E-Auction Defense & Setting Aside Sales: Celir LLP Supreme Court Precedent, Right of Redemption under Section 13(8) & Flawed Auctions

E-Auction Sabotage & Defense: Setting Aside Concluded E-Auctions, EMD Forfeiture Disputes & The 25%-75% Payment Timetable (Celir LLP)

Published by: Sumanjari & Co. Advocates

Section 1: Executive Overview & Practical Reality

When the electronic hammer falls in an e-auction conducted under the SARFAESI Act, 2002, institutional lenders frequently declare that the borrower's rights are irrevocably extinguished and that ownership has permanently transferred to the highest bidder. However, in the cut-throat commercial reality of stressed asset recovery across Uttar Pradesh—from the industrial estates of Kanpur and Greater Noida to commercial developments in Lucknow—a concluded e-auction is not the end of the legal war; it is the opening salvo of high-stakes post-sale litigation.

Under Rule 9 of the Security Interest (Enforcement) Rules, 2002, the legal validity of a concluded sale is governed by an unyielding statutory payment timetable: the successful bidder must deposit twenty-five percent (25%) of the purchase price immediately on the day of auction or by the next working day under Rule 9(3), and the remaining seventy-five percent (75%) within fifteen (15) days under Rule 9(4). In practice, auction purchasers frequently lack immediate liquidity. Bank branch managers and authorized officers, eager to record a successful recovery on their books, routinely grant informal, unauthorized time extensions to purchasers without obtaining the mandatory written consent of the borrower, or accept delayed tranches past the statutory window. When an auction purchaser defaults, banks often fail to strictly forfeit the 25% Earnest Money Deposit (EMD) under Rule 9(5), indulging in opaque private compromises.

For defaulting borrowers and guarantors, post-auction scrutiny under Section 17 provides a decisive opportunity to dismantle concluded sales. Following the landmark Supreme Court ruling in Celir LLP v. Bafna Motors, while the amended Section 13(8) extinguishes the right of redemption upon auction publication, this extinguishment is strictly contingent on the bank and the bidder abiding by every mandatory letter of Rule 9. If the purchaser breaches the 25% or 75% payment deadlines, or if the bank granted an unauthorized extension, the entire auction collapses as a matter of law, requiring the sale to be set aside, the deposit forfeited, and the property restored to the debtor.

Section 2: Statutory & Regulatory Framework

The post-auction timetable and forfeiture mechanisms are governed by mandatory provisions under Rule 9 of the Security Interest Rules, 2002:

• Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 (The Mandatory 25% Rule):"On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty-five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, to the authorised officer conducting the sale and in default of such deposit, the property shall forthwith be sold again."The Supreme Court has authoritatively held that the word "shall" in Rule 9(3) is mandatory. The authorized officer has no legal discretion or equitable power to extend the time for depositing the 25% purchase price beyond the next working day.
• Rule 9(4) of the Security Interest Rules (The 75% Balance & The 90-Day Extension Ceiling):"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 purchaser and the secured creditor, in any case not exceeding three months."Crucially, judicial interpretation has established that any extension beyond 15 days up to 90 days requires a formal written agreement, and where the borrower's rights are affected, such extension cannot be granted unilaterally to the prejudice of the debtor without notice.
• Rule 9(5) of the Security Interest Rules (Mandatory Forfeiture of Deposit): Mandates that in default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor 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 subsequently be sold. Forfeiture under Rule 9(5) is a statutory penalty designed to deter speculative bidding; the bank has no power to refund the deposit to a defaulting bidder.
• Rule 9(6) of the Security Interest Rules (Issuance of Sale Certificate): On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale in the form given in Appendix V to these rules. A Sale Certificate issued prior to full payment of the 100% purchase price is void.
• Section 17(3) of the SARFAESI Act, 2002 (DRT's Power to Set Aside Concluded Sales): If the DRT declares the measures taken under Section 13(4) or the sale to be invalid, it is statutorily empowered to cancel the sale certificate, direct the bank to refund the purchase money to the auction purchaser, and restore physical possession of the secured asset to the borrower.

