2026 INSC 673 C.A.NOS.…./2026@SLP © NO. 16552-53/2025 1

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS………………… OF 2026

(Arising out of SLP (C) Nos. 16552-53 of 2025)

BIHAR STATE FINANCIAL CORPORATION & ANR.

… APPELLANT (S)

Versus

BHUSHAN SINGH & ORS. … RESPONDENT (S)

WITH

CIVIL APPEAL NO. ……………………. OF 2026

(Arising out of SLP (C) No. 24073 of 2025)

J U D G M E N T

SANJAY KAROL, J.

1. Leave Granted.

The instant appeals present a classic case where the borrowers have

persistently failed to regularize their account and discharge their liabilities

despite being granted multiple opportunities. Their continued defaults

ultimately led the Financial Corporation to exercise its statutory power under

Section 29 of the State Financial Corporations Act, 1951

1

and auction the

1

‘SFC Act’ for short.

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mortgaged property to recover its dues. We are called upon to decide whether, in

such circumstances, the concurrent findings recorded by the Courts below setting

aside the auction sale, by way of a civil suit, can be sustained in law.

2. The present appeals arise out of the impugned judgment and order dated

18.03.2025 passed by the High Court of Judicature at Patna in First Appeal

No.268 of 1999 and First Appeal No.272 of 1999, whereby the High Court

dismissed both the First Appeals and affirmed the judgment and decree dated

19.05.1999 passed by the Court of 5

th

Subordinate Judge, Begusarai

2

in Title Suit

No.39/96.

FACTUAL MATRIX

3. The facts, shorn of unnecessary details, giving rise to the present appeal

are as follows:

3.1. Ranjeet Motel & Ors. (Original Plaintiffs)

3

, for the purpose of setting

up an industrial unit approached Bihar State Financial Corporation

(Original Defendant No.1)

4

for a loan of Rs.15 Lakhs. BSFC initially

sanctioned an amount of Rs.8.50 Lakhs on 29.05.1982, followed by an

additional loan of Rs.3.15 Lakhs on 12.07.1984, against which the

borrowers deposited the original title deeds of land and building and

created an equitable mortgage over them. Upon default in repayment by

the borrowers, BSFC issued a notice dated 24.11.1988 under Section 29

of SFC Act.

2

Hereinafter referred to as the ‘Trial Court’.

3

Hereinafter referred to as the ‘borrowers’.

4

‘BSFC’ for short.

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3.2. Aggrieved thereby, the borrowers filed a writ petition bearing

number CWJC No.6104 of 1990 before the High Court also assailing the

notification issued by BSFC for sale of the mortgaged property. The High

Court, vide order dated 06.11.1990, disposed of the said writ petition by

fixing a repayment schedule requiring the borrowers to repay their dues

in several instalments, beginning from 31.12.1990 and ending on

31.10.1991. The Court also reserved the liberty for BSFC to sell the

mortgaged assets in the event of default. Relevant part of the order reads

as under:

“According to the petitioner, the total dues up to 31

st

August, 1990

including interest was Rs. 12, 86,770.52p. (Twelve lakhs eighty-six

thousand seven hundred seventy and fifty-two pase).

Mr. Siyaram Shahi, learned counsel for the petitioner informed that

pursuant to the aforesaid order dated 17.09.1990. Rs. 3,00000/-( three lacs)

was deposited on 31

st

October,1990,

Mr. Shanker Prasad who was appeared for the respondent - Corporation

urged that the petitioner should be directed to clear 50 per cent of the due

with interest as it stood on 31

st

August, 1990 by and of this year.

Taking all the facts and circumstances of the case into consideration, we

direct the petitioner to deposit Rs, 1,50,000/- (One lacs fifty thousand ) on

or before 31

st

December ,1990, yet another amount of Rs. 1,50,000/- (One

lac fifty thousand ) on or before 31

st

January, 1991. An Amount of Rs.

