Citation: Sterling Holiday Resorts Limited v. M/s P.M. Associates & Ors., Civil Appeal Nos. 10077-10078 of 2014 (with connected matters),| 2026 INSC 1071
The procedure for sale of a secured asset under Rules 8 and 9 of the SARFAESI Rules is mandatory and must be strictly followed, since the lender’s power to sell a borrower’s property without going to court exists only with these safeguards. A sale made in breach of the rules, such as one made during a court restraint, before the 30-day notice period expires, or in favour of a non-bidder, is illegal. The sanctity of auction sales protects only auctions conducted in accordance with law, and does not save one that disregards the mandatory procedure.
The Supreme Court has held that a SARFAESI auction of a hill resort in Ooty was illegal and has set aside the sale. Sterling Holiday Resorts had mortgaged its resort, “The Fernhill”, to IFCI and TFCI for loans. After a default, IFCI issued an auction notice on 25 March 2010 with a reserve price of Rs 20 crore. On 7 April 2010 the debt tribunal (DRAT) restrained IFCI from proceeding further, after the borrower deposited Rs 1 crore. Even so, IFCI received a bid during this restraint. After the High Court cleared the way in September 2011, IFCI opened the bids on 12 September 2011 without informing the borrower and declared one Ms. Rukmani Khemchand the winner. The sale certificate was then issued to M/s P.M. Associates, a partnership firm formed that very day, as her “nominee”. The borrower later paid IFCI its dues in full, and IFCI cancelled the certificate and refunded the purchaser’s money with interest, which the purchaser encashed. The Madras High Court nevertheless upheld the purchaser’s sale. Justices Pamidighantam Sri Narasimha and Alok Aradhe reversed this, finding that the whole auction process was flawed. The bid was received in defiance of the tribunal’s restraint order. The sale was completed before the mandatory 30-day notice period ended once the restraint period was excluded. The borrower was given no notice when the bids were opened 17 months later. The certificate went to a firm that had not submitted the bid and did not exist on the auction date. No records of the auction or of inter se bidding were ever produced. The court rejected the plea of collusion between the borrower and IFCI and noted that the resort has always remained with the borrower. It allowed the borrower’s appeals, dismissed the purchaser’s appeals, closed the contempt petitions, and dismissed the challenge to the company’s merger with Thomas Cook (India), which no longer survived.