98,765/-, deposited the sale consideration, and the sale was confirmed. A sale certificate dated 01 February 2011 was issued and registered in favour of the appellant.
The guarantors challenged the recovery proceedings before the Debts Recovery Appellate Tribunal (DRAT), which ultimately upheld the validity of the auction. The matter reached the Madras High Court in writ proceedings, where the High Court affirmed the recovery proceedings but directed the DRT to reconsider the valuation of the properties and observed that if the properties had been sold for a lesser value, the successful auction purchaser (appellant) might be directed to make good the difference. Aggrieved, the appellant filed the present appeal before the Supreme Court challenging only the direction of remand on the question of valuation, contending that once the auction sale had been confirmed, the issue ought not to have been reopened.
The Court noted that the recovery proceedings were initiated pursuant to a valid recovery certificate and the auction was conducted after obtaining a valuation report and issuing proclamation of sale. The appellant was declared the highest bidder, deposited the entire consideration, and a sale certificate was issued after confirmation of sale. While upholding the legality of the auction and protected the rights of the appellant, the DRAT had directed for reconsideration of the valuation of the properties and remitted the matter to the DRT on that limited aspect.
At the outset, the Court noted that the appellant did not challenge the entire judgment of the High Court but only the direction relating to reconsideration of valuation. It was noted that the High Court had not set aside the auction sale, it had merely directed the DRT to examine whether the valuation and fixation of reserve price were proper.
The Court reiterated the settled principle that the rights of a bona fide auction purchaser deserve protection and confirmed sales should not ordinarily be interfered with. However, the Court asserted that such protection is not absolute. Where credible issues arise regarding adequacy of valuation or fairness of the process, the court may exercise supervisory jurisdiction to ensure that the secured asset fetches the best possible price.
Referring to Rajiv Kumar Jindal v. BCI Staff Welfare Assn., 2023 SCC OnLine SC 507, the Court emphasised that the object of an auction is to secure the most remunerative price through competitive bidding and to prevent under-valuation or unfair dealing. Therefore, if the valuation or reserve price is doubtful, limited remand for fresh consideration could not be said to be legally untenable.
The Court held that the High Court had adopted a balanced approach by remitting the matter only on the question of valuation without disturbing the recovery already effected or declaring the sale void. Such a limited remand did not prejudice the auction purchaser but ensured fairness in the recovery process.
Rejecting the appellant’s contention that confirmation of the sale renders the matter entirely immune from further scrutiny, the Court held that requirement of fairness and proper valuation must coexist with the principle of finality of auction sales. The Court stated that
“principle of finality attached to court-confirmed auction sales cannot operate to shield the process from judicial examination where the question relates to the adequacy of valuation or fixation of reserve price, particularly when such examination is necessary to ensure that the secured asset has fetched the best possible price.”
The Court held that no error was committed by the High Court in remitting the matter to the DRT for reconsideration of valuation of the properties as the direction was limited in scope and intended to ensure that the secured asset had fetched the best possible price.
Accordingly, the Court dismissed the civil appeal and affirmed the impugned order of the High Court.
[Om Sakthi Sekar v. V. Sukumar, Civil Appeal No. 3362 of 2026, decided on 13-3-2026]
*Judgment by Justice R. Mahadevan