2,00000/- (two lacs) should be deposit on or before 31st March, 1991. We

further direct the petitioner to deposit an amount of Rs. 2,00,000/- (two

lacs ) on or before 30

th

May1991, yet another amount of Rs.2,00000/- (two

lacs ) on or before 31

st

July,1991 and whatever may be the balance amount

including the interest which the petitioner is liable to deposit in terms of

the agreement by 31

st

October 1991 shall be deposited on or before 31

st

October 1991. If there is any default on the part of the petitioner in

depositing any one of the installments, as indicated above, it will be open

the respondent's corporation to proceed with the sale of the properties

mortgaged and to execute document in favour of the intending purchaser.

This application is. Accordingly, disposed of.”

(emphasis supplied)

3.3. Since the borrowers failed to repay the amount as per the aforesaid

schedule, they filed an interlocutory application on 04.07.1991 before the

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High Court seeking an extension of time to deposit the same. The said

application was dismissed vide order dated 11.07.1991 with a liberty to

the borrowers to approach BSFC to enter into an agreement of their own.

It was observed as under:

“The application at flag 'D' has been filed on behalf of the the writ

petitioner making a prayer that liberty may be given to the parties enter

into a fresh agreement by extending the period mentioned in the order

dated 06.11.1990 passed by a Bench of this court…

It is admitted position that the petitioner has filed to pay the instalment

which was payble on 31

st

January, 1991 and thereafter. The present

application has been filed on 04.07.1991. we do not think that the facts

of the case and the conduct of the parties entitled the writ petitioner to

any indulgence do not find any merit in this application at flag ‘D’ which

is, accordingly. Dismissed.

This order, however, will not prejudice the petitioner from approaching

the Bihar state Financial corporation from entering into agreement with

them of their own.”

(emphasis supplied)

Noticeably, even though the High Court adversely commented on the

borrower’s conduct, yet no remedial measures were taken to regularize

their account.

3.4. As such BSFC again issued a notice on 27.09.1994 under Sections

29 & 30 of the SFC Act, calling upon the borrowers to discharge their

liabilities in full within three months, failing which the mortgage property

would be advertised for sale under the provisions of the SFC Act for

recovery of dues. The relevant portion of the notice is extracted as under:

“7. That the afairs of your concern was reviewed by the corporation and

after the consideration it has been decide that notice under section

30&29 of the state financial corporation Act, 1951 be served on the

concern and the guarantors of the loan calling upon them to discharge

in full their liabilities to the corporation with three months from the date

of service of this notice.

8. That the view of the above decision oif the corporation are called

upon to discharge tour liabilities in full to the extent of Rs. 14,53,439.08

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 5

as on 30.06.1988 as per details given below within three months from

the date of service of this notice failing which the mortgage security

will be advertised for sale under the provisions of section 29 of SFCS

Act, 1951 for recovery of the corporation's dues …

In that view of the matter, I give you this notice under section 30 & 29

of the SFCs Act, 1951 that should you fail to pay the corporations dues

within three months from the date of service of this notice, the

corporation will be at liberty to advertises for sale of mortgage security

of your concern and to sell the same either by public auction or by

negotiation for otherwise, without the help of the court under the

provision of section 29 of the SFCS Act, 1951.

Please note that copy of this notice has been kept in the office of the

corporation for further reference.”

(emphasis supplied)

3.5. Since the account was not regularized, hence, having no other

option, BSFC on 02.03.1996 published a sale advertisement in Hindustan

Times, inviting tenders for the purchase of the mortgaged property to

recover its dues. The auction sale was held on 18.03.1996 and, thereafter,

Sri Ramshekhar Singh

5

(hereinafter referred to as the ‘auction

purchaser’) was declared successful, however, the sale was not finalized

at that point.

