SARFAESI Act, 2002 — Security Interest (Enforcement) Rules, 2002 — R.9(2), Second Proviso — Sale of secured asset — Reserve price — Authorised Officer failing to secure bid higher than reserve price — Confirmation of sale exactly at reserve price — Consent of borrower — Mandatory requirement.

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AP High Court Held that 

SARFAESI Act, 2002 — Security Interest (Enforcement) Rules, 2002 — R.9(2), Second Proviso — Sale of secured asset — Reserve price — Authorised Officer failing to secure bid higher than reserve price — Confirmation of sale exactly at reserve price — Consent of borrower — Mandatory requirement.

Where Authorised Officer in public auction fails to obtain bid higher than reserve price and sole bid received is exactly equal to reserve price, sale of secured asset cannot be confirmed without consent of borrower and secured creditor as mandated under second proviso to Rule 9(2) of Security Interest (Enforcement) Rules, 2002. Expression “at such price” occurring in second proviso refers to reserve price itself and not a price below reserve price. Confirmation of sale at reserve price without consent of borrower is contrary to statutory mandate and renders sale invalid.
(Paras 11 to 16)

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Statutory Interpretation — Proviso — Harmonious construction — SARFAESI Rules.

Rule 9(2) and both provisos appended thereto are required to be read harmoniously. First proviso prohibits confirmation of sale below reserve price, while second proviso governs situation where no price higher than reserve price is obtained. Statutory proviso being mandatory in nature must be strictly complied with.
(Paras 13 to 16)

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FACTS OF THE CASE

1. Secured creditor initiated proceedings under the SARFAESI Act against secured asset belonging to borrower consequent upon default in repayment of loan advanced to partnership firm.
   
2. Secured asset was brought to sale in public auction after fixation of reserve price at Rs.3,48,00,000/-.
   
3. In auction proceedings, only one bidder participated and offered bid exactly equal to reserve price. There was no bid higher than reserve price.
   
4. Authorised Officer confirmed sale in favour of sole bidder at reserve price without obtaining consent of borrower.
   
5. Borrower challenged validity of sale before Debts Recovery Tribunal contending that under second proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, consent of borrower was mandatory where Authorised Officer failed to secure price higher than reserve price.
   
6. Debts Recovery Tribunal accepted contention and set aside sale. Appeal before Debts Recovery Appellate Tribunal was dismissed affirming said view.
   
7. Bank and auction purchaser separately approached High Court challenging legality of orders passed by DRT and DRAT.
   

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ANALYSIS OF FACTS AND LAW

The principal issue before the High Court concerned interpretation of the second proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, 2002.

The Court noticed divergence of judicial opinion amongst various High Courts regarding meaning of expression “at such price” used in second proviso to Rule 9(2).

The Court analyzed Rule 9(2) and identified three distinct situations contemplated by statutory scheme:

1. where sale price obtained is higher than reserve price;
2. where sale price is below reserve price;
3. where sale price obtained is exactly equal to reserve price.
   

The Court held that second proviso specifically governs third situation, namely where Authorised Officer fails to obtain price higher than reserve price. In such circumstances, confirmation of sale at reserve price can be effected only with consent of borrower and secured creditor.

Rejecting contrary interpretation adopted by Kolkata High Court and Kerala High Court, the Court held that expression “at such price” necessarily refers to reserve price itself and not to any amount below reserve price.

The judgment emphasized that statutory rules framed under SARFAESI Act possess mandatory force and where statute prescribes that a thing shall be done in a particular manner, it must be done strictly in that manner alone.

The Court therefore concluded that confirmation of sale at reserve price without borrower’s consent was contrary to mandatory statutory requirement and consequently invalid.

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RATIO DECIDENDI

Under the second proviso to Rule 9(2) of the Security Interest (Enforcement) Rules, 2002, where the Authorised Officer conducting auction of secured asset fails to obtain a bid higher than the reserve price and the highest bid received is exactly equal to the reserve price, confirmation of sale can be effected only with consent of borrower and secured creditor, and any confirmation of sale at reserve price without such consent is invalid and contrary to the statutory mandate.
(Paras 11 to 16)

Tender — Government Contracts — Earnest Money Deposit — Tender conditions — Interpretation — Out-of-State bidder furnishing Fixed Deposit Receipt instead of Demand Draft — Tender clauses employing expression “may submit” — Condition held directory and not mandatory — Fixed Deposit Receipt constituting approved interest-bearing security — Disqualification of bidder by treating Demand Draft as compulsory — Unsustainable.

