Lakshmi Mohan (Dead) Through LRs. & Anr. v. M/s. Airtech Projects Engineers Pvt. Ltd. & Anr. | 2026 INSC 909 | 21 August 2026
What the Case Was About
This case arose from a bank auction conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act). After a borrower company defaulted on its cash-credit facility, United Bank of India classified the account as a Non-Performing Asset and moved to enforce its security interest. The property was put up for public auction, and the highest bidders won with an offer of over ₹2 crore. However, they had deposited slightly less earnest money than the auction notice demanded. The borrower insisted that this shortfall invalidated the entire sale, setting off prolonged litigation before the Debts Recovery Tribunal (DRT), the DRAT, and the High Court. Ultimately, the Supreme Court had to decide whether a minor, promptly cured gap in a non-statutory deposit requirement could undo an otherwise compliant auction. It also had to rule on whether the bank was liable to pay interest on surplus sale proceeds it had retained for years.
The Key Facts
M/s. Airtech Projects Engineers Pvt. Ltd. availed a cash-credit facility from United Bank of India and defaulted, rendering the account a Non-Performing Asset. The Bank issued a demand notice under Section 13(2) of the SARFAESI Act, followed by a possession-cum-sale notice for auction of the secured property. The auction-purchasers submitted the highest bid of ₹2,17,40,000, but deposited earnest money of ₹21,15,000 instead of the stipulated ₹21,50,000. On the auction date, they deposited 25 per cent of the bid amount, and paid the balance later, pursuant to which a sale certificate was issued and registered.
The borrower challenged the sale before the DRT and the DRAT. After a fresh auction, the DRT dismissed the borrower’s securitisation application, but the DRAT allowed the borrower’s appeal, holding that the auction was vitiated by non-compliance with Rule 8(5) of the Security Interest (Enforcement) Rules, 2002. The High Court set aside the DRAT order once for lack of opportunity and remanded the matter. On reaffirmation by the DRAT, the High Court dismissed the writ petitions by the impugned common judgment dated 22 March 2013, leading to the present appeals by the auction-purchasers, the Bank, and the borrower.
The Questions Before the Court
The appeals raised three principal questions:
- Is the earnest money deposit requirement in the auction notice a mandatory essential condition or merely an ancillary term, and does a shortfall vitiate the auction under the SARFAESI Act and Rules?
- Does delay in payment of the balance sale consideration beyond the stipulated fifteen days invalidate the auction?
- Is the Bank liable to pay interest on surplus sale proceeds retained in a non-interest-bearing account?
What the Court Decided and Why
A bench of Justices P.S. Narasimha and Alok Aradhe delivered a judgment that allowed in part the appeals before it. The Court allowed the appeals filed by the auction-purchasers and the Bank, quashed the High Court’s common judgment dated 22 March 2013 and the DRAT order dated 20 June 2011, and disposed of the borrower’s appeals.
On the first question, the Court drew a well-settled distinction between two kinds of requirements in a tender or auction notice: those that lay down essential conditions of eligibility, and those that are merely ancillary or subsidiary to the main object (para 19). It held that the earnest money deposit stipulated in the Bank’s auction notice was a non-statutory, ancillary condition designed only to filter out non-serious bidders. Once the auction-purchasers deposited 25 per cent of the sale price on the date of the auction itself, as mandated by Rule 9(3) of the Security Interest (Enforcement) Rules, 2002, any anterior shortfall in the earnest money became insignificant. The non-conformity caused no prejudice or injustice to the borrower, nor to the other bidder, and therefore did not affect the validity of the auction in any manner (para 21). Consequently, the DRAT’s finding that the auction was vitiated by non-compliance with Rule 8(5) and the terms of the auction notice was unsustainable.
On the second question, the Court found that the plea regarding delayed payment of the balance consideration had not been raised by the borrower before the DRT or the DRAT. The record further showed that the delay was linked to pending litigation initiated by the borrower, and that the Bank had tacitly extended the time for payment. In these circumstances, the delay did not invalidate the sale.
On the third question, the Court held that the Bank ought not to have retained the surplus sale proceeds in a non-interest-bearing account. After adjusting the dues, the Bank was holding a surplus of ₹1,33,94,054. Because the surplus had been kept in a non-interest-bearing account since 23 March 2010, the borrower was entitled to interest on that amount. The Court directed the Bank to refund the surplus along with interest at 7 per cent per annum from 23 March 2010 until actual payment (para 24).
Why It Matters
The judgment carries important signals for lenders, borrowers, and auction-purchasers operating within the SARFAESI framework. By classifying the earnest money requirement as an ancillary rather than an essential condition, the Court made clear that not every deviation from an auction notice is fatal. When a statutory mandate such as the 25 per cent deposit under Rule 9(3) is fully complied with, and when no prejudice is caused to the borrower or rival bidders, trivial irregularities will not be permitted to undo a sale years later (para 19, 21). This preserves the finality of auctions and protects bona fide purchasers from hyper-technical challenges that can cloud titles indefinitely.
At the same time, the ruling reinforces that a secured creditor cannot retain surplus sale proceeds without consequence. By directing the Bank to pay interest on the retained surplus from the date it was placed in a non-interest-bearing account, the Court ensured that the borrower’s right to the balance was meaningful rather than merely symbolic (para 24). For financial institutions, the decision is a clear reminder to house excess recovery funds in interest-bearing accounts from the very beginning, lest they be ordered to pay interest out of their own pockets.