3.6. In the interim, the borrowers on 26.03.1996 filed a suit for

declaration, being Title Suit No.39/1996, before the Trial Court seeking,

inter alia, the following reliefs:

“i. It may be declared that intervener defendant did not derive any

right, title interest and possession by virtue of the alleged auction

sale on 128.03.96 and delivery of possession is also void and the

auction sale and D.P. maybe set aside after declaring the above

reliefs the title interest of the plaintiff may be declared.

ii. It may be declared that the defendant has no right to auction u/s

29 and 30 of Bihar State Financial corporation act and the intervener

defendant did not derive any interest.

iii. Any other relief or reliefs which the plaintiffs maybe found

entitled to get be also awarded to them.

5

Predecessor-in-interest of the appellants in SLP (C) No. 24073 of 2025.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 6

iv. By order of ad interim injunction, the defendant corporation

may be restrained from taking possession and selling the mortgaged

properties of the plaintiff.

v. That an order for mandatory injunction be passed asking the

defendant corporation to put the plaintiff back in possession of the

premises described and the foot of the plaint in case the defendant

corporation take possession of the premixes within the pendency of

the suit and status quo and be maintained amended as per order dated

03.10.96.

vi. Cost of the suit may be awarded to the plaintiff or such other

relief or reliefs may awarded as be deemed fit and proper.”

(emphasis supplied)

It is pertinent to mention that the borrowers also sought an interim

injunction restraining BSFC from taking possession and selling the

mortgaged properties to the auction purchaser during the pendency of the

suit. The said application was dismissed by the Trial Court. The same was

affirmed by the High Court vide order dated 01.10.1997

6

and this Court

vide order dated 13.02.1998

7

.

3.7. Exhibiting all senses of responsibility, reasonableness and good

faith, BSFC gave yet another opportunity to the borrowers to take all

remedial measures. Hence on 17.04.1996, issued another notice, wherein

the borrowers were offered the option to retain the mortgaged property

upon matching terms and conditions set forth therein, provided they gave

their unconditional acceptance as also, made the payment within 21 days

from the date of issuance of the letter. Relevant part of the letter is

extracted hereunder for ready reference:

6

In Civil Revision No.1553 of 1997.

7

In SLP (C) No.1917 of 1998.

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“BIHAR STATE FINANCIAL CORPORATION

FRASER ROAD PATNA-1

Ref. No- 375 Patna,

dt. 17.04.1996

REGISTRED

To,

M/o Ranjeet Motel

Kachahari Road

Bagusarai

Dear Sir,

Re: of Sale of vour Hotel.

Please refer the subject noted above. You are aware that tender

notice for sale of the mortgaged assets of your hotel was advertise in

Hindustan Times on 02.03.1996. The Corporation has received a

worthwhile tender and sale to full load in favour of the tendered on the

following terms and conditions:-

1. The consideration money shall be equivalent to B.O.S. as on date of

handing over possession of the unit or execution and registration of sale

deed whichever is earlier.

2. The purchaser shall have to deposit Rs. 10,00 lakhs as initial cash

down payment by Bank and draft in favour or the corporation within 21

days from the date of issue of sale order.

3. The balance amount of the consideration money (after payment of

the cash down payment ) will be treated as terms loan to the purchaser

payable in a period of 36 monthly equal installments The payment of

installment will begin after three months from the date of handing over

the unit to purchaser.

4. Rate of interest on the loan component shall be 19.5% per annual

compounding quarterly. Interest tax will be charged extra as applicable.

2% penal interest will be charged on the amount of default and for the

period or default.

… …

…

12. The Branch Manager, BSFC, Begusarai is hereby authorized to

execute necessary legal document in this regard on behalf of the

Corporation after deposit of the initial cash down payment by the

purchaser and take over the unit and hand over the unit and hand over

the same to the purchaser after compliance of the terms and condition

of the sale order as per norms of the Corporation.

We give an offer to retain the assets matching terms and conditions

provided you and conditional acceptance letter along with payment

within 21 days from the date issue of the letter.”

