Completed Auction Can Be Set Aside Only for Fundamental Illegality

In the case of M/s. Lucky Footwear Components v. The Authorized Officer, Indian Bank, (C.R.P. No. 5237 of 2025), dated October 29, 2025, the petitioners, M/s. Lucky Footwear Components, and its partners, challenged before the Hon’ble High Court of Madras an order of the Debt Recovery Appellate Tribunal (DRAT) dated September 26, 2025, which had affirmed the dismissal of their securitisation application arising from measures taken by Indian Bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFEASI) Act, 2002. After issuing notice under Section 13(2) and taking symbolic possession under Section 13(4), the bank conducted an auction on August 10, 2022.

The petitioners assailed the sale on several grounds:

• First, they contended that the sale notice dated July 25, 2022, did not comply with the statutory notice period prescribed under Rule 9 of the Security Interest (Enforcement) Rules, 2002.
• They further argued that the description of the secured property in the sale notice was inadequate and did not meet the requirements of law.
• They also submitted that the reserve price of the secured asset had been fixed on the basis of a valuation report that was more than a year old, which, according to them, was contrary to the guidelines contained in the bank’s NPA Management Policy for 2022–23.
• The petitioners additionally asserted that their representation under Section 13(3A) of the SARFAESI Act had not been duly considered by the bank. They claimed that their loan account had been wrongly classified as a Non-Performing Asset (NPA) because a payment of ₹1,37,718/- had allegedly not been credited.
• The petitioners also pointed out that they had paid an amount of ₹78 lakhs after the auction was conducted and contended that they were entitled to a Covid-related additional credit facility that had been denied to them.

The Court first considered the Section 13(3A) issue and found that the petitioners’ letter dated June 23, 2021, did not raise any objection under the Act but only sought time for repayment, and that the bank had nevertheless responded to it on July 31, 2021. On the sale notice, the Court observed that the publication took place on July 26, 2022, and the auction on August 10, 2022, satisfying the requirement of fifteen days for a second auction under the proviso to Rule 9(1). There was also no material to show that the petitioners had attempted to discharge the entire liability before the auction.

On the challenge to the description of the secured asset, the Court noted that the sale notice contained complete particulars, including survey numbers, plot details, boundaries, and ownership. As regards valuation, the Court held that the valuation relied upon by the bank had been furnished by a registered valuer approved under Section 34AB of the Wealth-Tax Act, 1957, and that the petitioners’ reliance on a report prepared by a licensed surveyor could not override such statutory valuation. The complaint that the valuation was more than a year old arose only from internal bank guidelines and, in the absence of demonstrated prejudice, could not invalidate the auction.

With respect to NPA classification, the Court held that the petitioners had not laid the necessary factual foundation before the Tribunal nor rebutted the bank’s assertion that the account was in the Special Mention Account-2 (SMA-2) category, rendering them ineligible for the claimed Covid-period credit facility. Further, raising this ground for the first time under Article 227 of the Constitution of India, 1950, was held to be impermissible.

In reaffirming that minor procedural irregularities cannot undo a completed auction, the Court relied on the Hon’ble Supreme Court’s judgment in Celir LLP v. Sumati Prasad Bafna, [2024 Supreme (SC) 1187], dated December 13, 2024, which holds that a confirmed sale may be set aside only upon establishing fraud, collusion, or a fundamental procedural lapse causing substantial injury.

In conclusion, the High Court found no illegality or perversity in the orders of the Tribunals and dismissed the petition, upholding the confirmed auction sale.