Forfeiture of an auction purchaser’s deposit is a SARFAESI measure challengeable under Section 17.

Punjab National Bank conducted an auction on 29 September 2025 for secured property. The petitioners were the successful bidders and paid 25% of the bid price, amounting to ₹55,41,000; the Bank issued a sale certificate the following day.

After discovering entries in the encumbrance certificate, including a gift deed and a mortgage in favour of another bank, the petitioners sought clarification from the Bank.

The Bank stated that an equitable mortgage had been created in its favour and that it had initiated proceedings under the SARFAESI Act.

Following proceedings brought by the borrowers, the Bank forfeited the petitioners’ deposit. The petitioners challenged the forfeiture as illegal and arbitrary, seeking its return with interest.

1. Whether the petitioners, as auction purchasers whose deposit was forfeited by the secured creditor, could challenge that action before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act.

2. Whether the High Court should determine the legality of the forfeiture in the writ petition, or require the petitioners to pursue the statutory remedy.

Section 17(1) of the SARFAESI Act allows “any person” aggrieved by a measure taken under Section 13(4) to apply to the DRT within 45 days; under Section 17(2), the DRT examines whether the measure complies with the Act and the rules made under it.

In Agarwal Tracom Private Limited v. Punjab National Bank, (2018) 1 SCC 626, the Supreme Court held that the scope of Section 17 includes actions under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, including forfeiture of an auction purchaser’s deposit under Rule 9(5).

The Court also referred to Section 14 of the Limitation Act, 1963, in relation to excluding time spent pursuing proceedings before the High Court.

Applying Agarwal Tracom, the Court treated the Bank’s forfeiture of the petitioners’ deposit as part of the measures taken under Section 13(4), because Rule 9(5) provides for forfeiture where an auction purchaser defaults in paying the sale consideration.

The petitioners, as persons aggrieved by that measure, fell within Section 17(1) and could challenge the forfeiture before the DRT.

The Court therefore did not decide whether the forfeiture was substantively lawful or whether the petitioners were entitled to repayment.

It directed that the time spent before the High Court would be available to the petitioners under Section 14 of the Limitation Act if they filed their DRT application within 30 days from the date of the order.