Secured-property auction set aside where substantial pre-auction payment preceded subsequent full discharge of liability.

The petitioner stood as guarantor for his brother’s housing loan of ₹19,50,000 obtained from Canara Bank.

Following default, the loan account was classified as an NPA and the Bank issued a demand notice under Section 13(2) of the SARFAESI Act demanding ₹11,28,250.

A possession notice and thereafter a sale notice were issued, fixing the e-auction of the secured residential property for 13 October 2017.

Three days before the auction, the petitioner paid ₹3,00,000 towards the outstanding dues.

The auction nevertheless proceeded, and respondent No. 2 was declared the highest bidder for ₹37,30,000; the sale certificate was subsequently issued in his favour.

The petitioner challenged the sale before the DRT.

Pursuant to an interim order, he deposited a further ₹13,29,169.20 with the Bank, but the DRT ultimately dismissed the securitisation application.

The petitioner’s appeal before the DRAT was dismissed for failure to make the pre-deposit directed under Section 18(1) of the SARFAESI Act.

The petitioner then invoked Articles 226 and 227, challenging the DRAT and DRT orders and the auction sale.

Whether the DRAT was justified in dismissing the petitioner’s appeal for non-compliance with the pre-deposit requirement under Section 18(1) of the SARFAESI Act, without taking into account the substantial amount already deposited by him during the DRT proceedings.

Whether the Bank was justified in proceeding with the auction despite the petitioner’s payment of ₹3,00,000 immediately before the auction and his subsequent deposit of ₹13,29,169.20, particularly when the secured asset was his residential property.

Whether the auction sale in favour of respondent No. 2 ought to be set aside after the petitioner had paid amounts exceeding the sum stated as recoverable in the sale notice.

The Court applied Section 18(1) of the SARFAESI Act, which requires a person aggrieved by an order of the DRT to make the prescribed pre-deposit before the DRAT, while holding that amounts already deposited towards the secured liability were relevant in assessing the petitioner’s bona fides and the appropriate relief.

It relied on Article 300-A of the Constitution, under which no person may be deprived of property except by authority of law, and emphasised that SARFAESI recovery must be conducted strictly according to law and proportionately.

Relying on Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610, the Court recognised the need for reasonable lenience to enable a borrower or guarantor to tender the dues and preserve the constitutional protection of property.

It also relied on E. Muthurathinasabathy v. Sri International, (2026) 6 SCC 749, concerning preservation of the right of redemption where the sale had not attained statutory finality.

The decisions in Celir LLP v. Bafna Motors (Mumbai) (P) Ltd., Sanjay Sharma v. Kotak Mahindra Bank Ltd., and M. Rajendran v. KPK Oils and Proteins India Pvt. Ltd. were distinguished on the ground that, unlike those cases, the petitioner here had made a substantial pre-auction payment and consistently pursued repayment and legal remedies.

The Court found that the petitioner had paid ₹3,00,000 before the auction and a further ₹13,29,169.20 pursuant to the DRT’s interim order, totalling ₹16,29,169.20—an amount exceeding the ₹11,28,250 stated as recoverable in the sale notice.

The DRAT’s determination of the pre-deposit did not account for the amount deposited during the DRT proceedings, despite the petitioner’s demonstrable bona fides and continuing efforts to discharge the liability.

The payment made three days before the auction was treated as a material circumstance indicating an immediate effort to save the property.

In the Court’s view, the Bank ought to have considered that payment and granted a reasonable opportunity to clear the balance rather than proceeding with the auction.

The fact that the secured asset was the petitioner’s dwelling house reinforced the need for a balanced and proportionate approach under Article 300-A.

Since the petitioner had ultimately discharged the liability and the circumstances differed materially from the authorities relied upon by respondent No. 2, the Court held that allowing the auction sale to stand would result in disproportionate deprivation of the petitioner’s residential property.

The Karnataka High Court set aside the DRAT’s orders dated 17 April 2022 and 17 May 2022, as well as the DRT’s order dated 27 November 2020.

The auction sale in favour of respondent No. 2 was annulled.

Canara Bank was directed to refund ₹37,30,000 to respondent No. 2, together with interest at 6% per annum, within four weeks of receiving the judgment.

The petitioner was directed to deposit ₹50,000 with the Bank towards the auction-related costs and expenses.

There was no order as to costs.