FSL-backed forgery allegations: Delhi High Court excludes woman’s one-third share from auction pending adjudication of loan documents

The petitioner claimed a one-third undivided share in a Delhi property and alleged that her signatures had been forged on loan and mortgage documents used to secure facilities obtained by her relatives from ICICI Bank. The loan accounts were later assigned to Prudent ARC, which issued an e-auction notice for the property.

A forensic report and an EOW status report recorded that the petitioner’s signatures on relevant loan documents were forged; an FIR was registered against her relatives and bank officials.

The petitioner’s civil suit challenging the transactions and seeking relief against enforcement was rejected under Order VII Rule 11 CPC on the ground that the DRT had jurisdiction; her appeal against that order remained pending. She then filed this writ petition challenging the proposed auction.

Whether a writ petition challenging enforcement by a private ARC was maintainable in the circumstances of the case.

Whether the availability of an alternative remedy under the SARFAESI Act barred the writ petition where the petitioner alleged fraudulent creation of the security interest.

Whether the petition was barred by delay, laches, acquiescence, or suppression of material facts.

Article 226 jurisdiction is discretionary, and an effective alternative remedy ordinarily weighs against entertaining a writ petition; recognised exceptions include enforcement of fundamental rights, breach of natural justice, and action wholly without jurisdiction (Whirlpool Corporation v. Registrar of Trade Marks; United Bank of India v. Satyawati Tondon).

Under Sections 13 and 34 of the SARFAESI Act, civil-court jurisdiction is generally barred over matters within the DRT’s competence, but Mardia Chemicals Ltd. v. Union of India recognises a limited exception where the secured creditor’s action is alleged to be fraudulent or its claim is so untenable that it requires no probe; Tajunissa v. Vishal Sharma explains the scope of that exception.

The Court also relied on Article 300A, which protects against deprivation of property except by authority of law.

The Court treated the petitioner’s challenge as going to the existence of the security interest itself, rather than merely disputing an enforcement measure. The FSL opinion and EOW status report provided prima facie support for the forgery allegations, making the asserted fraud more than an unsupported allegation; the Court therefore considered the case within the recognised exception to the ordinary SARFAESI remedy and alternative-remedy rules.

It did not determine whether the documents were in fact forged, leaving that question for the competent forum.

The Court also rejected delay and acquiescence at this stage because the petitioner said she first learned of the loans in 2021 and had thereafter pursued enquiries, complained to the EOW, and instituted civil proceedings; the alleged authority under earlier powers of attorney was itself disputed.

It found no sufficient basis, on the record, to conclude that she had suppressed the DRT proceedings. Proceeding with the auction could create third-party rights before the validity of the mortgage was adjudicated, risking prejudice and further litigation.

It allowed the petition and directed that the petitioner’s undivided one-third share in the property be excluded from the auction; the remaining two-thirds share was not restricted from auction.

The ruling was confined to preserving the disputed share pending adjudication of the loan documents’ validity; it did not finally determine the fraud or mortgage dispute.