STERLING HOLIDAY RESORTS LIMITED v. M/S P.M. ASSOCIATES & ORS.

2026 INSC 1071 NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE/INHERENT JURISDICTION

CIVIL APPEAL NOS. 10077-10078 OF 2014 STERLING HOLIDAY RESORTS LIMITED …APPELLANT VERSUS M/S P.M. ASSOCIATES & ORS. …RESPONDENTS WITH CIVIL APPEAL NOS. 10246-10247 OF 2014 CONTEMPT PETITION (C) NOS. 834-835 OF 2015 IN CIVIL APPEAL NOS. 10077-10078 OF 2014 AND SPECIAL LEAVE PETITION (C) NO. 508 OF 2016

JUDGMENT

ALOK ARADHE, J.

1. This batch of matters concerns the fate of a hill resort which has

been the subject of litigation for well over a decade. The central

issue in this batch of appeals is whether the process culminating

in issuance of sale certificate, was conducted in conformity with

the statutory framework governing such sale.

Signature Not Verified

2. The Civil Appeal Nos. 10077-10078 of 2014, preferred by Sterling Digitally signed by KAPIL TANDON Date: 2026.09.30 17:40:49 IST Reason:

Holiday Resorts Limited (“the Borrower”), and Civil Appeal Nos.

10246-10247 of 2014, preferred by M/s P.M. Associates (“the

Purchaser”), arise out of the common judgment dated

23.08.2013 passed by the High Court1. The Special Leave

Petition (Civil) No. 508 of 2016 has been filed by the Purchaser

against the order dated 13.04.2015 of the High Court in a

Company Petition, which sanctioned a modified composite

scheme of arrangement and amalgamation between the

Borrower, Thomas Cook Insurance Services (India) Limited and

Thomas Cook (India) Limited, subject to approval of the scheme

by the High Court of Bombay. The Purchaser has also instituted

Contempt Petition (C) Nos. 834-835 of 2015 alleging violation of

the interim order dated 16.09.2013 passed by this Court.

3. Since the appeals turn substantially upon the chronology of

events, it is necessary to set out the facts in some detail.

FACTS

4. The Borrower has, since 1987, been engaged in the business of

developing and marketing resorts on a timeshare basis. In 1991,

it obtained a loan of Rs.2.06 crores from the Industrial Finance

Corporation of India Limited (“IFCI”) and a term loan of Rs.3.24

1 High Court of Judicature at Madras

crores from the Tourism Finance Corporation of India Limited

(TFCI) on a consortium basis. As security, the Borrower created,

by way of a joint equitable mortgage in favour of IFCI and TFCI,

a first charge over its resort property known as ‘The Fernhill’,

situated at Ooty, District Nilgiris, Tamil Nadu (“the Resort”).

5. Upon default by the Borrower, IFCI and TFCI jointly instituted

O.A. No. 277 of 2000 on 02.06.2000 before the Debts Recovery

Tribunal, New Delhi (“DRT, Delhi”) under the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 (“the 1993

Act”), claiming a sum of Rs. 8,87,36,938/- (Rupees Eight Crore

Eighty Seven Lakh Thirty-Six Thousand Nine Hundred Thirty

Eight only) as on 30.05.2000, of which the claim of IFCI was Rs.

3,64,60,434/- (Rupees Three Crore Sixty Four Lakh Sixty

Thousand Four Hundred Thirty-Four only). During the pendency

of those proceedings, IFCI, on 30.10.2007, issued a demand

notice under Section 13(2) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (“the SARFAESI Act”) demanding a sum of

Rs.17,71,78,482/- (Rupees Seventeen Crore Seventy One Lakh

Seventy Eight Thousand Four Hundred Eighty Two Only). The

representation submitted by the Borrower on 26.12.2007 under

Section 13(3A) evoked no response.

6. On 21.08.2009, the Authorised Officer of IFCI (“the AO”) issued

a notice under Section 13(4) of the SARFAESI Act stating that

symbolic possession of the Resort had been taken and that

physical possession would follow. The Borrower assailed this

action in S.A. No. 189 of 2009 before the Debts Recovery

Tribunal, Chennai (“DRT, Chennai”), which, by an interim order

dated 08.09.2009, restrained the AO from taking physical

possession subject to the Borrower depositing Rs. 3.40 crores on

or before 26.10.2009. In appeal, the amount was enhanced to

Rs. 4 crores, which the Borrower duly deposited.