(emphasis supplied)

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3.8. Expecting a response in affirmative, which never came, and left

with no option, after the expiry of 21 days, on 10.05.1996, BSFC

approved the tender of the auction purchaser and communicated the terms

and conditions of the sale. The auction purchaser was also asked to

execute sale cum-balance loan amount agreement to enable BSFC to hand

over the possession of the mortgaged property. Eventually, BSFC, vide a

sale order dated 14.05.1996, sold the mortgaged property to the auction

purchaser and, on 07.06.1996, executed an agreement of sale-cum-

payment of loan.

3.9. Aggrieved thereby, the borrowers, on 10.07.1996, filed a writ

petition bearing number CWJC No.6641 of 1996 before the High Court

seeking an interim injunction restraining BSFC from taking possession of

the mortgaged assets as also an order to maintain the status quo during

the pendency of the civil suit. In the said writ, an interim order dated

17.07.1996 was passed in favour of the borrowers, directing them to

deposit Rs.10 Lakhs as per the terms of the tender. However, upon an

application for intervention and modification filed by the auction

purchaser, the said interim order was recalled and writ petition, vide order

dated 25.07.1996 stood dismissed as withdrawn, wherein the Court took

note of the fact that the auction purchaser had already deposited the entire

auction sale consideration. Relevant part thereof is extracted below:

“Heard learned counsel for the petitioner, counsel for respondent,

corporation and the intervenor, Respondent No. 4. On 17.07.1996 learned

counsel for the petitioner gave an impression that nothing has been done

as yet nor anything was said that the property in question was auction

solder the intervenor had deposited the entire money of the auction sale

and hence the order was passed on giving undertaking by the petitioner to

deposit Rs, 10 lakhs within a period of three weeks in my view, the order

was passed under wrong impression created by learned counsel for the

petitioner. Accordingly, order dated 17.07.1996 is recalled. Learned

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counsel for petitioner seeks permission to withdrew the application. The

prayer is allowed. This application is dismissed as withdrawn”

(emphasis supplied)

3.10. On 03.08.1996, the possession of the borrower’s mortgaged

property was handed over to the auction purchaser.

3.11. During the pendency of the declaration suit before the Trial Court,

the borrowers filed another writ petition, being CWJC No.3472 of 1997,

seeking the relief of quashing the auction sale dated 18.03.1996 and

restoring possession of the auctioned unit to them. The said writ petition,

vide order dated 05.05.1998, stood dismissed as withdrawn with a

direction to expeditiously dispose of the pending suit, preferably within 6

months.

3.12. Based on the pleadings, in Civil Suit, the Trial Court framed

following issues for adjudication:

“1. After the suit as framed is not maintainable?

2. Whether the plaintiff is have got valid cause of action for the suit?

3. Whether the suit is barred by law of limitation as well as by the

provisions of the Bihar state Financial corporation?

4. Whether the suit is barred by principals of estoppel waiver and

acquiescence?

5. Whether the suit is barred by the provisions of specific Relief Act?

6. Whether the suit is barred by law of resjudicata?

7. Whether the Auction sale dated 18.03.1996 and the delivery of

possession given to the intervenor on the very of possession given to

the intervenor on the suit property is void and fit to be set aside?

8. Whether the plaintiffs are entitled to be put back into possession over

the suit premises?

9. Whether the defendant no.l and 2 had noright to auction sale the suit

property u/s 29 and 30 of the Bihar state Financial corporation Act?

10. What other relief or releft are the plaintiffs entitled to?”

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3.13. The Trial Court, vide order dated 19.05.1999, decreed Title Suit

No.39 of 1996 in part. The findings returned on the relevant issues, in

short, are as follows:

(a) Issue No.9: In view of the High Court’s order dated

06.11.1990, BSFC had every right to sell the borrower’s

mortgaged property. The Court had granted liberty to the

Corporation to proceed with the sale of the mortgaged property in

case the borrowers were to default in depositing any of the

instalments.