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APEX COURT HELD THAT 

Tender — Government Contracts — Earnest Money Deposit — Tender conditions — Interpretation — Out-of-State bidder furnishing Fixed Deposit Receipt instead of Demand Draft — Tender clauses employing expression “may submit” — Condition held directory and not mandatory — Fixed Deposit Receipt constituting approved interest-bearing security — Disqualification of bidder by treating Demand Draft as compulsory — Unsustainable.

Tender conditions provided different approved modes for furnishing Earnest Money Deposit. Clause relating to out-of-State bidders employed expression “may submit” Demand Draft. Bidder furnished Fixed Deposit Receipt/interest-bearing security in favour of Tendering Authority. High Court treated furnishing of Demand Draft as mandatory and disqualified bidder. Supreme Court held that tender clauses were merely enabling and directory in nature and not mandatory. Fixed Deposit Receipt constituted an approved interest-bearing security within meaning of tender conditions. Court cannot import technical disqualifications not expressly contained in tender document. Disqualification set aside and qualification restored.
(Paras 7 to 10)

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FACTS OF THE CASE

1. A tender was floated by the Water Resources Department for execution of a construction project of substantial value. The tender process contemplated submission of bids in three envelopes, including technical and financial qualifications.
   
2. Under the tender conditions, Earnest Money Deposit (EMD) was required to be furnished in approved forms specified in Clause 2.13 of the tender document.
   
3. The bidder, being an out-of-State participant, furnished a Fixed Deposit Receipt/interest-bearing security in favour of the Executive Engineer concerned instead of a Demand Draft.
   
4. The Tendering Authority initially found the bidder qualified. However, the High Court subsequently disqualified the bidder holding that out-of-State bidders were mandatorily required to furnish EMD only through Demand Draft.
   
5. Before the Supreme Court, it was contended that the tender conditions used permissive language and recognized alternative approved interest-bearing securities, thereby making submission of Demand Draft optional and not mandatory.
   
6. During pendency of proceedings, a subsequent disqualification relating to another stage of technical scrutiny also arose, though the same was not directly under challenge before the Supreme Court.
   

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ANALYSIS OF FACTS AND LAW

The Supreme Court undertook a textual interpretation of the tender conditions governing submission of Earnest Money Deposit. The Court focused particularly upon Clauses 2.13 and 2.15 of the tender document.

The Court observed that the clause applicable to out-of-State bidders repeatedly employed the expression “may submit” while referring to submission of Demand Draft. The use of permissive language indicated that the provision was enabling and directory rather than compulsory.

The Court further noticed that the tender conditions themselves recognized “Approved Interest Bearing Security” as one of the valid forms of EMD. A Fixed Deposit Receipt clearly possessed the character of an interest-bearing security and therefore substantially satisfied the tender requirement.

The judgment emphasizes that in tender jurisprudence, Courts cannot create additional disqualifications by interpretative expansion when the tender document itself does not prescribe such mandatory exclusion. Judicial review must remain confined to the actual stipulations contained in the contract.

The Supreme Court therefore held that the High Court erred in converting an optional mode of payment into a compulsory condition and thereby illegally excluding the bidder from consideration.

The Court also adopted an equitable approach regarding the subsequent disqualification arising at Envelope-B stage by permitting the bidder to approach the authorities afresh after restoration of qualification under Envelope-A.

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RATIO DECIDENDI

Where tender conditions governing Earnest Money Deposit employ permissive language such as “may submit” and simultaneously recognize multiple approved forms of security, furnishing of Fixed Deposit Receipt/interest-bearing security by an out-of-State bidder constitutes substantial compliance with the tender conditions, and Courts cannot treat submission of Demand Draft as a mandatory requirement by importing a disqualification not expressly contained in the tender document.
(Paras 7 to 10)

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HELD

• Judgment of the High Court set aside.
• Bidder’s qualification with respect to Envelope-A restored.
• Liberty granted to approach Tendering Authority regarding subsequent Envelope-B disqualification.
• Supreme Court refrained from adjudicating merits of Envelope-B disqualification.

Where disputes concerning immovable property substantially involve contested questions of title, ownership and possession, and no prima facie cognizable criminal offence is disclosed upon preliminary enquiry, police authorities may legitimately treat the matter as civil in nature, and the High Court in exercise of jurisdiction under Article 226 ordinarily will relegate the parties to appropriate civil remedies rather than compel initiation of criminal proceedings.

advocatemmmohan

AP HIGH COURT HELD THAT 

Constitution of India – Article 226 – Writ of Mandamus – Police inaction complaint – Land dispute involving allegations of trespass and crop destruction – Distinction between civil dispute and cognizable criminal offence – Scope of judicial interference in police enquiry where title and possession are disputed.

