The Bombay High Court has that once a secured creditor has taken possession of a secured asset and transferred it by auction sale under the SARFAESI Act, 2002, the security interest in that asset stands exhausted, and another bank cannot later invoke Section 14 of the SARFAESI Act to again enforce against the same asset in the hands of the auction purchaser. By operation of Section 13(6) of the SARFAESI Act, 2002, the auction purchaser acquires all rights in the secured asset as if the transfer had been made by the owner, and such purchaser cannot be made to suffer because of competing claims between secured creditors.
The Court also held that where two banks have competing claims over the same secured asset or over the recovery flowing from the borrower’s default, the dispute is to be resolved inter se under Section 11 of the SARFAESI Act through arbitration or conciliation, and not by physically dispossessing a bona fide auction purchaser. Further, in the facts of this case, the writ petition was maintainable despite the alternative remedy under Section 17, because Saraswat Bank’s Section 14 action after an eleven-year delay, and after SBI had already completed enforcement and sale, was completely without authority of law.
Accordingly, the High Court directed Saraswat Bank to restore possession of the flat to the petitioners within four weeks and to return all their belongings. It also restrained Saraswat Bank from dealing with the flat further.
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The Division Bench comprising of Justice Manish Pitale and Shreeram V. Shirsat found that although both banks claimed rights over the same flat, SBI had moved forward with speed under the SARFAESI Act, obtained physical possession through Section 14, completed the auction, and transferred the flat to the petitioners through a registered sale certificate. In contrast, Saraswat Bank took symbolic possession in April 2013 and then “went into deep slumber” for about eleven years before seeking physical possession in 2024–2025. The Court held that Saraswat Bank failed to explain this delay and proceeded at its own peril because, in the meantime, SBI had already exhausted the security interest by enforcing and selling the secured asset.
The Bench accepted the principle that once a secured asset is enforced and sold under the SARFAESI Act, that asset is no longer available for further enforcement by another creditor. Relying on Section 13(6), the Bench noted that transfer of the secured asset vested in the petitioners all rights in relation to the flat as if the transfer had been made by the owner. Referring to Section 13(7), the Bench observed that if Saraswat Bank claimed a superior charge or entitlement, its dispute was really against SBI and in relation to the sale proceeds held in trust, not against the petitioners who were bona fide auction purchasers holding a registered sale certificate.
The Bench further observed that the real dispute was an inter se dispute between two banks over competing claims to the same secured asset and recovery of dues from the common borrower. Such a dispute, the Bench held, must be resolved under Section 11 of the SARFAESI Act by conciliation or arbitration. It also held that questions relating to title, or legality of the mortgage in favour of SBI, were not matters for the DRT and, if at all required, would lie before a competent civil court. Therefore, the petitioners were not bound to go to the DRT under Section 17, because Saraswat Bank’s later Section 14 action was itself without authority of law after the security interest had already been exhausted.
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Briefly, the petitioners were auction purchasers of Flat No. 202 at New Jamali Co-operative Housing Society, Andheri (East), Mumbai. SBI had advanced credit facilities to the original borrower in 2004, created a mortgage over the flat on Sep 25, 2004, and registered its security interest with CERSAI on March 21, 2012. Saraswat Bank later sanctioned facilities to the same borrower in 2012 on the strength of the same flat, issued a notice under Section 13(2) of the SARFAESI Act, 2002 on Jan 07, 2013, and took symbolic possession under Section 13(4) on April 12, 2013. SBI also initiated SARFAESI proceedings, obtained an order under Section 14 on Sep 09, 2014, took physical possession on Nov 29, 2014, and sold the flat in an e-auction held on April 28, 2017. The petitioners’ bid was accepted, a sale certificate was issued and registered in their favour on Aug 09, 2017, and they remained in possession for about eight years.
In 2024, more than eleven years after taking symbolic possession, Saraswat Bank approached the Magistrate under Section 14 of the SARFAESI Act and obtained an order dated Jan 17, 2025 for physical possession. On Aug 20, 2025, the petitioners and their family were physically dispossessed from the flat, despite relying on their registered sale certificate and long possession. Hence, they filed the petition seeking restoration of possession and restraint against further dealing with the flat.