Section 3: Landmark Judicial Precedents

The jurisprudence governing post-auction enforcement, payment timetables, and forfeiture has been definitively laid down by the Supreme Court of India:

• Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. & Ors. (2024) 2 SCC 1: The Supreme Court delivered the landmark judgment on the amended Section 13(8) of the SARFAESI Act. The Court held:"Under the amended Section 13(8), the borrower's right of redemption is extinguished on the date of publication of the auction sale notice under Rule 9(1)... Once the auction is concluded and the purchaser complies with Rule 9(3) and 9(4), the borrower cannot defeat the auction purchaser's vested commercial rights by offering to pay the dues belatedly... However, the sanctity of an auction sale depends upon absolute, strict compliance with the statutory rules. If the secured creditor or the purchaser breaches the mandatory requirements of Rule 9(3) or Rule 9(4), the auction is nullified, and the borrower's right to redeem or seek re-auction revives with full vigor."
• Manilal Singhania v. State Bank of India (Supreme Court of India): Established the foundational principle governing court and statutory auctions: failure to deposit the mandatory 25% bid amount within the strict statutory period renders the auction non-est. The executing officer has no jurisdiction to accept a belated deposit; the property must be re-auctioned immediately.
• Varimadugu Obi Reddy v. B. Sreenivasulu & Ors. (2023) 2 SCC 168: The Supreme Court held that the High Court under Article 226 should not interfere to set aside a concluded auction sale when the purchaser has paid the full 100% price and the sale certificate has been registered. The proper remedy for the borrower is exclusively to establish procedural illegality before the DRT under Section 17.
• Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill (2009) 8 SCC 366: The Supreme Court affirmed that the DRT under Section 17 possesses comprehensive post-sale jurisdiction. The Court held that the jurisdiction of the DRT is not extinguished by the issuance of a sale certificate or registration; if the sale was conducted in violation of statutory rules or through collusion, the DRT has full authority to set aside the sale and order complete restitution.
• Alisha Khan v. Indian Bank (Supreme Court of India): The Supreme Court held that where an auction purchaser defaults in paying the 75% balance under Rule 9(4), the bank is legally obligated under Rule 9(5) to forfeit the 25% deposit. The bank cannot refund the deposit on grounds of sympathy or business difficulty of the purchaser, as the statutory purpose of forfeiture is to preserve the integrity of public auctions.

Section 4: Stage-by-Stage Procedural Roadmap

To dismantle a concluded e-auction and compel the forfeiture of a defaulting bidder's deposit, counsel and borrowers must execute a rapid post-auction investigation:

• Step 1: The 24-Hour Auction Audit (Hours 0 to 24 Post-Auction):
• Track the e-auction portal bid log. Identify: (a) the winning bid amount, (b) the identity of the highest bidder (H-1), and (c) the exact timestamp of bid closure.
• Audit Rule 9(3) compliance: The successful bidder must deposit 25% (inclusive of EMD) on the same day or before the close of banking hours on the next working day. Obtain certified proof from the bank's RTGS ledger. If the 25% was credited two days later, the auction is an absolute nullity.
• Step 2: The 15-Day Balance Payment Audit (Days 2 to 15 Post-Auction):
• Track the 15-day deadline under Rule 9(4) for the payment of the 75% balance. The 15-day period runs from the date of confirmation of sale by the Authorized Officer.
• Serve an immediate formal legal notice upon the Authorized Officer demanding written confirmation as to whether the full 75% balance was credited into the designated bank recovery account within 15 days.
• Inquire whether any written extension was granted. If the bank granted an extension, demand a copy of the written agreement. In the absence of a contemporaneous written agreement executed prior to the 15th day, any subsequent extension is illegal.
• Step 3: Filing Application for Setting Aside Sale under Section 17(1) (Days 15 to 30):
• File a comprehensive Application (or Amendment to pending SA) before the DRT (DRT Lucknow or DRT Allahabad) under Section 17(1) read with Section 17(3) and Rule 9(3)/(4)/(5).
• Implead the successful auction purchaser (H-1 bidder) as a necessary party respondent, serving complete paper-books on the bidder's registered address.
• Pray for: (a) An order declaring the e-auction dated ___ null and void, (b) Quashing of any Sale Certificate issued, (c) Mandatory direction to the Bank to forfeit the 25% deposit under Rule 9(5), and (d) Restraint on registration of sale deed or delivery of physical possession.
• Step 4: Interlocutory Restraint on Delivery of Possession & Sale Certificate Registration:
• Move an urgent IA before the DRT Presiding Officer seeking an immediate ad-interim injunction restraining the Authorized Officer from issuing the Sale Certificate (Appendix V) or executing registration before the Sub-Registrar.
• Place India Post tracking and bank ledger logs showing payment default by the auction purchaser.