7. On 23.10.2009, the DRT, Delhi decreed O.A. No. 277 of 2000,

quantifying the Borrower’s liability towards TFCI at

Rs.5,08,46,131/- (Rupees Five Crore Eight Lakh Forty-Six

Thousand One Hundred Thirty-One only) and towards IFCI at

Rs.3,52,53,263/- (Rupees Three Crore Fifty-Two Lakh Fifty-

Three Thousand Two Hundred Sixty Three only), together with

interest at 13.5% per annum (the Debts Recovery Appellate

Tribunal, by its order dated 06.08.2010, modified the decree to

provide for pendente lite and future interest at 16% per annum).

The Borrower settled the claim of TFCI in full by paying Rs. 6.03

crores under a One-Time Settlement scheme.

8. By its order dated 05.03.2010, the DRT, Chennai partly allowed

S.A. No. 189 of 2009, set aside the action of IFCI insofar as it

related to taking physical possession of the Resort, and

permitted IFCI to proceed from the stage of symbolic possession.

Acting upon this liberty, IFCI issued an auction notice dated

25.03.2010 fixing the reserve price of the Resort at Rs. 20 crores

and scheduling the auction for 28.04.2010.

9. The Borrower carried the matter in appeal to the Debts Recovery

Appellate Tribunal, Chennai (“DRAT”). By an order dated

07.04.2010, the DRAT directed the Borrower to deposit Rs. 1

crore on or before 09.04.2010 and, subject to such deposit,

restrained the AO from proceeding further under the SARFAESI

Act. The operative portion of the order reads thus:

“Accordingly, the petitioner company is directed to deposit a sum of Rs. 1.00 crore with the Registrar of this Tribunal on or before 09.04.2010 and on the petitioner company depositing the said sum, the Authorised Officer shall stand restrained from in any way proceeding further under the provisions of the SARFAESI Act till further orders and in the event of the petitioner company’s failure to deposit the said amount, the Authorised Officer shall be at liberty to proceed against the petitioner company under the provisions of the SARFAESI Act from 10.04.2010 onwards.” (emphasis supplied)

The Borrower deposited the sum of Rs. 1 crore on 08.04.2010,

i.e., a day before the stipulated date. The restraint thus became

operative.

10. Notwithstanding the restraint, IFCI, in pursuance of the auction

notice dated 25.03.2010, received bids, though it did not open

them on account of the order dated 07.04.2010. On 09.03.2011,

the DRAT allowed the Borrower’s appeal and set aside the order

dated 05.03.2010 of the DRT, Chennai. IFCI challenged the

DRAT’s order before the High Court, which, by its judgment

dated 06.09.2011, allowed the writ petition, observing as under:

“We hold that there was substantial compliance of Section 13(3-A) of the Act and Rule 3-A(c) of the Rules by the petitioners. The above facts were not taken into consideration by the DRAT while setting aside the order of the DRT. Hence, for our own reasons, the order of the DRAT in quashing the entire proceedings cannot be sustained and is liable to be set aside.” “44. For all the above reasons, the order dated 9th March 2011 on the file of the DRAT is set aside and the writ petition is allowed. No costs.”

11. Within six days thereafter, on 12.09.2011, IFCI opened the bids

and declared one Ms. Rukmani Khemchand as the successful

bidder. On the very same day, the full sale consideration of Rs.

20,00,10,000/- (Rupees Twenty Crore Ten Thousand only) was

remitted, not by the declared bidder, but by M/s P.M. Associates,

the Purchaser herein. A sale certificate came to be issued in

favour of the Purchaser, which, as recorded by the High Court,

bears the date 16.09.2011.

12. On 21.09.2011, the Borrower challenged the judgment dated

06.09.2011 before this Court in SLP (C) No. 27587 of 2011.

Meanwhile, in Writ Petition No. 21820 of 2011 instituted by the

Borrower, the High Court, by an interim order dated 22.09.2011,

directed IFCI not to precipitate matters by moving the Chief

Judicial Magistrate under Section 14 of the SARFAESI Act for

appointment of an Advocate Commissioner to take physical

possession of the Resort till 27.09.2011; the interim protection

was continued on 27.09.2011. On 25.11.2011, the High Court

directed IFCI to produce the entire records relating to the sale,

which was then understood to be one by private treaty. On

10.12.2011, the High Court recorded as follows:

“By order dated 25.11.2011, this court directed the respondent bank to produce the records relating to the sale by private treaty. It is now represented by the learned counsel appearing for the respondent that the sale has been made only by auction by inviting tenders and not by private treaty, which fact is also disputed by the learned counsel for the petitioner. Be that as it may, the fact remains that the respondent has not produced the original records relating to the sale and had chosen only to produce Xerox copies, which we are not entertaining. At the request of the learned counsel on either side, call this matter

on 15.12.2011. In the meantime the respondent Bank shall produce the original file relating to the sale before the registry.”