(b) Issue Nos.7 & 8: It was apparent through the records that

prior to inviting tenders, neither any valuation of the mortgaged

property was done nor any intimation sent to the borrowers in that

context, evident from the testimony of the manager of BSFC

(DW3); BSFC failed to prove that the borrowers were served with

the notice dated 17.04.1996 calling upon them to match the terms

of the tender/auction sale; BSFC allowed the auction purchaser to

deposit the auction money in instalments and provided them

financial accommodation, which relief could also have been

granted to the borrowers, essentially when they had already paid

about Rs.15 Lakhs till then; such action shows unreasonableness

and unfairness on the part of BSFC; and lastly, the delivery of

possession was held to be not done in a proper manner, for two

reasons:- (a) BSFC handed over the possession without any

proper measurement or demarcation, thereby creating uncertainty

as to the extent of the land transferred i.e., whether it included

unmortgaged part of the property or not; and (b) possession was

delivered to the auction purchaser without receiving full auction

sale consideration.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 11

(c) Issue No.6: The suit was not barred by the law of constructive

res judicata. Although the High Court had permitted BSFC to

proceed with the sale of the mortgaged property, however, the

question as to whether they acted fairly, reasonably and in

accordance with law throughout the auction process remained

open for examination by the Trial Court.

(d) Issue Nos.3, 4 & 5: The said issues were not raised during the

hearing of the case, as such, the issue was decided in favour of the

borrower.

(e) Conclusion: The suit was decreed in part with costs. The

auction sale dated 18.03.1996 was set aside and consequently the

title and interest of the borrowers over the mortgaged property was

declared affirmatively. Delivery of the possession to the auction

purchaser was declared void and BSFC was directed to handover

possession of the suit premises to the borrowers within a period of

two months.

3.14. Assailing the judgment of the Trial Court, only BSFC preferred

First Appeal No.268 of 1999 and the auction purchaser filed First Appeal

No.272 of 1999, before the High Court, wherein the following points for

consideration were framed:

“(i) Whether the decisions of the co-ordinate Bench of this Court in

C.W.J.C. No. 6104 of 1990 operates as res-judicata or constructive res-

judicata in the present suit?

(ii) Whether the auction sale in question is in accordance with law?

(iii) Whether property in question was undervalued or the reserve price

was fixed on a lower side?

(iv) Whether the auction sale dated 18.03.1996 and delivery of

possession to the intervenor/defendant/appellant of the suit property is

according to law and in terms of Section 29 and 30 of the Act?

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(v) Whether the suit filed by unregistered firm is barred under Section

69(2) of the Partnership Act, 1932?”

Significantly, the borrowers accepted the findings of fact returned qua

Issue No.1 by either filing an appeal or raising the point in the appeal.

3.15. Both these first appeals were dismissed vide the common

impugned judgment and order dated 18.03.2025, wherein it was held as

under:

“42. The decision of this Court in writ jurisdiction is with regard to the

repayment of loan amount by the borrower and the present suit has been

filed for certain reliefs as well as setting aside auction sale in favour of

intervenor/appellant. The order of this Court is only with regard to the

mode of payment of loan amount. This Court had not decided finally

all issues involved in the present case. However, this Court vide order

dated 05.05.1998 passed in C.W.J.C. No. 3472 of 1997 had directed for

early disposal of Title Suit No. 39 of 1996. Moreover, this Court had

never stopped the proceedings of present Title Suit in view of order

passed in different writ proceedings while directing for speedy disposal

of Title Suit. The question of resjudicata or constructive resjudicata will

not apply in the present fact of the case. Therefore, the suit is not barred

by Principle of Resjudicata or Constructive Resjudicata.

