The Delhi High Court has clarified that tendering a cheque that bounces when presented is contumacious conduct warranting dismissal of writ relief, and that the pendency of sale certificate registration does not undo a completed SARFAESI sale. Further, a SARFAESI sale attains finality upon deposit of the entire sale consideration by the auction purchaser within the period stipulated under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, and the mere pendency of registration of the sale certificate does not render the sale incomplete.
The High Court also held that protection of the mortgagor’s right of redemption is confined to cases where the sale has not been completed within the statutory framework and does not extend to a fully completed sale in favour of a compliant auction purchaser. A borrower who records an OTS arrangement before the writ court and then tenders a cheque that is dishonoured for insufficiency of funds engages in contumacious conduct that disentitles the borrower to discretionary writ relief, and the appropriate remedy for the secured creditor in respect of such dishonour lies in a claim for damages.
The Division Bench comprising the Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia noted that the Appellant sought to justify the dishonour of the cheque by attributing it to IFCI’s own conduct, namely, its failure to respond to emails, its failure to verify the Rs. 1 crore adjustment, the issuance of the Letter of Approval after a five-week delay, and the presentation of the cheque within 24 hours of such issuance without intimation, during which period the Appellant had been compelled to pay approximately Rs. 3.37 crores under orders of the NCLT in the Omkara Assets Reconstruction proceedings.
The Court, however, observed that despite oral submissions expressing willingness to abide by the OTS proposal, the Appellant failed to demonstrate its bona fides by producing or tendering a Demand Draft for the amount payable under the OTS, and that such conduct did not inspire confidence.
The Court further observed that the Auction Purchaser had deposited the entire sale consideration within the period stipulated under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, and that the Sale Certificate had been issued in its favour. The Court noted that the order dated March 13, 2026, of the DRT expressly permitted IFCI to proceed with the sale and only made the registration of the Sale Certificate subject to the permission of the DRT, and that the expression ‘subject to the final decision’ merely rendered the sale subject to the outcome of the Securitisation Application without affecting its validity or completion.
The Court also observed that the Appellant’s OTS proposals had been rejected on six occasions, and that the Appellant could not be permitted to undo an already completed sale merely to accommodate a subsequent OTS proposal.
Briefly, Patil Constructions and Infrastructure Limited had availed two loan facilities aggregating Rs. 25 crores from IFCI Venture Capital Funds Ltd. against the mortgage of properties situated at Padegaon and Divanshi, Aurangabad, Maharashtra. The loan account was classified as a Non-Performing Asset on July 31, 2019, and IFCI issued a demand notice under Section 13(2) of the SARFAESI Act, 2002 for Rs. 14.28 crores, followed by possession notices under Section 13(4) and a sale notice for an auction.
The Appellant challenged these measures by filing Securitisation Application before the Debts Recovery Tribunal, Aurangabad, which halted the auction subject to a deposit of Rs. 1 crore. The Appellant thereafter submitted successive One-Time Settlement (OTS) proposals of Rs. 8 crores and Rs. 11.03 crores and deposited 10% of the latter. In the interregnum, IFCI filed Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, Mumbai, and issued a fresh sale notice for an auction.
When the Appellant challenged this sale notice, the Single Judge of the High Court recorded IFCI’s agreement to settle the account for an OTS of Rs. 15 crores, subject to approval of its competent authority, and recorded the handing over of a cheque for Rs. 9.92 crores with the balance of Rs. 4.08 crores to be paid by Sep 15, 2025; the auction scheduled for Aug 13, 2025 was kept in abeyance. IFCI thereafter issued a Letter of Approval, but the cheque was dishonoured upon presentation on account of insufficient funds, leading IFCI to institute Contempt Petition.
The DRT permitted IFCI to proceed with the sale but directed that the Sale Certificate shall not be registered without its permission. Pursuant thereto, IFCI accepted a bid of Rs. 9.09 crores from M/s United Traders (the Auction Purchaser) and issued a Sale Certificate in respect of the Padegaon property. The Appellant thereafter made a fresh OTS proposal of Rs. 15 crores which was rejected by IFCI. The Single Judge dismissed the petition on the ground that the Appellant had misled the Court by tendering a cheque that was not good for encashment, while granting liberty to IFCI to claim damages and disposing of the Contempt Petition upon an unconditional apology.
