SARFAESI Property Sale Quashed

The Supreme Court has upheld the judgment of the Karnataka High Court setting aside the sale of property of a borrower under the Securitisation Act (“SARFAESI”) for non-payment of loan. The Supreme Court stated that the Security Interest (Enforcement) Rules were mandatory and were not followed in this case, Vasu Shetty vs Hotel Vandana Palace. The hotel had taken a loan from Syndicate Bank, which was not returned. Despite two auction dates and an attempt at ‘one-time settlement’, litigation continued in various forums. The high court ultimately set aside the sale on the ground that according to the rules, before bringing the property for sale in auction, fresh valuation by the accrued valuer should have been obtained by the bank and the 30-day notice was not given to the borrower. The buyer moved the Supreme Court claiming the property, arguing that he was a bona fide purchaser. Rejecting his appeal, the Supreme Court stated that “when there is a breach of mandatory requirement, the sale is to be treated as unconstitutional, null and void”.