![SARFAESI Auction in Breach of Mandatory Rules 8 and 9 Set Aside, Sale Certificate to Non-Bidder Nominee Invalid: Supreme Court in Sterling Holiday Resorts v. P.M. Associates [2026 INSC 1071]](/assets/images/article-corporate.svg)
Quick Answer: A SARFAESI auction sale that is conducted in breach of the mandatory Security Interest (Enforcement) Rules cannot be protected by the principle of finality of auction sales. The Supreme Court set aside a 2011 sale of the Fernhill resort at Ooty because the bid was received while a DRAT restraint was in force, the sale was concluded before the 30-day window ended, the Borrower got no notice of the opening of bids, and the sale certificate was issued to a firm that never bid and did not exist on the auction date.
In Sterling Holiday Resorts Limited v. M/s P.M. Associates & Ors. (2026 INSC 1071), the Supreme Court held that the auction of the Borrower's Ooty resort by IFCI under the SARFAESI Act, culminating in the sale certificate dated 16.09.2011, was illegal, because the procedure under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 is mandatory and was breached at several stages (paras 29–32). A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe set aside the Madras High Court's judgment dated 23.08.2013 that had upheld the sale certificate in favour of the Purchaser, holding that "Sanctity is the reward of legality, not a substitute for it" (paras 33, 36).
Status: Madras High Court's common judgment dated 23.08.2013 in W.P. Nos. 1937 and 4088 of 2012 quashed; Borrower's appeals allowed; Purchaser's appeals dismissed; contempt petitions not proceeded with; SLP against the amalgamation order dismissed as not surviving (para 36).
Headnote: SARFAESI Auction Sale in Breach of Mandatory Rules
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(8) (pre-2016) – Right of redemption – Security Interest (Enforcement) Rules, 2002 – Rules 8(5)–8(8), 9(1), 9(2), 9(6) – Auction sale – Bid received during DRAT restraint – Thirty days' notice – Exclusion of period of restraint – Actus curiae neminem gravabit – Sale certificate to non-bidder nominee – Inter se bidding – Finality of auction sales – Article 300A.
Held: (i) Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 are mandatory; the safeguards are the very condition upon which the SARFAESI power of sale exists, and a sale effected in breach of them cannot be sustained (paras 29–30).
(ii) Receiving a bid and earnest money while the DRAT had restrained the Authorised Officer "from in any way proceeding further" under the SARFAESI Act was itself a forbidden step; a later High Court judgment in favour of the creditor could not retrospectively validate it (para 31.1).
(iii) The period during which the DRAT restraint operated must be excluded in computing the thirty days under Rule 9(1); the sale on 12.09.2011 and the certificate on 16.09.2011 came before the window expired on 23.09.2011, which strikes at the right of redemption under Section 13(8) (para 31.2).
(iv) Opening bids seventeen months after the date fixed for auction, without any notice to the Borrower, defeats the object of Rules 8(6) and 9(1) (para 31.3).
(v) A sale certificate cannot issue to a "nominee" of the successful bidder, still less to a partnership firm that was not in existence when bids were invited and received (para 31.4).
(vi) The principle of finality of auction sales presupposes an auction conducted in accordance with law; a sale vitiated by material irregularity or non-compliance with the mandatory procedure may be set aside even after confirmation (para 33).
(paras 29–36)
Case Details: Sterling Holiday Resorts v. P.M. Associates (2026 INSC 1071)
Final Outcome: Borrower's appeals allowed; Purchaser's appeals dismissed; High Court's judgment dated 23.08.2013 quashed; contempt petitions not proceeded with; SLP (C) No. 508 of 2016 dismissed as not surviving; no costs.