Section 5: Tactical Offenses, Defenses & Critical Pitfalls to Avoid

Post-auction litigation requires aggressive forensic maneuvers to expose lender-bidder collusion:

• Tactical Offenses:
• Subpoenaing Bank RTGS & Core Banking Logs: In DRT proceedings, file an application directing the bank to produce certified CBS statement of the specific "No-Lien / Escrow / Parking Account" where the auction proceeds were deposited. Bank officers often accept cheques from auction purchasers that clear days after the statutory deadline. A cheque clearance date beyond the 15th day is fatal proof of Rule 9(4) default.
• Collusion & Cartelization Analysis: Investigate the corporate connections between the H-1 bidder and other bidders. If multiple bidders share common directors, IP addresses on the e-auction platform, or registered office addresses, place these corporate ministry (MCA-21) filings before the DRT to establish illegal bid-rigging and cartelization, which vitiates public auctions under the Competition Act, 2002 and Indian Contract Act, 1872.
• The Statutory Forfeiture Wedge: Demanding that the bank forfeit the 25% EMD under Rule 9(5) creates immediate conflict between the bank and the bidder. The bank risks personal liability if it refunds the deposit, while the bidder faces heavy financial loss, creating massive settlement leverage for the borrower.
• Lender Defenses to Anticipate: Lenders and auction purchasers will rely heavily on Celir LLP, arguing that the borrower's redemption rights were extinguished upon auction publication and that minor delays in payment are curable commercial irregularities between creditor and purchaser. Counter this by emphasizing that Celir LLP expressly held that title transfers only upon strict compliance with Rule 9. If the purchaser failed to pay within time, no title can pass.
• Critical Pitfalls to Avoid:
• Failing to Implead the Auction Purchaser: Any order passed setting aside an auction without making the auction purchaser a party violates natural justice and will be overturned by the High Court or DRAT. Implead the purchaser immediately.
• Delaying Challenge Until Registration: Once a Sale Certificate is registered under Section 17 of the Registration Act and physical possession is delivered, reversing the transaction requires complex cancellation suits. Obtain an interim stay on registration before the Sub-Registrar immediately.
• Accepting Residual Surplus Funds: If the auction price exceeds the bank debt and the bank offers to pay the surplus to the borrower, NEVER accept the surplus funds during the pendency of the challenge. Accepting surplus money constitutes legal acquiescence and waiver, permanently barring the borrower from challenging the auction.

Section 6: Ready-to-Use Court Drafting Template

Below is an unabridged, practical model legal pleading specifically drafted as an Application under Section 17(1) read with Section 17(3) of the SARFAESI Act, 2002, filed before the Debts Recovery Tribunal, Allahabad, praying for the setting aside of a concluded e-auction sale and mandatory forfeiture of the 25% deposit under Rule 9(5) due to the purchaser's default in paying the 75% balance within fifteen days.

