Setting Aside a SARFAESI Sale: Fraud, Collusion and Underpricing

Once a SARFAESI sale is confirmed and the certificate issued, a stranger has paid good money for the property. The law therefore sets a high bar for undoing it. A sale falls if it is fraudulent, collusive or at an inadequate price, or if a mandatory safeguard was broken, but not for a mere irregularity. The Supreme Court restated these limits firmly in Celir LLP v Sumati Prasad Bafna (2024). This note sets out the grounds, the Celir ruling and the overall balance.

1. The Grounds

Figure 1: What can and cannot undo a confirmed sale

• Fraud or collusion. A sale tainted by fraud or collusion, for instance between the bank's officers and the bidder, may be set aside.
• Inadequate price or underbidding. A sale at a grossly inadequate price or vitiated by underbidding may be set aside, because the asset was not sold for fair value.
• Breach of a mandatory safeguard. Breach of a mandatory rule voids the sale, such as no 30-day individual notice (Mathew Varghese) or a private treaty without written terms (J. Rajiv Subramaniyan) (Topics 52, 67)
• Mere irregularity. A deviation that involves no fundamental procedural error and causes no prejudice does not unsettle the sale (Topic 55)

2. Celir LLP v Sumati Prasad Bafna (2024)

Figure 2: The December 2024 restatement

• The holding. A confirmed SARFAESI sale can be set aside only if it is collusive, fraudulent or vitiated by inadequate pricing or underbidding.
• Mere irregularity. A deviation from a rule without fundamental procedural error does not take away the foundation of the sale.
• No relitigation. Applying the Henderson principle, the Court refused to let the same issues be reopened in fresh proceedings, treating it as an abuse of process.
• Title protected. The auction purchaser's title under the sale certificate was protected, and the borrower's late redemption offer rejected (Topic 30)

3. The Balance

Figure 3: Strict safeguards, then finality

• Strict on safeguards. Mandatory protections must be followed, and their breach can void the sale even after confirmation.
• Real restoration. Where a sale was unlawful, the DRT may restore possession even after transfer (Ashok Saw Mill, Topic 68)
• Finality otherwise. Short of those grounds, a confirmed sale to a bona fide purchaser stands, which is what lets buyers bid with confidence (Topic 61)

4. Frequently Asked Questions

On what grounds can a confirmed SARFAESI sale be set aside?

A confirmed sale can be set aside where it is fraudulent or collusive, or vitiated by inadequate pricing or underbidding, as the Supreme Court held in Celir LLP v Sumati Prasad Bafna (2024). It can also fall where a mandatory safeguard was breached, such as the thirty-day individual notice of sale held mandatory in Mathew Varghese, or the written terms required for a private-treaty sale in J. Rajiv Subramaniyan. A mere irregularity that involves no fundamental procedural error and causes no prejudice does not justify undoing a confirmed sale to a bona fide purchaser.

How does the 2024 Celir decision differ from the 2023 Celir decision?

The 2023 decision, Celir LLP v Bafna Motors (Mumbai), concerned redemption: it held that under the amended Section 13(8) the borrower's right to redeem ends on publication of the sale notice. The 2024 decision, Celir LLP v Sumati Prasad Bafna, arose from further proceedings in the same dispute and addressed when a confirmed sale can be set aside: only for collusion, fraud, inadequate pricing or underbidding, not for mere irregularity. It also applied the Henderson principle to stop the same issues being relitigated.

5. Related Topics

• Topic 30: Section 13(8) Right of Redemption. Celir (2023) on the redemption cut-off.
• Topic 61: The Auction Purchaser and the Sale Certificate. Title and finality.