The petitioner claimed ownership and possession over Ac.2.74 cents of agricultural land in Survey No.43/23 and alleged forcible interference, trespass and destruction of Eucalyptus crop by unofficial respondents. Complaints were submitted to police authorities seeking initiation of criminal proceedings. The police conducted preliminary enquiry and opined that the dispute pertained to title, ownership and possession, and was civil in nature. The High Court disposed of the writ petition granting liberty to approach the competent civil court.

Held:

A. Where dispute substantially relates to title, ownership and possession of immovable property, police authorities may treat matter as civil dispute in absence of prima facie cognizable offence.

The respondent authorities, upon preliminary enquiry, found pending civil disputes regarding possession and title over the subject property and therefore declined criminal intervention. Paras 4-5.

B. Writ jurisdiction under Article 226 is ordinarily not invoked for adjudication of disputed questions relating to possession and title over immovable property.

The Court accepted the submission that adjudication of competing rights over land falls within domain of competent civil court. Para 5.

C. Mere allegations of interference in property disputes do not automatically warrant criminal prosecution when underlying dispute is essentially civil.

The Court did not find grounds to compel initiation of criminal proceedings merely because complaints alleging trespass and interference were submitted. Paras 2 and 4.

D. Liberty reserved to seek appropriate civil remedies.

While disposing of the writ petition, the Court expressly preserved liberty of the petitioner to approach the competent civil court in case of interference with possession. Para 5.

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ANALYSIS OF LAW

1. Scope of Mandamus Against Police Authorities

The petitioner sought:

• direction to police authorities,
• initiation of criminal proceedings,
• protection of possession.

The High Court examined whether:

• police inaction amounted to arbitrary refusal,
  or
• matter primarily involved civil adjudication.

The Court accepted the State’s position that:
the dispute related to:

• title,
• ownership,
• possession.

Thus:
criminal process could not be mechanically invoked.

Paras 1 and 4.

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2. Civil Dispute versus Criminal Proceedings

The judgment reiterates the settled principle that:
property disputes involving competing claims over possession and ownership ordinarily require civil adjudication.

The Court noted:

• mutation proceedings were pending,
• earlier writ proceedings existed,
• parties disputed possession and entitlement.

Therefore:
the police were justified in treating the matter as predominantly civil.

Important principle:

Criminal law cannot become substitute for civil adjudication of land disputes.

Paras 2 and 4.

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3. Limited Scope of Article 226 in Property Disputes

The Court refrained from:

• adjudicating title,
• deciding possession,
• granting substantive injunctive relief.

Instead, the Court relegated parties to:

• competent civil court.

Jurisdictional principle:

Disputed questions of fact concerning immovable property are generally unsuitable for determination under Article 226.

Para 5.

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4. Police Enquiry and Prima Facie Satisfaction

The State authorities submitted that:

• preliminary enquiry was conducted,
• no prima facie cognizable offence emerged,
• matter required civil adjudication.

The Court recorded and accepted this submission.

Legal significance:

Police are not bound to register criminal proceedings in every property-related complaint where essential dispute concerns civil rights.

Para 4.

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ANALYSIS OF FACTS

1. Petitioner’s Claim

The petitioner claimed:

• ownership through registered sale deed,
• possession for nearly 50 years,
• cultivation of commercial crops.

Para 2.

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2. Alleged Interference

According to petitioner:

• unofficial respondents trespassed,
• destroyed Eucalyptus crop,
• attempted forcible dispossession,
• threatened petitioner repeatedly.

Complaints dated:

• 10.12.2025,
• 21.12.2025,
• 27.03.2026

were allegedly ignored.

Para 2.

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3. State’s Stand

The State submitted:

• preliminary enquiry was conducted,
• civil disputes were pending,
• no prima facie cognizable offence was disclosed,
• dispute involved title and possession.

Para 4.

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4. Court’s Final Course

The High Court:

• disposed of writ petition,
• declined coercive direction against police,
• reserved liberty to seek civil remedies.

Para 5.

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RATIO DECIDENDI

Where disputes concerning immovable property substantially involve contested questions of title, ownership and possession, and no prima facie cognizable criminal offence is disclosed upon preliminary enquiry, police authorities may legitimately treat the matter as civil in nature, and the High Court in exercise of jurisdiction under Article 226 ordinarily will relegate the parties to appropriate civil remedies rather than compel initiation of criminal proceedings.

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Final Holding

The High Court disposed of the writ petition after recording the State’s submission that the dispute was civil in nature and granted liberty to the petitioner to approach the competent civil court for appropriate relief in the event of interference with possession.