SARFAESI enforcement against guarantor’s property is invalid without proof that the guarantee covers subsequent restructured facilities.

The petitioner had stood as guarantor for a loan granted by Canara Bank to M/s Ashok Auto Enterprises Pvt. Ltd. and offered his 2,000 sq. ft. flat at S.P. Verma Road, Patna, as security.

The loan was subsequently restructured and further financial accommodation was sanctioned on revised terms.

The petitioner contended that he had not executed any fresh guarantee or consented to the altered facilities and was consequently discharged from liability as guarantor.

The Bank nevertheless proceeded under the SARFAESI Act, issued a sale certificate dated 14 December 2015, and sold the flat to respondent no. 4 for Rs. 28.60 lakh against a reserve price of Rs. 27.60 lakh.

The petitioner challenged the sale on the grounds of lack of authority, non-service of statutory notices, undervaluation, and failure of the auction purchaser to deposit the required 25% of the bid amount within time.

The Bank and auction purchaser opposed the writ petition, relying, inter alia, on the availability of a statutory remedy under the SARFAESI Act, delay, completed sale, and delivery of possession.

1. Whether the Bank could enforce the petitioner’s flat for a subsequent or restructured financial facility without producing a fresh guarantee or other cogent evidence showing the petitioner’s consent to the altered liability.

2. Whether the SARFAESI measures and sale certificate were vitiated by non-service of statutory notices and denial of an effective opportunity to object.

3. Whether the auction sale was invalid or otherwise unsustainable because the purchaser did not deposit 25% of the bid amount within the time prescribed by the auction terms and because of the alleged irregular valuation and reserve price.

4. Whether the existence of an alternative remedy under the SARFAESI Act barred exercise of the High Court’s writ jurisdiction in the circumstances of the case.

The Court applied the SARFAESI Act, 2002 and the Security Interest (Enforcement) Rules, 2002, under which enforcement of a secured asset must be founded on a valid security interest and must comply with mandatory statutory procedure, including proper notice and lawful conduct of sale.

It applied the contractual principle that a guarantor’s liability is governed by the terms and scope of the guarantee, and that materially altered or enhanced financial facilities cannot automatically be enforced against the guarantor’s security without proof of consent or continuation of the guarantee.

The Court also applied the principle that availability of an alternative statutory remedy is not an absolute bar to writ jurisdiction where the impugned action raises questions of jurisdiction, foundational authority, violation of mandatory procedure, or breach of natural justice.

It further held that completion of sale, issuance of a sale certificate, or delivery of possession cannot cure an invalid foundational enforcement action or material procedural illegality.

The Bank’s documents showed that the petitioner’s flat continued to be described as collateral security for the later financial accommodation, but the Bank did not produce any fresh guarantee or document establishing the petitioner’s consent to the revised or enhanced facilities.

The Court therefore held that the Bank had not established that the original guarantee extended to the subsequent accommodation.

The sale process was also found prima facie infirm because only Rs. 3 lakh was initially deposited against the required 25% of the Rs. 28.60 lakh bid, namely Rs. 7.15 lakh, and the Bank failed to satisfactorily explain acceptance of the balance amount after the prescribed time.

These irregularities assumed greater significance in light of the disputed reduction in valuation and the petitioner’s complaint of non-service of statutory notices.

Since the challenge concerned the Bank’s foundational authority, mandatory procedure, and natural justice, the alternative-remedy objection did not preclude writ intervention.

The completed sale and possession in favour of respondent no. 4 could not validate an otherwise unsustainable SARFAESI action.

The impugned sale proceedings and the sale certificate dated 14 December 2015 were quashed.

The Bank was directed to take consequential steps in accordance with law, and the petitioner was held entitled to restoration of possession, subject to consequential directions necessary to implement the order.

The pending interlocutory applications were disposed of.