‘Auctions Losing Sanctity,’ Warns Supreme Court
The bench noted that allowing such settlements post-auction could deter genuine bidders from participating in future auctions. “Nationalized banks cannot function like this. If auctions lose credibility, no one will come forward to buy secured assets, causing huge losses to financial institutions,” Justice Pardiwala remarked.
The judges also questioned why the auction purchaser was not made a party to the Lok Adalat proceedings. “This looks like collusion. The bank had no authority to enter into a settlement without informing the purchaser,” the court said.
Background of the Case
The dispute began when PNB initiated recovery proceedings under the SARFAESI Act against borrower Mohammad Zubair Ahmad. The borrower challenged the recovery before the Debt Recovery Tribunal (DRT), Dehradun. Despite the auction already being conducted, the bank and borrower struck a settlement at the Lok Adalat.
The auction purchaser, aggrieved by the refund of his payment instead of a sale certificate, approached the Supreme Court through a Special Leave Petition (SLP). The case was registered as Mohammad Zubair Ahmad v. Punjab National Bank & Anr. (SLP (C) No. 7273/2025).
Attorney General Admits Mistake
Attorney General for India, R Venkatramani, appearing for PNB, admitted the lapse and said the bank had no justification for its actions. “The CMD himself does not know why this happened. I have asked him to set his house in order and conduct an enquiry,” he told the court.
The bench directed PNB to withdraw its writ petition filed before the Allahabad High Court within 48 hours and issue the final sale certificate immediately thereafter. The bank was also asked to execute the deed of conveyance in accordance with law.
Departmental Action Against Officials
The Supreme Court further asked the bank to take disciplinary action against officials responsible for the irregularities. Justice Pardiwala remarked, “We are disturbed by the settlement between the bank and the borrower. There appears to be negligence, if not collusion. The bank must examine whether mischief was involved.”
While the Attorney General requested the court not to make such observations, the bench insisted they remain on record, leaving it to the bank’s discretion to decide the scope of departmental proceedings.
Future Implications for Banking Sector
The court emphasized that constitutional courts should not ordinarily interfere in SARFAESI proceedings and advised banks against approaching High Courts unnecessarily. It also urged PNB to adopt a policy decision to prevent similar cases in the future, warning that credibility of banking auctions is at stake.
The matter will be listed for further hearing next week, with the court making it clear that if the borrower remains aggrieved, he may pursue appropriate legal remedies.
