Court rules against Saraswat Bank's attempt to dispossess bona fide purchasers of a flat auctioned by SBI, emphasizing arbitration for inter-bank disputes.
In a significant ruling, the Bombay High Court has restored possession of a disputed flat to Mariyam Rangwala and another, the bona fide auction purchasers, who were dispossessed by Saraswat Co-operative Bank Ltd. The case, adjudicated by Justices Manish Pitale and Shreeram V. Shirsat, emphasized the legal protection afforded to auction purchasers under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and underscored arbitration as the appropriate mechanism for resolving inter-bank disputes over secured assets.
The controversy arose when the petitioners were forcibly removed from their residence of eight years in August 2025, despite having a registered sale certificate from an auction conducted by the State Bank of India (SBI) in 2017. The flat, initially mortgaged to both SBI and Saraswat Bank by the original owner, became the center of competing claims between the two banks over priority of security interest.
The High Court noted that while SBI had acted promptly, completing the auction process and transferring possession to the petitioners in 2017, Saraswat Bank had delayed its enforcement actions under the SARFAESI Act until 2024. The Court found this delay unjustifiable, especially given that SBI's security interest was created and registered well before Saraswat Bank extended its credit facilities.
In a detailed judgment, the Court rejected Saraswat Bank's claims and highlighted the legal principle that once a secured asset is auctioned and possession is transferred, it cannot be subjected to further enforcement by another creditor. The Court further directed that disputes between the banks regarding priority of claims should be resolved through arbitration as mandated by Section 11 of the SARFAESI Act, thereby preventing unjust dispossession of bona fide purchasers.
The ruling also emphasized the role of civil courts in determining the validity of mortgages and title disputes, which are beyond the jurisdiction of Debt Recovery Tribunals (DRTs), established under the SARFAESI Act. The decision is expected to have far-reaching implications for similar disputes involving competing claims by banks over mortgaged properties.
Saraswat Bank has been restrained from further dealings with the flat, while the Court allowed the bank the liberty to pursue arbitration to resolve its claims against SBI. The judgment reinforces the protection of auction purchasers under the SARFAESI Act, ensuring that bona fide purchasers are not adversely affected by inter-creditor disputes.
Bottom line:-
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Auction purchasers with valid sale certificates cannot be dispossessed when the secured asset has been exhausted by the first creditor - Disputes between banks regarding priority of claims must be resolved through arbitration under Section 11 of the Act.
Statutory provision(s): Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Sections 11, 13(6), 13(7)
Mariyam Rangwala v. State of Maharashtra, (Bombay)(DB) : Law Finder Doc id # 2933161