13. By an order dated 05.01.2012 passed in SLP (C) No. 27587 of

2011, this Court permitted the Borrower to deposit the balance

dues with IFCI in terms of the decree dated 23.10.2009 of the

DRT, Delhi, as modified by the DRAT, Delhi, after adjusting the

amounts already deposited. In compliance thereof, the Borrower

deposited a sum of Rs. 8,80,00,000/- (Rupees Eight Crore Eighty

Lakh only).

14. In the meantime, the Borrower instituted Writ Petition No. 22837

of 2011 challenging the auction notice dated 25.03.2010,

whereas the Purchaser filed Writ Petition No. 1937 of 2012

seeking a direction for registration of the sale certificate.

15. On an intimation sent by IFCI on 03.02.2012, the Borrower, paid

a further sum of Rs. 3,72,00,000/- (Rupees Three Crore Seventy

Lakh only) in full and final settlement of the dues of IFCI. On

08.02.2012, IFCI cancelled the sale certificate issued in favour

of the Purchaser and refunded the sum of Rs. 20,00,10,000/-

(Rupees Twenty Crore Ten Thousand only) together with interest

of Rs. 61,34,554/- (Rs. 55,21,099/- net of tax deducted at

source), by two cheques, which the Purchaser encashed. The

Purchaser thereafter filed Writ Petition No. 4088 of 2012 seeking

to quash the communication dated 08.02.2012 cancelling the

sale certificate.

16. On 14.02.2012, in view of the settlement arrived at between the

Borrower and IFCI, the High Court permitted the Borrower to

withdraw the writ petitions filed by it challenging the auction

notice and the proceedings under the SARFAESI Act, with liberty

to seek impleadment in the writ petitions filed by the Purchaser

and defend itself therein. On 25.04.2012, on a miscellaneous

petition moved by the Purchaser, the High Court permitted the

Purchaser to deposit the amount refunded to it.

17. By the impugned judgment dated 23.08.2013 rendered in W.P.

Nos. 1937 and 4088 of 2012, a Division Bench of the High Court

held that: (i) the sale certificate dated 16.09.2011 in favour of the

Purchaser had been validly issued; (ii) the AO had no power

under the SARFAESI Act or the Security Interest (Enforcement)

Rules, 2002 (“the Rules”) framed thereunder to unilaterally

cancel a sale certificate once issued, such power vesting only in

the competent Court or Tribunal; (iii) the acceptance of a

settlement amount of about Rs. 12.5 crores from the Borrower

was impermissible in law; (iv) the Borrower, having withdrawn

its writ petition challenging the auction notice, could not

question the validity of the sale; and (v) the sale certificate

required registration under Section 17(2)(xii) of the Registration

Act, 1908, but since the Purchaser had never been put to notice

of its liability towards stamp duty, it could not be blamed for

non-registration, and AOs were accordingly directed to disclose

such liability at the stage of the sale notice itself. Consequently,

the cancellation letter dated 08.02.2012 was set aside, and the

Purchaser was held entitled to physical possession and

registration of the sale certificate upon re-payment of the

refunded bid amount within two weeks. W.P. No. 4088 of 2012

was allowed, and W.P. No. 1937 of 2012 was disposed of with

liberty to the Purchaser to approach the appropriate authorities

for mutation of revenue entries.

18. Both the Borrower and the Purchaser are in appeal against the

impugned judgment. While issuing notice in the Borrower’s

appeals, this Court, by an interim order dated 16.09.2013,

directed the parties to maintain status quo in all respects in

relation to the subject property. During the pendency of these

appeals, the High Court, by order dated 13.04.2015 in Company

Petition No. 352 of 2014, sanctioned the merger of the Borrower

with Thomas Cook (India) Limited, overruling the objections of

the Purchaser. That order is the subject matter of the SLP (C) No.

