The Delhi High Court has held that society cannot withhold membership from SARFAESI auction purchaser over description errors not attributable to the buyer, and any increase in Floor Area Ratio after mortgage enures to the purchaser, not the defaulting mortgagor. The Court clarified that where a flat is auctioned under the SARFAESI Act as a single secured asset, the mortgagor cannot claim residual ownership over any portion of the flat, including any post-mortgage increase in Floor Area Ratio.
The Court also held that any collateral challenge by the previous owner to SARFAESI auction proceedings must be pursued before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, and civil suits seeking to circumvent that remedy are barred under Section 34 of the SARFAESI Act. Accordingly, the Court treated its own order as the membership certificate and directed the Society to issue the formal certificate within one week, with membership to operate retrospectively from the date of the first Registrar of Cooperative Societies (RCS) order.
The Society was burdened with costs of Rs. 25,000 for its non-bona fide conduct in continuing to resist membership despite two favourable RCS orders and the dismissal of the previous owner’s civil suit.
Briefly, the petitioners, Devender Mudgal and his wife Sapna Mudgal, purchased a Flat in Ispatika Apartment CGHS, Sector-4, Dwarka, New Delhi, for Rs. 1.91 crores on 28th March 2024 in an auction conducted by Bank of Baroda, Dwarka, under SARFAESI proceedings initiated against the earlier owner, Lalit Kumar Jha, who had mortgaged the flat with the Bank.
The sale certificate dated 5th June 2024, and the subsequent sale deed dated 11th June 2024 contained two errors: the Society was named ‘Ispatika’ instead of ‘Ispat’, and the flat’s area was mentioned as 95.54 sq. mtrs. instead of the actual 113 sq. mtrs. (the increase being due to a higher Floor Area Ratio after the initial mortgage). After the sale, the Petitioners applied to the Society for membership transfer on 23rd August 2024 and submitted all required documents on 10th October 2024, except the original Share Certificate, which the Bank had not provided.
The Society refused to grant membership, prompting the Petitioners to approach the Registrar of Cooperative Societies (RCS) on 20th January 2025. The RCS passed an order on 2nd July 2025 under Section 91 read with Rule 92(6) of the Delhi Co-operative Societies Act, 2003, directing the Society to issue membership to the Petitioners within 15 days upon completion of codal formalities, including submission of an indemnity bond in lieu of the original Share Certificate.
Thereafter, Lalit Kumar Jha sent a notice dated 4th July 2025 to the Society claiming rights over 16% of the flat (18 sq. metres), and the Society insisted that the Petitioners first rectify the errors in the sale deed. Mr. Jha also filed a civil suit seeking partition, declaration, and possession of 18 sq. mtrs., which was rejected as barred by law under Order VII Rule 11(d) CPC on 21st July 2025, with the District Court holding that the reliefs were aimed at circumventing SARFAESI remedies and that Section 17 of the SARFAESI Act provided a complete remedy before the DRT.
The RCS thereafter issued a further notice under Section 105 of the DCS Act on 25th May 2026, reiterating that membership would be granted to the Petitioners on the sole condition of filing a fresh Indemnity Bond. Despite both RCS orders, the Society continued to resist, prompting the Petitioners to approach the Delhi High Court seeking enforcement of the RCS directions.
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The Division Bench comprising Justice Prathiba M. Singh and Justice Dinesh Bhatt observed that the Petitioners cannot be blamed for the incorrect description of the flat’s area in the registration documents executed by the Bank of Baroda, and that the auction notice itself described the property with the correct name of the Society, leaving the identity of the flat beyond dispute.
The Court noted that the Petitioners had paid a substantial consideration of Rs. 1.91 crores for the flat in the bank auction, and that Lalit Kumar Jha’s claim to 16% of the flat was a ‘completely dishonest attempt to create spokes in the wheel’ for the Petitioners. The Court further observed that even assuming the Bank was aware of the increase in FAR, once the flat was mortgaged, the increase in FAR must enure to the benefit of the purchaser and cannot be retained by the earlier owner who had mortgaged the flat.
The Court held that Lalit Kumar Jha’s notice dated 4th July 2025 and any proceedings taken by the Society pursuant to that notice were ‘completely contrary to law’ in light of the District Court’s rejection of his suit on 21st July 2025, and that his claim to 18 sq. mtrs. was ‘mala fide and bogus’. The Court also found the Society’s conduct not to be bona fide, noting that despite two RCS orders directing membership upon execution of an indemnity bond, the Society continued to support Mr. Jha’s case and refused to comply.
