A Supreme Court bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan has ruled that High Courts, while exercising their discretionary jurisdiction under Article 226 of the Constitution, can refuse to interfere in an order even if it suffers from legal flaws, provided that doing so would achieve substantial justice. The court criticized frivolous litigation pursued on technical grounds, emphasizing the importance of considering equitable factors while delivering justice.
The ruling came in the case of M.S. Sanjay vs. Indian Bank & Ors. (Civil Appeal No. 1188/2025), where the appellant challenged a Karnataka High Court judgment that set aside an auction sale conducted under the SARFAESI Act, 2002. The Supreme Court overturned the High Court’s decision, emphasizing that justice should not be sacrificed for mere procedural irregularities.
Case Background
The case revolved around a property auction conducted by Indian Bank after the borrower, M/s. Arihant Sarees, defaulted on a loan. The property in question was mortgaged by the borrower, and after following the SARFAESI Act’s procedures, the bank put it up for auction on July 31, 2007.
The appellant, M.S. Sanjay, was the highest bidder, and he deposited a total of ₹24,00,000 as the purchase price. Subsequently, on November 30, 2007, the bank issued a Sale Certificate in his favor. After acquiring the property, the appellant made further developments, investing approximately ₹1.5 crore.
Surprisingly, the original borrower did not challenge the auction, but Respondent No. 4, the guarantor, filed a petition before the Debt Recovery Tribunal (DRT), Karnataka, questioning the auction’s validity. The DRT set aside the auction sale on the ground that the statutory 30-day notice period before the auction was not followed.
The Indian Bank then challenged the DRT’s decision before the Debt Recovery Appellate Tribunal (DRAT), which ruled in favor of the bank, reinstating the auction sale. The DRAT observed that there was no real prejudice caused to the guarantor and that the borrower and guarantor had ample opportunity to redeem the property before the auction.
Dissatisfied, the guarantor filed a writ petition before the Karnataka High Court, which set aside the DRAT’s decision, citing that the auction notice was deficient in terms of statutory requirements. The appellant, having already developed the property significantly, then approached the Supreme Court, seeking relief.
Important Legal Issues
1. Whether the High Court erred in setting aside the auction sale based on a technical procedural lapse despite no actual injustice being caused?
2. Can a High Court, under Article 226, refuse to interfere in an order that is legally flawed but achieves substantial justice?
3. Whether procedural irregularities in auction notices under the SARFAESI Act should automatically lead to the setting aside of an auction sale?
Key Observations of the Supreme Court
On the High Court’s Power Under Article 226
The Supreme Court stressed that discretionary power under Article 226 should be exercised judiciously and not mechanically to set aside orders solely on technical grounds. The court stated:
“Interference by the Writ Court for mere infraction of any statutory provision or norms, if such infraction has not resulted in injustice, is not a matter of course.”
The bench cited Shiv Shanker Dal Mills v. State of Haryana (1980) 2 SCC 437, where the Supreme Court had held that:
“Article 226 grants an extraordinary remedy, which is essentially discretionary, although founded on legal injury. It is perfectly open for the court to pass such an order as public interest dictates and equity projects.”
On the Auction Process
The Supreme Court criticized the High Court for taking an excessively technical approach in determining the validity of the auction, without considering the practical impact. The bench observed:
“The High Court should have taken a practical view of the matter considering that the auction had attained finality way back in the year 2007.”
It further held that delays in raising objections to auction processes should not be entertained at the cost of bona fide purchasers:
“It all started in 2007. The appellant paid the entire sale consideration… neither the borrower nor the guarantor questioned it at the relevant time. It was only in 2008 that the guarantor suddenly decided to challenge the sale on a technical ground.”
On the Role of Equity in Legal Interpretation
The Supreme Court reaffirmed the principle that law should not be applied in an overly rigid manner when it leads to unjust outcomes. The court cited previous rulings to hold that:
“Legal formulations cannot be enforced divorced from the realities of the fact situation of the case. While administering law, it is to be tempered with equity.”
Decision of the Supreme Court
After analyzing the case, the Supreme Court ruled in favor of the appellant, M.S. Sanjay, and set aside the Karnataka High Court’s order. The key conclusions were:
The auction process was largely compliant with the SARFAESI Act, and the minor procedural lapse did not result in any actual prejudice to the borrower or the guarantor.
The High Court erred in setting aside the DRAT’s order purely on technical grounds without considering the practical impact on the auction purchaser.
The appellant, having legally acquired the property and invested heavily in its development, should not suffer due to frivolous litigation initiated much later by the guarantor.
The discretionary power under Article 226 must be exercised judiciously and equitably, ensuring that substantial justice prevails over technicalities.
The court, while allowing the appeal, also considered imposing costs on the respondent guarantor for instituting frivolous litigation but refrained from doing so.
“At one point of time, we were inclined to allow this appeal with costs to be paid by Respondent No. 4 for instituting a frivolous litigation… however, we have refrained from passing any order of costs.”
Thus, the Supreme Court restored the auction sale and reaffirmed that technical defects should not be used as a tool to unsettle transactions that have attained finality and where no real injustice has been caused.