Case: Sterling Holiday Resorts Limited v. M/s P.M. Associates & Ors., with connected matters
Neutral Citation: 2026 INSC 1071
Case No.: Civil Appeal Nos. 10077–10078 of 2014, with Civil Appeal Nos. 10246–10247 of 2014, Contempt Petition (C) Nos. 834–835 of 2015 and SLP (C) No. 508 of 2016
Court: Supreme Court of India – Non-Reportable
Date of Decision: 30 September 2026
Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe (author)
Relevant Acts & Sections: SARFAESI Act, 2002 – Sections 13(2), 13(3A), 13(4), 13(8) (as it stood before 01.09.2016), 14; Security Interest (Enforcement) Rules, 2002 – Rules 8 and 9; Recovery of Debts Due to Banks and Financial Institutions Act, 1993; Registration Act, 1908 – Section 17(2)(xii); Constitution of India – Article 300A
Impugned Orders: Common judgment of the High Court of Judicature at Madras dated 23.08.2013 in W.P. Nos. 1937 and 4088 of 2012; High Court order dated 13.04.2015 in Company Petition No. 352 of 2014 sanctioning the amalgamation (paras 2, 17, 18)
Counsel: Dr. Abhishek Manu Singhvi and Mr. Rakesh Dwivedi, Senior Advocates, for the Borrower; Mr. R. Guru Krishna Kumar, Senior Advocate, for the Purchaser; Mr. Kush Chaturvedi for IFCI (paras 19, 21–23)
Source: Supreme Court of India (official website)
Key Holdings of the Supreme Court
- The decisive question was whether the auction process from the notice dated 25.03.2010 to the sale certificate dated 16.09.2011 was conducted in accordance with law (para 24).
- Where a statute requires a thing to be done in a particular manner, it must be done in that manner or not at all; this applies with particular rigour to the SARFAESI Act (para 29).
- Receiving the bid while the DRAT restraint was operative was a step "under the provisions of the SARFAESI Act" and was without legal effect (para 31.1).
- The period of restraint is excluded from the thirty days under Rule 9(1); the sale was concluded before the balance seventeen days had run (para 31.2).
- The sale certificate was issued to a partnership firm that neither bid nor existed on the auction date, contrary to Rule 9(2), Rule 9(6) and Clauses 2.1 and 3.1 of the auction notice (para 31.4).
- IFCI never produced the original sale records, and there was no record of inter se bidding or of written terms of any private treaty (para 31.5).
- Since the auction itself was illegal and no right accrued to the Purchaser, the Court did not decide the Authorised Officer's power to cancel a sale certificate, its registration, or the point at which redemption was extinguished (para 35).
Brief Facts of the Case
The Borrower, Sterling Holiday Resorts Limited, took loans in 1991 from IFCI and TFCI and created a joint equitable mortgage over its resort 'The Fernhill' at Ooty, Tamil Nadu. On default, the lenders filed O.A. No. 277 of 2000 before the DRT, Delhi, and IFCI later proceeded under the SARFAESI Act, taking symbolic possession on 21.08.2009 (paras 4–6).
The DRT, Delhi decreed the O.A. on 23.10.2009. The Borrower settled TFCI's claim through a One-Time Settlement. After the DRT, Chennai permitted IFCI to proceed from the stage of symbolic possession, IFCI issued an auction notice dated 25.03.2010 fixing a reserve price of Rs. 20 crores. On 07.04.2010 the DRAT restrained the Authorised Officer from proceeding further, subject to a deposit of Rs. 1 crore, which the Borrower made on 08.04.2010 (paras 7–9).
IFCI nevertheless received bids, though it did not open them. After the High Court allowed IFCI's writ petition on 06.09.2011, IFCI opened the bids on 12.09.2011 and declared Ms. Rukmani Khemchand the successful bidder; the price of Rs. 20,00,10,000 was paid the same day by M/s P.M. Associates, and a sale certificate dated 16.09.2011 issued in its favour (paras 10–11).
Following this Court's order of 05.01.2012, the Borrower paid IFCI's dues in full. On 08.02.2012 IFCI cancelled the sale certificate and refunded the price with interest, which the Purchaser encashed. The High Court, by the impugned judgment dated 23.08.2013, set aside the cancellation and held the Purchaser entitled to possession. Both sides appealed, and this Court ordered status quo on 16.09.2013 (paras 13–18).
Issues Before the Supreme Court
- Whether the auction process initiated by the notice dated 25.03.2010 and culminating in the sale certificate dated 16.09.2011 was conducted in accordance with law (para 24).