IN THE DEBTS RECOVERY TRIBUNAL AT ALLAHABAD

INTERLOCUTORY APPLICATION NO. _______ OF 2026

IN

SECURITISATION APPLICATION NO. 388 OF 2026

IN THE MATTER OF:

M/s Prayag Industrial Polymers Private Limited

Having its Factory at: Plot No. E-14, Industrial Area, Naini, Prayagraj - 211008

Through its Director, Shri Brajesh Kumar Pandey ... APPLICANT / BORROWER

VERSUS

1. State Bank of India

Stressed Assets Management Branch (SAMB), 4th Floor, Administrative Office Building, Court Road, Prayagraj - 211001

Through its Assistant General Manager & Authorized Officer ... RESPONDENT NO. 1 / SECURED CREDITOR

2. M/s Ganga Commercial Assets LLP

Through its Designated Partner, Shri Suresh Chandra Agrawal

Having Registered Office at: Civil Lines, Prayagraj - 211001 ... RESPONDENT NO. 2 / AUCTION PURCHASER

APPLICATION UNDER SECTION 17(1) READ WITH SECTION 17(3) OF THE SARFAESI ACT, 2002 AND RULES 9(3), 9(4), AND 9(5) OF THE SECURITY INTEREST (ENFORCEMENT) RULES, 2002 PRAYING FOR SETTING ASIDE THE CONCLUDED E-AUCTION DATED 25TH AUGUST 2026 AND DIRECTING THE FORFEITURE OF THE 25% DEPOSIT DUE TO FATAL PAYMENT DEFAULT BY RESPONDENT NO. 2.

MOST RESPECTFULLY SHOWETH:

1. That the Applicant has instituted the present Securitisation Application challenging the recovery proceedings initiated by Respondent No. 1 Bank under Section 13(4) of the SARFAESI Act in respect of the operational industrial manufacturing plant situated at Plot No. E-14, Industrial Area, Naini, Prayagraj.

2. That on 25th August 2026, Respondent No. 1 conducted an e-auction of the subject industrial factory. Respondent No. 2 was declared the highest bidder (H-1) at a bid price of Rs. 14,80,00,000/- (Rupees Fourteen Crores Eighty Lakhs Only). Sale was confirmed by the Authorized Officer on 26th August 2026.

3. FATAL DEFAULT BY RESPONDENT NO. 2 IN PAYING 75% BALANCE UNDER RULE 9(4):

(a) That under the mandatory command of Rule 9(4) of the Security Interest Rules, 2002, the balance seventy-five percent (75%) purchase price (amounting to Rs. 11,10,00,000/-) was statutorily required to be paid by Respondent No. 2 to the Authorized Officer "on or before the fifteenth day of confirmation of sale", i.e., on or before 10th September 2026.

(b) That Respondent No. 2 completely failed and defaulted in depositing the 75% balance on or before 10th September 2026.

(c) That no written agreement extending the payment period was ever entered into between the parties prior to the expiration of the statutory 15-day period.

(d) That in collusion with Respondent No. 2, Respondent No. 1 unlawfully accepted delayed tranches from Respondent No. 2 on 18th September 2026 and 22nd September 2026, long after the statutory period had irrevocably lapsed.

4. MANDATORY STATUTORY FORFEITURE UNDER RULE 9(5):

(a) That under Rule 9(5) of the Security Interest Rules, 2002, in default of payment of the balance 75% within the period mentioned in sub-rule (4), the 25% deposit paid by the purchaser "shall be forfeited to the secured creditor and the property shall be resold".

(b) That the Hon'ble Supreme Court in Alisha Khan v. Indian Bank and Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. (2024) 2 SCC 1 has authoritatively ruled that Rule 9(4) and Rule 9(5) are mandatory. The Authorized Officer has no authority in law to condone a default or grant retrospective extensions. The moment the 15th day expires without full payment, the sale collapses as a matter of law, the 25% deposit stands forfeited, and the secured creditor is statutorily mandated to cancel the sale and issue a fresh re-auction notice.

5. ILLEGAL ATTEMPT TO ISSUE SALE CERTIFICATE:

(a) That despite the fatal payment default, Respondent No. 1 is unlawfully preparing to issue a Sale Certificate under Rule 9(6) in favor of Respondent No. 2 and deliver physical possession of the operational factory, which employs over ninety (90) industrial workers.