508 of 2016. The Purchaser has also filed Contempt Petition (C)

Nos. 834-835 of 2015 alleging breach of the interim order dated

SUBMISSIONS

19. Dr. Abhishek Manu Singhvi, learned senior counsel for the

Borrower, submitted that the Purchaser is a stranger to the

auction. The bid was submitted by Ms. Rukmani Khemchand in

her individual capacity, while the Purchaser, a partnership firm

constituted on 12.09.2011 between her and her brother Mr.

Murli Khemchand, was not even in existence on the last date for

submission of bids. The sale certificate was issued to the

Purchaser merely as her nominee, which neither the auction

notice nor the Rules permit. It was contended that IFCI

proceeded with the auction and accepted bids despite the DRAT’s

restraint order dated 07.04.2010. It was submitted that under

Section 13(8) of the SARFAESI Act, as it stood prior to its

amendment with effect from 01.09.2016, the Borrower’s right of

redemption subsisted until registration of the sale, and that the

sale certificate in the present case has neither been registered

nor survived, having been cancelled.

20. It was further submitted that possession of the Resort has at all

times remained with the Borrower, which has been running it

successfully for over two decades. He contended that a

consummated redemption cannot be reversed; and that a sale

can be set aside even after confirmation where illegality in the

SARFAESI proceedings is demonstrated. It was pointed out that

the amount deposited by the Purchaser was refunded to it with

interest and was encashed by it, and that the interest so received

was never offered back. Reliance was placed upon several

decisions of this Court.2

21. Mr. Rakesh Dwivedi, learned senior counsel, also appearing for

the Borrower, submitted that the Borrower having been

permitted to defend the writ petitions of the Purchaser, was fully

entitled to demonstrate the illegalities in the sale. Even if it is

assumed that there was more than one bidder, Clause 2.10 of

2 Narandas Karsondas v. S.A. Kamtam & Anr., (1977) 3 SCC 247, paras 34-37; Transcore v. Union of India & Anr., (2008) 1 SCC 125; J. Rajiv Subramaniyan & Anr. v. Pandiyas & Ors., (2014) 5 SCC 651; Vasu P. Shetty v. Hotel Vandana Palace & Ors., (2014) 5 SCC 660; M.D. Frozen Foods Exports (P) Ltd. & Ors. v. Hero Fincorp Ltd., (2017) 16 SCC 741; Mathew Varghese v. M. Amritha Kumar & Ors., (2014) 5 SCC 610, paras 38-39; Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. & Ors., (2024) 2 SCC 1, paras 50, 67, 77.3, 77.4, 110.3; M. Rajendran & Ors. v. KPK Oils and Proteins India (P) Ltd., (2026) 3 SCC 505; M.R. Vasumathi v. Authorised Officer & Ors., 2026 SCC OnLine SC 1103, paras 28, 35, 36; E. Muthurathinasabathy & Ors. v. Sri International & Ors., 2026 SCC OnLine SC 508, paras 4(o), 23, 25, 27, 28, 30, 35 and Shree Sidhbali Steels Ltd. & Ors. v. State of U.P. & Ors., (2011) 3 SCC 193.

the auction notice mandated inter se bidding, and no details of

any other bidder have ever been placed on record. It was urged

that once the High Court decided IFCI’s writ petition on

06.09.2011, a fresh sale notice ought to have been issued, and

no further step could have been taken on a notice issued nearly

one and a half years earlier. It was also contended that there was

no confirmation of sale as contemplated by Rule 9 of the Rules,

and that registration of the sale certificate was mandatory3.

22. Per contra, Mr. R. Guru Krishna Kumar, learned senior counsel

for the Purchaser, submitted that the AO had no authority in law

to cancel the sale certificate, particularly when neither the sale

nor the certificate was under challenge. It was contended that

the Borrower’s right of redemption stood extinguished upon

issuance of the sale certificate on 16.09.2011, and no fresh

notice was required. It was argued that the Borrower and IFCI

acted in collusion, which disentitles the Borrower to any relief. It

was contended that the plea that the Purchaser was a stranger

to the auction was never raised before the High Court; and that

no prejudice was caused to the Borrower merely because a

3 Mathew Varghese (supra); Manohar Lal (Dead) by LRs v. Ugrasen (Dead) by LRs & Ors., (2010) 11 SCC 557, paras 27-29 and Dwarika Prasad v. State of U.P. & Ors., (2018) 5 SCC 491, para 8.

partnership firm, and not an individual, acquired the Resort. It

was pointed out that the Purchaser, of its own accord, sought

and obtained permission from the High Court on 25.04.2012 to

deposit the refunded amount. Reliance was placed on various

decisions of this Court4.

