Financial Corporation’s Statutory Sale Cannot Be Set Aside Absent Statutory Violation Or Established Mala Fides.

The Bihar State Financial Corporation (BSFC) sanctioned loans to Ranjeet Motel (borrowers) in 1982 and 1984 against the mortgage of land and buildings

Following persistent defaults, BSFC issued a notice under Section 29 of the SFC Act in 1988.

The High Court in 1990 set a repayment schedule, which the borrowers failed to meet

After further defaults and failed extension attempts, BSFC issued a fresh notice in 1994 and conducted an auction on March 18, 1996

BSFC offered the borrowers a final chance to retain the property by matching the auction terms within 21 days; the borrowers did not respond but filed Title Suit No. 39/96 to set aside the sale

The Trial Court and High Court concurrently set aside the auction sale on grounds of non-valuation, lack of notice, and financial accommodation provided to the auction purchaser

This appeal was filed by BSFC and the auction purchaser

1. Whether the concurrent findings setting aside the auction sale on grounds of unreasonableness and procedural irregularity were sustainable in law.

2. Whether the suit was barred by the principles of res judicata or Section 69(2) of the Partnership Act, 1932.

Sections 29 and 30 of the State Financial Corporations Act, 1951, which empower corporations to take possession and sell mortgaged property upon default

Haryana Financial Corpn. v. Jagdamba Oil Mills, establishing that "fairness is not a one-way street" and courts should not interfere with Section 29 actions unless there is a statutory violation or extreme unreasonableness

Karnataka State Industrial Investment v. Cavalet India Ltd., noting that the dominant consideration in such sales is securing the best price through transparent procedures, including negotiation

Celir LLP v. Sumati Prasad Bafna, which mandates that confirmed auctions should not be unsettled without proof of fraud or collusion

The Supreme Court held that the lower courts erred by focusing on procedural omissions while ignoring the borrowers' persistent recalcitrance

The Court reasoned that BSFC acted fairly by providing multiple opportunities over eight years and a "matching offer" notice

Regarding the lack of a valuation report, the Court found this immaterial as the borrowers had originally agreed to the sale terms (outstanding dues) and failed to deposit funds even after giving an undertaking to the High Court

The Court emphasized that financial corporations are autonomous commercial bodies; thus, granting installment facilities to a successful bidder while denying them to a chronic defaulter (the borrower) is a valid commercial decision, not an act of discrimination

The Court found no evidence of fraud or collusion to justify unsettling a sale where the purchaser had been in possession for nearly 30 years

To Issue 1: The Court answered in the negative, finding the BSFC’s actions reasonable under the circumstances

To Issue 2: The Court affirmed the lower courts' finding that the suit was not barred by res judicata or Section 69(2) of the Partnership Act, as the specific validity of the sale had not been previously adjudicated and the suit did not arise from a commercial contract with a third party

The Court allowed the appeals and set aside the judgments of the High Court and Trial Court