(b) That issuing a Sale Certificate in favor of a defaulting bidder who breached Rule 9(4) is an act of blatant statutory fraud, causing irreparable ruin to the Applicant.

PRAYER:

Wherefore, in light of the aforesaid facts and settled legal principles, the Applicant respectfully prays that this Hon'ble Tribunal may graciously be pleased to:

(a) Set aside, quash, and cancel the concluded E-Auction Sale dated 25th August 2026 conducted by Respondent No. 1 in respect of Plot No. E-14, Industrial Area, Naini, Prayagraj;

(b) Direct Respondent No. 1 Bank to strictly enforce Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 and forfeit the entire 25% deposit (amounting to Rs. 3,70,00,000/-) deposited by Respondent No. 2;

(c) Restrain Respondent No. 1 from issuing any Sale Certificate or executing any registered conveyance deed in favor of Respondent No. 2;

(d) Restrain the Respondents from taking physical possession or interfering with the Applicant's industrial manufacturing operations at Naini, Prayagraj; and

(e) Grant an ex-parte ad-interim injunction in terms of Prayers (c) and (d) during the pendency of the present Application.

Dated: 24th September 2026

Place: Prayagraj (Allahabad)

APPLICANT

THROUGH

SUMANJARI & CO. ADVOCATES

Counsel for the Applicant

Chambers at Allahabad High Court, Lucknow Bench & Prayagraj

Section 7: Practical FAQs

• Can the bank and the auction purchaser privately agree to extend the 15-day period for paying the 75% balance under Rule 9(4)?Answer: Under Rule 9(4), the 75% balance must be paid within 15 days of confirmation of sale, or "such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months". However, the Supreme Court and various High Courts have established that this extension cannot be granted orally, retrospectively, or arbitrarily. Any extension must be executed in writing before the expiry of the initial 15-day deadline, recording cogent commercial reasons. Furthermore, if the extension causes prejudice to the borrower's redemption rights, an arbitrary extension granted without good faith can be challenged and invalidated before the DRT.
• If the auction purchaser fails to pay the 75% balance within 15 days and no valid extension was granted, can the bank refund the 25% deposit?Answer: No. Rule 9(5) uses the mandatory word "shall": "In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold." The Supreme Court in Alisha Khan v. Indian Bank held that the secured creditor has no legal power or equitable discretion to waive forfeiture or refund the 25% deposit to a defaulting purchaser. Refunding the money constitutes an illegal financial loss to public funds and violates statutory recovery rules. The forfeited deposit is credited against the borrower's loan liability.
• How does the Supreme Court's ruling in Celir LLP (2024) affect a borrower's right of redemption after an e-auction?Answer: In Celir LLP v. Bafna Motors (2024) 2 SCC 1, the Supreme Court held that following the 2016 amendment to Section 13(8), the debtor's right of redemption is extinguished on the date of publication of the auction sale notice under Rule 9(1), and does not survive until the date of sale confirmation or conveyance. However, the Supreme Court clarified that this extinguishment is conditional: it protects the auction purchaser only if the auction was conducted in strict compliance with the statutory rules and the purchaser strictly adheres to the payment timetable under Rule 9(3) and 9(4). If the auction is marred by statutory defects or if the purchaser defaults in payment, the sale collapses, and the borrower's right to redeem the property is restored.
• Can the DRT cancel a Sale Certificate after it has already been registered in the office of the Sub-Registrar?Answer: Yes. The Supreme Court in Authorized Officer, Indian Overseas Bank v. Ashok Saw Mill (2009) 8 SCC 366 authoritatively settled that the DRT's post-sale jurisdiction under Section 17(3) is expansive and plenary. If the Tribunal finds that the sale was conducted in violation of statutory rules, through fraudulent undervaluation, or with an unauthorized extension of payment time, the DRT has full judicial power to declare the sale certificate void, order its cancellation in the registration records, direct the bank to refund the purchase money, and restore physical possession to the borrower.

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