23. Mr. Kush Chaturvedi, learned counsel for IFCI, submitted that

the validity of the auction was not the subject matter of the writ

petitions before the High Court, both of which were filed by the

Purchaser. He contended that IFCI cancelled the sale certificate

because the Borrower tendered the dues in terms of the decree

of the DRT.

ANALYSIS

24. We have heard learned counsel for the parties at length and

perused the record. Although the parties have addressed us on

a range of issues, including the power of the AO to cancel a sale

certificate, the requirement of its registration, and the scope of

4 Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Ors., (2008) 9 SCC 299, para 28; Celir LLP (supra), paras 88-92; IDBI Bank Ltd. v. Ramswaroop Daliya & Ors., 2024 SCC OnLine SC 2878, para 20; Mathew Varghese (supra); Allokam Peddabbayya v. Allahabad Bank & Ors., (2017) 8 SCC 272; Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd. & Anr., (2016) 4 SCC 47; Esjaypee Impex (P) Ltd. v. Assistant General Manager & Authorised Officer, Canara Bank, (2021) 11 SCC 537; Inspector General of Registration & Anr. v. G. Madhurambal & Anr., 2022 SCC OnLine SC 2079; Haldiram Incorporation (P) Ltd. v. Amrit Hatcheries Pvt. Ltd. & Ors., 2023 SCC OnLine SC 1706; State of Punjab & Anr. v. Ferrous Alloy Forgings (P) Ltd., 2024 SCC OnLine SC 3372 and B. Arvind Kumar v. Govt. of India & Ors., (2007) 5 SCC 745.

the right of redemption, the pivotal question which goes to the

root of the controversy, and which, in our view, is determinative

of these appeals, is this: whether the auction process initiated

by the notice dated 25.03.2010 and culminating in the issuance

of the sale certificate dated 16.09.2011 was conducted in

accordance with law.

25. Before examining the question, it is apposite to notice the

statutory provisions, as they then stood, governing the sale in

question.

(A) THE STATUTORY FRAMEWORK

26. Section 13(8) of the SARFAESI Act, as it stood prior to its

substitution by Act 44 of 2016 with effect from 01.09.2016, read

as under:

“13. Enforcement of security interest.— … (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.” (emphasis supplied)

The relevant provisions of Rules 8 and 9 of the Rules, as then in

force, read thus:

“8. Sale of immovable secured assets.— … (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:— (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) by holding public auction; or (d) by private treaty. (6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5): Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,— (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web-site of the secured creditor on the Internet.

(8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.

9. Time of sale, issue of sale certificate and delivery of possession, etc.— (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9. Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent of the amount of the sale price, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again. (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. (5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold. (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules. …” (emphasis supplied)

27. The relevant clauses of the auction notice issued by IFCI for the

sale of the Resort may also be noticed:

“2.1 IFCI Limited as a secured creditor to SHRIL and having right/power to sell the assets after their acquisition under the provisions of the [SARFAESI Act] shall be referred to as the seller and the successful tenderer/bidder, (i.e. the tenderer/bidder in whose favour the sale may be awarded) shall be hereinafter referred to as the Purchaser. 2.7 The Reserve Price has been fixed at Rs. 2000.00 lakh. Any tender with a bid lower than the Reserve Price shall not be considered under any circumstances. 2.10 Inter-se bidding shall be held amongst eligible bidders. The highest bidder amongst them after inter-se bidding shall be declared as successful bidder and the “Letter of Confirmation” will be issued to him. 3.1 The tenderer/bidder should: (a) be any person, registered trust, registered firm, registered cooperative society, private limited company, public limited company, partnership firm registered in India. (b) be legally competent to enter into contract as per prevailing laws. 10.1 After receipt of full and final payment in lieu of the total sale consideration of the assets, IFCI Ltd. will issue Certificate of Sale as provided under the Rules to SRFA & ESI Act, 2002, in favour of the purchaser … ANNEXURE-I — TENDER/BID … 2. Constitution of Bidder (Tick whichever is applicable): Public Limited Company / Private Limited Company / Partnership / Individual/Sole Proprietorship / Others (specify) (Furnish documents in Support).” (emphasis supplied)

28. A conjoint reading of the Rules and the auction notice yields the

following scheme for the sale of an immovable secured asset:

(i) Before effecting a sale, the AO must obtain a valuation

of the property from an approved valuer and, in

consultation with the secured creditor, fix the reserve

price [Rule 8(5) of the Rules].