- Whether the principle of finality of auction sales protects the sale in favour of the Purchaser (para 33).
- Whether the Authorised Officer could cancel the sale certificate, whether it required registration, and when the right of redemption was extinguished (para 35).
Court's Findings and Reasoning
Mandatory procedure (paras 28–30): Reading the Rules with the auction notice, the Court set out the scheme: valuation and reserve price, thirty days' notice and public notice, no sale before thirty days, confirmation in favour of the highest bidder, and a sale certificate to that purchaser. Rules 8 and 9 are mandatory and must be scrupulously followed.
Bid received during DRAT restraint (para 31.1): The DRAT restraint was "of the widest amplitude". Receipt of the bid and earnest money was a step in the sale process and was bereft of legal effect; not opening the bids did not cure the illegality.
Thirty-day window truncated (para 31.2): Applying actus curiae neminem gravabit, the restraint period from 07.04.2010 to 06.09.2011 was excluded. The balance seventeen days expired on 23.09.2011, but the sale was concluded on 12.09.2011 and the certificate issued on 16.09.2011. This was "not a technical lapse".
No notice of opening of bids (para 31.3): The Borrower was given no notice that the frozen sale process had been revived seventeen months later, which offends the basic requirement of fairness.
Certificate to a non-bidder nominee (para 31.4): The successful bidder bid in her individual capacity, but the certificate issued to a partnership firm of her and her brother, formed only on 12.09.2011. To allow this would permit indirectly what could not be done directly.
No records of the auction (para 31.5): IFCI described the sale first as a private treaty and then as a public tender, and never produced the originals despite directions. There was no record of inter se bidding under Clause 2.10 or of written terms under Rule 8(8).
Finality of auction sales (paras 33–34): The sanctity of auction sales presupposes legality. The Court also noted that the Borrower had paid IFCI's entire dues, the plea of collusion was baseless, the Purchaser had encashed the refund with interest while possession always remained with the Borrower, and a sale in disregard of the statutory procedure is not a deprivation "by the authority of law" under Article 300A.
Final Outcome and Directions
- The High Court's judgment dated 23.08.2013 is quashed and set aside (para 36).
- Civil Appeal Nos. 10077–10078 of 2014 filed by the Borrower are allowed; Civil Appeal Nos. 10246–10247 of 2014 filed by the Purchaser are dismissed (para 36).
- The contempt petitions are not proceeded with, since the auction sale itself was vitiated in law (para 36).
- SLP (C) No. 508 of 2016 against the amalgamation of the Borrower with Thomas Cook (India) Limited does not survive and is dismissed (para 36).
- No order as to costs; pending applications disposed of (paras 36–37).
Legal Principle Laid Down
The procedure prescribed by Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 is mandatory, because the safeguards for the borrower are the very condition on which the SARFAESI power of sale exists. A bid received during a tribunal's restraint, a sale concluded before the thirty days' window (computed after excluding the period of restraint) expires, a sale conducted without notice to the borrower, and a sale certificate issued to a non-bidder nominee each vitiate the sale. The principle of finality of auction sales does not protect a sale that is not conducted in accordance with law.
Precedents Relied Upon
- Taylor v. Taylor, (1875) 1 Ch D 426 and Ramchandra Keshav Adke v. Govind Joti Chavare, (1975) 1 SCC 559 – Relied upon – a thing required to be done in a particular manner must be done in that manner or not at all. Discussed at para 29.
- Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 – Relied upon – SARFAESI power is hedged in by procedural safeguards. Discussed at para 29.
- Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610 and J. Rajiv Subramaniyan v. Pandiyas, (2014) 5 SCC 651 – Relied upon – Rules 8 and 9 are mandatory; object of Section 13(8). Discussed at paras 30, 31.2, 33, 34.
- Surjit Singh v. Harbans Singh, (1995) 6 SCC 50 and Delhi Development Authority v. Skipper Construction Co. Pvt. Ltd., (1996) 4 SCC 622 – Relied upon – acts done in violation of a court's order have no legal effect. Discussed at para 31.1.
- Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., (2008) 9 SCC 299 and Celir LLP v. Bafna Motors (Mumbai) (P) Ltd., (2024) 2 SCC 1 – Distinguished – finality of auction sales applies only to lawful auctions. Discussed at para 33.
- Divya Manufacturing Co. Pvt. Ltd. v. Union Bank of India, (2000) 6 SCC 69 – Relied upon – a sale vitiated by material irregularity may be set aside even after confirmation. Discussed at para 33.
- Vidya Devi v. State of Himachal Pradesh, (2020) 2 SCC 569 – Relied upon – deprivation of property only by authority of law under Article 300A. Discussed at para 34.
Important Paragraphs of the Judgment
Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.
Para 29: "The constitutional validity of the SARFAESI Act was upheld precisely because the power so conferred is hedged in by procedural safeguards designed to protect the borrower. The safeguards are thus the very condition upon which the power exists."
Para 30: "Rules 8 and 9 of the Rules are mandatory and must be scrupulously followed."
Para 31.1: "The fact that IFCI refrained from opening the bids does not cure the illegality; the solicitation and receipt of the bid was itself the forbidden step."
Para 31.2: "This is not a technical lapse. The thirty days' window is the very period in which the borrower may exercise the right of redemption; truncating it strikes at the substantive right that Section 13(8) protects."
Para 32: "The sale has thus taken place in violation not only of the Rules but also of the terms and conditions of the auction notice. No sanctity in law can be attached to such an auction process."
Para 33: "Sanctity is the reward of legality, not a substitute for it."
Practical Impact of the Ruling
- For borrowers: Where a tribunal stays SARFAESI proceedings, the stay period is excluded from the thirty days' notice period, and the borrower is entitled to the balance window to redeem the asset (para 31.2).
- For banks and Authorised Officers: No bid or earnest money should be received while a restraint is in force, the borrower must be told when a long-frozen sale is revived, and original auction records must be preserved and produced (paras 31.1, 31.3, 31.5).
- For auction purchasers: The sale certificate must issue to the actual highest bidder; nominating a firm formed after the auction date is not permitted by the Rules (para 31.4).
- For courts: The principle of finality of auction sales cannot be invoked to save a sale conducted in breach of mandatory procedure (para 33).
FAQs on Setting Aside a SARFAESI Auction Sale
1. What did the Supreme Court decide in Sterling Holiday Resorts v. P.M. Associates?
It held that IFCI's auction of the Fernhill resort and the sale certificate dated 16.09.2011 were illegal, quashed the Madras High Court's judgment dated 23.08.2013, allowed the Borrower's appeals and dismissed the Purchaser's appeals (paras 32, 36).
2. Can a bank receive bids while a DRAT has restrained it from proceeding under SARFAESI?
No. The Court held that receiving bids and earnest money is itself a step under the SARFAESI Act; done during the restraint, it has no legal effect, even if the bids are not opened (para 31.1).
3. How is the thirty days' notice period counted when the sale process is stayed?
The period during which the restraint operated is excluded. Here, thirteen days had run before the stay, so the Borrower was entitled to the remaining seventeen days after the stay ended, until 23.09.2011 (para 31.2).
4. Can the sale certificate be issued to a nominee of the successful bidder?
No. Rule 9(2) and Rule 9(6) and the auction notice require the certificate to issue to the bidder who offered the highest price, not to a nominee, and here the nominee firm did not even exist on the auction date (para 31.4).
5. Does the finality of auction sales protect a defective SARFAESI sale?
No. The protection presupposes an auction conducted in accordance with law; a sale vitiated by material irregularity or breach of mandatory procedure may be set aside even after confirmation (para 33).
Keywords: 2026 INSC 1071, Sterling Holiday Resorts v. P.M. Associates, SARFAESI auction sale set aside, Rule 8 and Rule 9 Security Interest Enforcement Rules, Section 13(8) right of redemption, thirty days notice, DRAT restraint, actus curiae neminem gravabit, sale certificate to nominee, finality of auction sale, Fernhill resort Ooty, IFCI, Justice Alok Aradhe, Supreme Court non-reportable judgment
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Download Judgment PDF – Sterling Holiday Resorts v. P.M. Associates
Source: Supreme Court of India (official website).