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Lakshmi Mohan (Dead) Through LRs. v. M/S. Airtech Projects Engineers Pvt. Ltd.

Civil Appeal · 2026 INSC 909Decided 21 Aug 2026
C.A. No.-009228-009231 - 2013 (with connected Civil Appeals arising from SLP (C) Nos. 1441-1446 of 2014 and SLP (C) @ Diary No. 31322 of 2018)
Justice Pamidighantam Sri Narasimha · Justice Alok Aradhe

Background

A borrower company defaulted on a bank loan, and its mortgaged Chennai property was put up for auction by the bank under the SARFAESI Act. The winning bidders (the Lakshmi Mohan family) deposited slightly less earnest money than the notice required (a shortfall of Rs. 35,000 out of Rs. 21,50,000) but paid the mandatory 25% of the sale price the very next day. The borrower challenged the auction, and the Debts Recovery Appellate Tribunal (DRAT) and the Madras High Court eventually ruled the sale invalid for this shortfall and other procedural issues, directing the property to be restored to the borrower. The auction-purchasers, the borrower, and the bank all appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the earnest money deposit requirement in the auction notice was a non-statutory, ancillary condition meant only to filter out non-serious bidders, not a mandatory eligibility condition under the SARFAESI Rules. Since the auction-purchasers promptly deposited the statutorily required 25% of the sale price the next day and no prejudice was caused to the borrower or the other bidder (who had the identical shortfall), the minor EMD shortfall did not invalidate the auction. The Court also rejected the borrower's belated argument about delayed payment of the balance sale price, noting the bank itself had agreed to extend the deadline pending litigation. However, the Court directed the bank to refund the surplus sale proceeds (about Rs. 1.34 crore) to the borrower with 7% interest, since the bank had wrongly kept this money in a non-interest-bearing account instead of returning it promptly.

Lesson Learnt

Not every deviation from the fine print of an auction notice invalidates a sale - courts distinguish between "essential" conditions (which must be strictly followed) and "ancillary" ones (where substantial compliance without prejudice to others suffices). At the same time, a bank holding a borrower's surplus sale proceeds must keep that money earning interest and cannot penalize the borrower for its own failure to do so.

Official source (sci.gov.in)View Judgment (PDF)

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