(ii) The AO must serve upon the borrower a thirty days’

notice of sale and, where the sale is by public tender

or public auction, cause a public notice to be

published in two leading newspapers setting out the

terms of sale, and affix the notice on a conspicuous

part of the property [Rules 8(6) and 8(7) of the Rules].

A sale by any mode other than public auction or

public tender must be on terms settled between the

parties in writing [Rule 8(8) of the Rules].

(iii) No sale can take place before the expiry of thirty days

from the date of publication of the public notice or

service of notice upon the borrower [Rule 9(1) of the

Rules].

(iv) The sale is to be confirmed in favour of the purchaser

who has offered the highest price in his bid, subject to

confirmation by the secured creditor [Rule 9(2) of the

Rules]; the purchaser must deposit twenty-five per

cent of the price immediately and the balance within

fifteen days of confirmation [Rules 9(3) and 9(4) of the

Rules]; and only upon confirmation and compliance

with the terms of payment, a sale certificate is to be

issued in favour of the purchaser [Rule 9(6)].

(v) Under the auction notice, the “Purchaser” is the

successful tenderer/bidder himself (Clause 2.1); a

partnership firm, to be eligible, must be one registered

in India (Clause 3.1); the bidder must disclose its

constitution (Annexure-I); and where there are several

eligible bidders, inter se bidding is mandatory (Clause

(B) PROCEDURE PRESCRIBED IS MANDATORY

29. It is a principle of long standing that where a statute requires

a thing to be done in a particular manner, it must be done in

that manner or not at all, and other modes of performance are

necessarily forbidden5. The principle applies with particular

rigour to the SARFAESI Act, which confers upon a secured

creditor the extraordinary power to take possession of and sell

the property of a borrower without the intervention of a court.

The constitutional validity of the SARFAESI Act was upheld

5 Taylor v. Taylor, (1875) 1 Ch D 426 and Ramchandra Keshav Adke v. Govind Joti Chavare, (1975) 1 SCC 559.

precisely because the power so conferred is hedged in by

procedural safeguards designed to protect the borrower. The

safeguards are thus the very condition upon which the power

exists6.

30. Rules 8 and 9 of the Rules are mandatory and must be

scrupulously followed. The thirty days’ notice under Rules 8(6)

and 9(1) is intended to afford the borrower a real and final

opportunity to redeem the secured asset under Section 13(8)

of the SARFAESI Act. A sale effected in breach of these

requirements cannot be sustained7.

(C) INFIRMITIES IN THE AUCTION PROCESS

31. A careful scrutiny of the record discloses that the auction

process in question suffers from multiple infirmities, each

striking at a distinct safeguard in the statutory scheme. We

shall deal with them in turn.

31.1 Receipt of bid in the teeth of the restraint order of the DRAT (i) The DRAT, by its order dated 07.04.2010, restrained the

AO “from in any way proceeding further under the provisions

6 Mardia Chemicals Ltd. & Ors. v. Union of India & Ors., (2004) 4 SCC 311 7 Mathew Varghese (supra) and J. Rajiv Subramaniyan (supra)

of the SARFAESI Act”, subject to the deposit of Rs. 1 crore. The

condition was satisfied on 08.04.2010, and the restraint

became operative from that date. The language of the restraint

is of the widest amplitude. Receiving bids and the earnest

money deposit in pursuance of the auction notice is

unmistakably a step in the process of sale and, therefore, a

step “under the provisions of the SARFAESI Act”. Yet, the bid

of Ms. Rukmani Khemchand along with the earnest money was

received thereafter, in stark violation of the order.

(ii) It is settled law that an act done in violation of an order of

a court or tribunal is not merely irregular but is bereft of legal

effect, and that the court will not permit a party to retain the

advantage secured by such defiance8. The fact that IFCI

refrained from opening the bids does not cure the illegality; the

solicitation and receipt of the bid was itself the forbidden step.

The later judgment of the High Court dated 06.09.2011 in

favour of IFCI did not, and could not, retrospectively validate

what was done while the restraint was in force. A bid received

8Surjit Singh & Ors. v. Harbans Singh & Ors., (1995) 6 SCC 50 and Delhi Development Authority v. Skipper Construction Co. Pvt. Ltd. & Anr., (1996) 4 SCC 622

in contravention of a subsisting restraint cannot form the

foundation of a valid sale.

