Dhanvridhi Commercial v. Indian Bank: a SARFAESI settlement that ignored the auction purchaser

The facts in brief

Acting under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), the Authorized Officer of Indian Bank enforced the security and conducted a sale of the secured asset. An auction purchaser acquired the property and, in consequence, became a party to the proceedings that followed.

The borrower challenged the bank's possession and sale action before the Debts Recovery Tribunal under Section 17 of the Act. By order dated 7 March 2024, the DRT decided the application on its merits, set aside the sale, and directed reversal and refund. That order attained finality — it was not successfully challenged, and so it bound the parties before the Tribunal.

Subsequently, the bank and the borrower arrived at a settlement and sought its acceptance. But the auction purchaser, though a party to the matter and the holder of an interest acquired through the very sale that had been set aside, was not made part of the settlement. The settlement made no provision for — and no mention of — the finalised order of 7 March 2024. The DRT rejected the settlement. Dhanvridhi Commercial Pvt. Ltd. carried that rejection to DRAT Kolkata in Misc. Appeal No. 65 of 2025.

A note on dates: the reportage relied on for this order records the appellate decision as pronounced on 10 June 2026, with the underlying DRT order dated 7 March 2024. As the brief from which this digest is drawn flags, a 2026 decision date on a "Misc. Appeal No. 65 of 2025" is plausible but rests on single-source reportage; readers should confirm the precise pronouncement date against the DRAT Kolkata cause-list or order copy where finality of citation is required.

The defect at the heart of the settlement

The Tribunal, in a decision per Chairperson Justice Anil Kumar Srivastava, identified two interlocking defects in the proposed compromise. The first was structural: the auction purchaser was a party to the pending proceedings whose interest had crystallised through the sale, yet the settlement was negotiated and presented without that party's participation. A compromise that disposes of a matter while excluding a party whose accrued rights it directly affects cannot be approved consistently with elementary procedural fairness.

The second defect was that the settlement neither complied with nor acknowledged the DRT's finalised order of 7 March 2024. That order had, on the merits, set aside the very sale through which the auction purchaser took the property and had directed restitution. A compromise that proceeds as though that order did not exist asks the Tribunal to sanction an arrangement that defeats an adjudicated, final determination.

Finality binds the bank

The Tribunal's central holding is about the consequences of finality. Once the DRT had set aside the sale on merits and that order had attained finality, the bank was obliged to give effect to it. The bank could not treat the order as a problem to be negotiated away with the borrower.

The bank's non-compliance with the finalised order could not be cured by a private compromise that did not even refer to it. To accept the settlement would have been to allow the secured creditor to bypass a binding adjudication through the expedient of a side arrangement with the borrower — an outcome the Tribunal would not countenance.

The auction purchaser as a necessary party

Underlying the holding is a principle of long standing in enforcement proceedings: the bona fide auction purchaser is not a stranger whose interest can be disposed of in his absence. Having bid, paid and taken the property under a sale conducted by the secured creditor, the purchaser acquires rights that the SARFAESI scheme is designed to protect. Those rights cannot be extinguished — or rendered nugatory — by a settlement to which the purchaser is not a party and of which he may have no knowledge.

The settlement here, struck between bank and borrower alone, would have operated on a sale that the purchaser had relied upon, while leaving the purchaser, in the Tribunal's framing, in the dark. Procedural fairness requires that a party whose rights are at stake be heard before those rights are dealt with. The exclusion of the auction purchaser was, by itself, a sufficient reason to refuse approval.

Anti-collusion control on SARFAESI settlements

The decision also functions as a control against collusive use of the settlement mechanism. SARFAESI gives the secured creditor formidable self-help powers, balanced by the borrower's remedy under Section 17 and the protection of bona fide purchasers within the enforcement scheme. A bank-borrower compromise that quietly unwinds an adjudicated sale-setting-aside order, while cutting out the purchaser, risks defeating that balance. Approving such a settlement would sanction an arrangement that serves the immediate convenience of bank and borrower at the expense of an adjudicated order and a third party's accrued rights.

By declining to approve the compromise, the Tribunal signalled that recovery fora will not rubber-stamp settlements that operate to defeat finalised orders or to bypass the rights of necessary parties. The settlement was rightly rejected, and the appeal failed.

The appellate architecture of SARFAESI

The matter reached DRAT through the appellate structure the SARFAESI Act establishes. A borrower aggrieved by enforcement measures may apply to the Debts Recovery Tribunal under Section 17, and a party aggrieved by the DRT's order may appeal to the Debts Recovery Appellate Tribunal under Section 18. That two-tier structure is the Act's internal mechanism for testing the legality of enforcement, and it is the route by which the rejection of the proposed settlement came before the appellate forum here.

The structure carries its own discipline. The DRT decides at first instance, on the material before it, whether enforcement and the steps taken under it are sustainable; the DRAT reviews that determination. Where, as here, the DRT has rejected a compromise on a principled ground — that it excluded a necessary party and ignored a finalised order — the appellate forum's task is to test whether that rejection was correct in law, not to substitute a fresh bargain for the one the DRT declined. The DRAT found no error in the DRT's reasoning and accordingly affirmed.

The decision also sits against the broader question, settled at the apex level, of when a pre-deposit condition attaches to a SARFAESI appeal. Not every order of a DRT triggers the pre-deposit requirement that conditions a borrower's appeal against a recovery, and the contours of that requirement have been worked out by the Supreme Court. Here the operative dispute was not about the quantum of any pre-deposit but about the integrity of the settlement itself; the appellate forum reached the merits of the rejection and upheld it on the substance.

Why the order matters

This is the corpus's first standalone DRAT order, filling the SARFAESI appellate gap that the corpus had carried only at the level of the Supreme Court and the High Courts. It supplies a tribunal-level statement of three connected propositions: that the finality of a DRT order setting aside a sale binds the bank and cannot be circumvented by a later compromise; that the auction purchaser is a necessary party whose exclusion is fatal to a settlement affecting his rights; and that recovery fora exercise an anti-collusion check over settlements within the SARFAESI scheme.

The order reinforces a recurring SARFAESI tension — the bank's recovery interest against the auction purchaser's accrued rights — and lands firmly on the side of finality and third-party protection. As a Chairperson-led DRAT decision, it carries weight across the eastern recovery jurisdiction and is persuasive nationally. A further remedy lies by way of writ or further challenge; meanwhile, the holding complements the Supreme Court's SARFAESI line and gives the corpus its first tribunal-level treatment of auction-purchaser protection.

Related on Valkya

• IOB v. Ashok Saw Mill: the DRT's review jurisdiction
• Mardia Chemicals v. Union of India
• United Bank v. Satyawati Tondon: writ self-restraint in recovery matters

Sources

1. LiveLaw, "DRAT Kolkata Upholds Rejection of Bank-Borrower Settlement That Kept Auction Purchaser In the Dark": https://www.livelawbiz.com/recovery-laws/drt/drat-kolkata-upholds-rejection-of-bank-borrower-settlement-that-kept-auction-purchaser-in-the-dark-537430
2. Debts Recovery Tribunal / Appellate Tribunal — official portal: https://drt.gov.in/
3. LiveLaw, "SARFAESI Act | Appeal Against Every DRT Order Doesn't Require Pre-Deposit: Supreme Court" (pre-deposit context): https://www.livelaw.in/top-stories/sarfaesi-act-appeal-against-every-drt-order-doesnt-require-pre-deposit-supreme-court-290104