Court holds writ petition maintainable against private ARC in exceptional fraud case; directs exclusion of petitioner's one-third share from e-auction pending adjudication
In a significant judgment delivered on October 13, 2026, the Delhi High Court, through Justice Jasmeet Singh, allowed a writ petition filed by Shashi R. Jatia challenging an e-auction notice issued under the SARFAESI Act by Prudent ARC, a private Asset Reconstruction Company. The petition arose from allegations of forgery and fraud in the creation of loan and mortgage documents over the petitioner's one-third undivided share in a property located at Gulmohar Park, New Delhi.
The petitioner, a senior citizen and co-owner of the property, contended that she was neither a borrower nor guarantor of the loans totaling approximately Rs. 14.96 crores allegedly secured by the property. She claimed that her signatures on the loan and mortgage documents were forged. The Economic Offences Wing (EOW), New Delhi, initiated a criminal investigation and registered an FIR against the respondents, including the bank officials and co-owners, based on forensic handwriting expert reports confirming the forgery.
Despite pending civil proceedings and criminal investigation, Prudent ARC issued an e-auction notice dated April 25, 2026, to auction the entire property. The petitioner challenged this action before the Delhi High Court, seeking to quash the e-auction notice and restrain the respondents from taking any coercive steps, particularly emphasizing protection of her one-third share in the property.
The Court noted that although private ARCs typically do not fall under the writ jurisdiction as they are not State instrumentalities, the allegations here went to the root of the security interest itself. The writ jurisdiction could be exercised in exceptional circumstances where there was a prima facie showing of fraud, forgery, and want of jurisdiction, as supported by forensic and EOW reports.
The Court further explained that while the SARFAESI Act provides an alternate remedy before the Debts Recovery Tribunal (DRT), the bar on civil courts under Section 34 of the Act does not apply where the action of the secured creditor is alleged to be fraudulent or founded on forgery. Since the petitioner's civil suit challenging the mortgage was rejected on maintainability grounds and the appeal was pending, the writ court could intervene to prevent irreversible prejudice and the creation of third-party rights through the auction.
The respondents contended that the writ petition was not maintainable against a private ARC and that the petitioner had acquiesced to the loans via earlier powers of attorney. The Court rejected these contentions, holding that the petitioner acted promptly upon discovering the alleged fraud in 2021 and that acquiescence was a disputed question of fact not to be decided at the writ stage. The Court also found no merit in the claim of defective power of attorney authorizing the petition.
In the interest of justice and to avoid multiplicity of litigation, the Court ordered that the petitioner's one-third undivided share in the property be excluded from the e-auction until the validity of the loan documents and mortgage was adjudicated by a competent court. However, the remaining two-thirds share could be auctioned. The Court underscored the constitutional protection under Article 300A against deprivation of property without authority of law, emphasizing that an auction purchaser acquiring rights over the entire property could lead to irreparable harm and complex third-party disputes if forgery was later established.
This judgment underscores the judiciary's willingness to intervene in SARFAESI proceedings in exceptional cases involving fraud and forgery, even against private ARCs, to safeguard fundamental rights and prevent abuse of statutory remedies. It also clarifies the limited scope of writ jurisdiction while recognizing vital exceptions where the foundational legality of secured transactions is in question.
Bottom Line:
SARFAESI Act - Writ petition against e-auction notice issued by private ARC held maintainable in exceptional facts where borrower/co-owner alleged fraud and forgery in creation of mortgage over her undivided share - Prima facie forensic and EOW material showing forged signatures justified interference - Petitioner's 1/3rd undivided share directed to be excluded from auction pending adjudication of validity of loan documents.
Statutory provision(s):
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Sections 13(4), 17, 34; Constitution of India Articles 226, 227, 300A; Civil Procedure Code, 1908 Order VII Rule 11
Shashi R. Jatia v. Prudent ARC, (Delhi) : Law Finder Doc Id # 2996334