31.2 Violation of Rule 9(1): sale before expiry of thirty days (i) Rule 9(1) prohibits any sale before the expiry of thirty days

from the date of publication of the public notice or service of

notice upon the borrower. The auction notice was issued on

25.03.2010. Thirteen days thereafter, on 07.04.2010, the

DRAT restrained further proceedings. The embargo was lifted

only upon the High Court’s judgment dated 06.09.2011. The

period during which the restraint was in operation must

necessarily be excluded in computing the thirty days’ period.

This follows from the maxim actus curiae neminem gravabit, an

act of the court shall prejudice no one. During the currency of

the restraint, the Borrower was entitled to proceed on the

footing that the sale process stood arrested; to count that

period against it would be to convert the protection granted by

the Tribunal into an instrument of prejudice.

(ii) Upon exclusion of the period of restraint from 07.04.2010

to 06.09.2011, the Borrower was entitled to the balance

seventeen days of the thirty days’ window, which would expire

on 23.09.2011. The bids, however, were opened and the sale

concluded on 12.09.2011, and the sale certificate was issued

on 16.09.2011. Both events took place before the expiry of the

mandatory period. This is not a technical lapse. The thirty

days’ window is the very period in which the borrower may

exercise the right of redemption; truncating it strikes at the

substantive right that Section 13(8) protects9.

31.3 No notice to the Borrower of the opening of bids on 12.09.2011 It is not in dispute that the Borrower was given no notice of

the opening of bids on 12.09.2011, some seventeen months

after the date originally fixed for the auction. The Borrower was

thus kept entirely in the dark about the revival of a sale

process that had remained frozen for over a year. The object of

Rules 8(6) and 9(1) is to keep the borrower informed of the sale

so as to enable it to tender the dues, to participate, or to bring

forth better offers. A sale conducted behind the back of the

borrower, after such an interregnum, defeats that object and

offends the basic requirement of fairness which must inform

the exercise of a statutory power of sale.

9 Mathew Varghese (supra)

31.4 Sale certificate issued in favour of a non-bidder “nominee” (i) Rule 9(2) mandates that the sale shall be confirmed in

favour of “the purchaser who has offered the highest sale

price in his bid”. Rule 9(6) requires the sale certificate to

issue in favour of that purchaser. Clause 2.1 of the auction

notice identifies the “Purchaser” as the successful

tenderer/bidder himself. Neither the Rules nor the auction

notice contemplate a nomination by the bidder in favour of

a third party.

(ii) However, in the instant case, it is admitted that Ms.

Rukmani Khemchand participated in the bidding process

in her individual capacity and was declared the successful

bidder. The sale certificate, however, was issued in favour

of M/s P.M. Associates, a partnership firm of Ms. Rukmani

Khemchand and her brother, at her request and as her

nominee. This is acknowledged by IFCI in its

communication dated 08.02.2012.

(iii) The infirmity is compounded by the fact that the Purchaser

was not in existence on the date fixed for the auction, i.e.,

28.04.2010, and came into being only on 12.09.2011, the

very date on which the bids were opened. Under Clause

3.1(a), a partnership firm, to be eligible to bid, had to be a

firm registered in India, and under Annexure-I every bidder

was required to disclose its constitution with supporting

documents. An entity which did not exist when bids were

invited and received could neither have been assessed for

eligibility nor have participated in the auction. To allow the

certificate to issue in its favour is to permit, indirectly, what

could not have been done directly, a course the law does

not countenance.

31.5 Absence of records of the auction and of inter se bidding (i) Before the High Court, IFCI initially described the sale as

one by private treaty, and at the next hearing, as one by

public tender. Despite specific directions dated 25.11.2011

and 10.12.2011, the original records of the sale were never

produced. No details of any other bidder have been

furnished at any stage. If there were other eligible bidders,

Clause 2.10 of the auction notice required inter se bidding

amongst them, and no record of any such exercise exists.

If, on the other hand, the sale was by private treaty, Rule

8(8) required its terms to be settled between the parties in

writing, of which again there is no trace. Either way, the

process adopted cannot be reconciled with the Rules.

