SARFAESI auctions attract investors, end-users, and speculators due to comparatively lower prices and faster title transfer. However, an auction purchaser under the SARFAESI Act, 2002 does not acquire absolute immunity merely by being the highest bidder. The purchaser’s rights are statutory, conditional, and subject to procedural legality.

This article explains the rights of auction purchasers under SARFAESI, the extent of legal protection available, and the risks involved.

Who Is an Auction Purchaser under SARFAESI?

An auction purchaser is a person who:

• Successfully bids in a SARFAESI auction conducted by a secured creditor

• Complies with payment conditions

• Receives a Sale Certificate under Rule 9 of the Security Interest (Enforcement) Rules, 2002

The purchaser derives title not from the borrower, but through statutory enforcement by the secured creditor.

When Do Rights of Auction Purchaser Arise?

Auction purchaser’s rights crystallise only after:

1. Lawful possession by the bank

2. Valid sale notice

3. Conduct of auction as per rules

4. Payment of full consideration

5. Issuance of sale certificate

👉 Mere participation or highest bid does not confer enforceable rights.

Key Rights of Auction Purchasers under SARFAESI

1. Right to Receive Sale Certificate

Once the purchaser:

• Pays the entire bid amount within prescribed time

The bank must:

• Issue a Sale Certificate

This certificate is the primary title document.

2. Right to Title Without Separate Conveyance

Under SARFAESI:

• No separate sale deed is required

• Sale certificate itself conveys title

Registration and stamp duty depend on State law, but title flows from statute, not contract.

3. Right to Seek Possession of Property

After sale confirmation, the auction purchaser can:

• Seek actual possession of the property

If the borrower or occupant resists, assistance may be sought through:

• The secured creditor

• Magistrate proceedings

4. Right to Protection Against Borrower Interference

Borrowers:

• Cannot obstruct possession merely by disputing debt

• Cannot re-enter once possession is lawfully handed over

However, this protection exists only if the auction is legally valid.

Important Limitation on Auction Purchaser’s Rights

Rights Are Subject to Legality of SARFAESI Proceedings

Auction purchasers often assume:
❌ Once sale certificate is issued, title is unquestionable

✔ In law, auction purchaser’s rights are co-terminus with legality of SARFAESI action.

If:

• Possession was illegal

• Sale notice defective

• Valuation flawed

• Borrower’s statutory rights violated

👉 Entire auction can be set aside, affecting purchaser’s title.

Borrower’s Challenge vs Auction Purchaser’s Protection

Courts often balance:

• Borrower’s statutory rights

• Bona fide purchaser’s equities

Is Auction Purchaser a Bona Fide Purchaser?

An auction purchaser is not automatically treated as a bona fide purchaser without notice.

Purchasers are expected to:

• Conduct due diligence

• Verify SARFAESI compliance

• Check pending litigation

Failure to do so weakens equity claims.

Common Risks for Auction Purchasers

• Borrower challenge before DRT

• Stay orders after auction

• Delay in physical possession

• Encumbrances not disclosed

• Defective Section 14 proceedings

SARFAESI auctions are high-return but high-risk.

Remedies Available to Auction Purchasers

Auction purchasers may:

• Defend sale before DRT

• Seek possession through secured creditor

• Claim refund with interest if sale is set aside

• Challenge arbitrary cancellation by bank

However, no independent SARFAESI proceeding lies at purchaser’s instance—rights flow through the secured creditor.

Practical Due-Diligence Checklist for Auction Purchasers

Before bidding:

• Verify Section 13(2) & 13(4) compliance

• Check possession notice & publications

• Confirm valuation & reserve price

• Ascertain pending DRT or High Court cases

• Inspect property physically

After auction:

• Ensure timely issuance of sale certificate

• Seek possession without delay

Common Myths Among Auction Purchasers

❌ SARFAESI auction gives “court-free” title
❌ Sale certificate cannot be challenged
❌ Borrower has no remedy after auction

✔ In reality:

• SARFAESI sales are judicially reviewable

• Borrower remedies continue

• Purchaser protection depends on legality

Conclusion

Auction purchasers under SARFAESI enjoy statutory rights, but not statutory immunity. Their title is strong only if the underlying SARFAESI proceedings are legally flawless. A SARFAESI auction is therefore not merely a financial transaction, but a legal exercise demanding careful diligence.

For purchasers, prudence before bidding is far more valuable than litigation after purchase.

FAQs

Q. Can a SARFAESI auction purchaser be dispossessed later?

Yes, if the auction is set aside by DRT or Court.

Q. Is sale certificate conclusive proof of title?

It conveys title, but subject to legality of proceedings.

Q. Can auction purchaser directly approach DRT?

Generally no, except in limited defensive circumstances.