Challenges to SARFAESI auction EMD forfeiture must be pursued before the DRT.

The appellant, a prospective auction purchaser, participated in a SARFAESI sale conducted by the State Bank of India and deposited the requisite Earnest Money Deposit (EMD).

The sale notice described the property as being sold on an “as is where is” and “as is what is” basis.

Subsequently, the appellant discovered that the property was subject to an order of attachment, allegedly subsisting when the sale notice was issued, and sought refund of the EMD.

The Bank refused the refund and forfeited the deposit under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002.

The appellant challenged the forfeiture under Article 226 of the Constitution.

The learned Single Judge dismissed the writ petition on the ground that an efficacious alternative remedy was available before the Debts Recovery Tribunal (DRT), relying on Agarwal Tracom Private Limited v. Punjab National Bank.

The appellant thereafter preferred the present writ appeal, contending that the Bank had suppressed a material fact by failing to disclose the attachment.

1. Whether the Bank’s failure to disclose the subsisting order of attachment in the sale notice violated Rule 8(7)(f) of the Security Interest (Enforcement) Rules, 2002, by withholding information material to an intending auction purchaser’s decision to participate in the sale?

2. Whether the Bank was entitled to forfeit the appellant’s EMD under Rule 9(5) of the 2002 Rules despite the alleged non-disclosure of the attachment?

3. Whether the appellant was required to pursue the statutory remedy under Section 17(1) of the SARFAESI Act before the DRT, and whether the delay in approaching the DRT should prevent such remedy?

Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002 requires the sale notice to disclose the description of the immovable property and details of encumbrances known to the secured creditor; Rule 8(7)(f) additionally requires disclosure of other terms or facts that the authorised officer considers necessary for a purchaser to know the nature and value of the property.

Rule 9(5) permits forfeiture of the deposit when the successful purchaser defaults in payment within the prescribed period.

The Court relied on Agarwal Tracom Private Limited v. Punjab National Bank, (2018) 1 SCC 626, holding that a challenge to forfeiture of EMD in a SARFAESI sale ordinarily lies before the DRT under Section 17(1) of the SARFAESI Act.

It also relied on Fathima v. Canara Bank, 2025 SCC OnLine Ker 3453, for the distinction between an attachment and an encumbrance, and for the principle that an attachment does not necessarily operate as an encumbrance affecting title.

The Court further referred to M. Rajendran v. KPK Oils, (2026) 3 SCC 505, and Celir LLP v. Bafna Motors (Mumbai) Private Limited, (2024) 2 SCC 1, concerning the availability of the statutory DRT remedy.

Non-compliance with the statutory sale-notice requirements may disentitle a secured creditor from obtaining relief from constitutional courts.

The Court held that the legal distinction between an attachment and an encumbrance did not by itself resolve the dispute.

The material question was whether the subsisting attachment was a fact that an intending purchaser was entitled to know under Rule 8(7)(f), because it could reasonably influence the decision to participate in the auction.

Although the property was sold on an “as is where is” and “as is what is” basis, those expressions protected the Bank primarily against complaints concerning the perfection of title and did not authorise non-compliance with mandatory statutory disclosure requirements.

The Bank’s affidavit was inconclusive regarding the date of the attachment, but its counsel ultimately conceded that the attachment existed when the sale notice was issued.

Nevertheless, the Court considered that the DRT was the proper forum to determine whether the non-disclosure was material and whether the forfeiture under Rule 9(5) was legally sustainable.

Since the appellant had pursued the matter diligently, had approached the High Court immediately after the Bank refused repayment, and had an arguable case, the Court held that limitation should not defeat the statutory remedy, particularly in light of Agarwal Tracom.

The DRT was directed to accept the application if filed within three weeks from the date of the judgment, without requiring an application for condonation of delay, and to decide the matter in accordance with law.

The DRT was left to determine whether the Bank’s failure to disclose the attachment violated Rule 8(7)(f) and whether the EMD forfeiture under Rule 9(5) was valid.

The appeal was disposed of without any order as to costs.