32. The cumulative effect of the foregoing infirmities is

unmistakable. The bid was received in defiance of a subsisting

restraint; the sale was concluded before the expiry of the

mandatory thirty days’ period; the certificate was issued to an

entity that neither submitted the bid nor existed on the date of

the auction; and the record of the auction, if any, was withheld

from the court. The sale has thus taken place in violation not

only of the Rules but also of the terms and conditions of the

auction notice. No sanctity in law can be attached to such an

auction process.

(D) THE FINALITY OF AUCTION SALES

33. We are conscious that this Court has repeatedly emphasised

the sanctity of auction sales and has cautioned against lightly

setting aside confirmed sales, lest public confidence in such

sales be eroded10. However, the principle of finality presupposes

an auction conducted in accordance with law. The same line of

authority recognises that a sale vitiated by material irregularity,

10 Valji Khimji (supra) and Celir LLP (supra)

fraud, or non-compliance with the mandatory statutory

procedure does not attract that protection and may be set aside

even after confirmation11. Sanctity is the reward of legality, not

a substitute for it. The decisions relied upon by the Purchaser

concerned auctions, whose legality was not in doubt and are,

therefore, of no assistance to it.

34. The conclusion reached above is fortified by the following

considerations, which we notice briefly:

(a) Discharge of the entire dues. In view of the settlement

arrived at with IFCI, the Borrower paid the entire dues

of IFCI in terms of the decree of the DRT by

03.02.2012, while the sale certificate remained

unregistered and possession remained with it. The

object of Section 13(8) of the SARFAESI Act, as it then

stood, was to preserve to the borrower the opportunity

of saving the secured asset by tendering the dues12,

and it is precisely that opportunity which the

11 Divya Manufacturing Co. Pvt. Ltd. v. Union Bank of India & Ors., (2000) 6 SCC 69 and J. Rajiv Subramaniyan (supra) 12 Mathew Varghese (supra)

Borrower has availed of. This circumstance lends

further weight to our conclusion.

(b) No collusion. The plea of collusion between the

Borrower and IFCI is devoid of substance. The

settlement between the Borrower and IFCI was

brought to the notice of the High Court and the High

Court, thus, allowed the writ petitions to be

withdrawn.

(c) Conduct of the Purchaser and possession. The

Purchaser accepted and encashed the refund of the

sale consideration along with interest, and the

possession of the Resort has at all times remained

with the Borrower. The Purchaser’s investment was

thus restored to it within five months, whereas the

Borrower’s undertaking continues to depend upon the

Resort.

(d) Article 300A. The right to property, though no longer

a fundamental right, remains a constitutional right

under Article 300A, and a person can be deprived of

property only by the authority of law13. A sale that

disregards the procedure mandated by the statute is

not a deprivation by the authority of law.

35. We note that learned senior counsel for the Purchaser has

advanced submissions with some force on the absence of power

in the AO to unilaterally cancel a sale certificate. Learned senior

counsel for the Borrower, on the other hand, has placed reliance

on Section 21 of the General Clauses Act, 1897, and the parties

have debated at length whether the sale certificate required

registration and the precise point at which the right of

redemption stood extinguished under Section 13(8) of the

SARFAESI Act as it then stood. In view of our conclusion that

the auction process itself was illegal, and that no right,

therefore, accrued in favour of the Purchaser, it is not necessary

for us to examine the aforesaid issues as the auction sale itself

has been found to be illegal.

CONCLUSION

36. For the foregoing reasons, the impugned judgment dated

23.08.2013 is quashed and set aside. Accordingly, Civil Appeal

13 Vidya Devi v. State of Himachal Pradesh & Ors., (2020) 2 SCC 569

Nos. 10077-10078 of 2014 filed by the Borrower are allowed

whereas Civil Appeal Nos. 10246-10247 of 2014 filed by the

Purchaser are dismissed. In view of our conclusion that the

auction sale itself was vitiated in law, we are not inclined to

proceed with the contempt petitions. As the claim of the

Purchaser has failed in its entirety, the issue involved in SLP

(C) No. 508 of 2016, regarding sanction of the scheme of

amalgamation of the Borrower with Thomas Cook (India)

Limited, does not survive for consideration. The same is

accordingly dismissed. There shall be no order as to costs.

37. Pending interlocutory application(s), if any, stand disposed of.

………………………………………………J. [PAMIDIGHANTAM SRI NARASIMHA]

…………………………….…………………J. [ALOK ARADHE]

NEW DELHI; SEPTEMBER 30, 2026.