…. … …

54. In the background of action/steps taken by the Corporation in the

auction sale proceedings, the Corporation has not filed any documents

which justifies the reserved prices of the Unit under Sale, no minutes of

meeting relating to auction purchase of the plaintiffs' Unit to show that

the auction sale property was duly assessed to secure optimum

realizable value of the property. The Corporation has completely failed

to prove its obligation before selling the property. … It appears from

the said exhibits that no auction sale took place on 18.03.1996 as per

advertisement dated 02.0.3.1996 (Exhibit-D). It is apparent that no

public auction took place on 18.03.1996. The auction was finalised in

the office of the Managing Director of the said Corporation on

03.04.1996 … The sale order (Exhibit-C/6) bearing Memo No. 807

dated 10.05.1996 was issued by the Financial Corporation. On that

basis, the Unit in question was taken into possession on 03.08.1996

without making payment of the balance cash consideration money as

required under the advertisement dated 06.03.1996. The manner in

which the sale has been conducted (Exhibit-D and Exhibit-C/4) and sale

order (Exhibit-C/6) was passed, it appears that the Corporation,

respondent nos. 3 and 4 (First Appeal No. 272 of 1999) acted unfairly

and contrary to the advertisement adversely affecting the interest of the

plaintiff/respondents in selling the Unit contrary to their own … office

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order dated 01.08.1994 for OTS scheme. However, the

plaintiff/respondents had already paid Rs. 14,98,996/- (Exhibit-H,

ledger of the Corporation) out of loan advanced of Rs. 11,65,000/-. The

mortgaged property measuring an area of 5 kathas and its building were

sold at a very small price without assessing the value of the property.

…. … …

59. In view of the above, the auction sale on 18.03.1996 pursuant to

tender notice dated 02.03.1996 is without finalizing the reserve price of

the mortgage unit. It is apparent from the record that there is no

assessment of valuation of mortgage property on record and also DW-

3 (Branch Manager) admitted that the mortgage property was not

assessed by any approved Valuer. It is also apparent from the record

that the reserve price was fixed on the basis of outstanding dues on the

mortgage which is not the real value of the suit property. However,

registered/approved Valuer assessed the property in question at Rs.

76,12,543/-. The corporation has failed to do so. The substantial injury

to the plaintiff/respondents would amount to material irregularity and

ultimately vitiates the subsequent proceeding. …

…. … …

62. The bar must apply to a suit for enforcement of right arising from a

contract entered into by the unregistered firm with a 3

rd

party in the

course of business dealing with such 3

rd

party. If the unregistered firm

is a party or has not entered in connection with the business of

unregistered firm with a 3

rd

party, the bar of Section

69(2) will not apply. In the present case, the contract between plaintiffs

and defendant corporation was not one entered into by the unregistered

firm as in the course of its business dealing with the defendants so

viewed, the bar of Section 69(2) cannot apply to the suit filed by the

plaintiff/respondents.

63. In the light of the narrative and discussions above, in my opinion

the auction sale is bad in law. The tender notice published in the

newspaper without taking the possession of the unit by the corporation

is in violation of the procedure. It is also evident from the material on

record that the reserve price was fixed without assessment of valuation

of the suit property. No approved Valuer has submitted any report with

regard to the value of the property. The unit in question was sold only

against the due in favour of corporation. The auction sale dated

18.03.1996 was not done on that day, the sale order was issued by the

Managing Director on the basis of negotiations with the appellant

intervenor/defendant which is against the spirit and purpose of auction.”

(emphasis supplied)

3.16. Aggrieved thereof, both BSFC in SLP(C) Nos.16552-16553 of

2025 and the auction purchaser represented by his legal heirs in SLP(C)

No.24073 of 2025 have preferred appeals before us.

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SUBMISSIONS

4. The appellant, BSFC, has submitted that the borrowers who are habitual

defaulters have perpetually failed to honour their commitments and contractual

obligations. Despite repeated notices and opportunities being given to them, the

outstanding dues remained unpaid; since the borrowers have consistently

defaulted in the past, hence they cannot claim parity with the auction purchaser,

seek up financial accommodation; they have failed to avail any of the numerous

opportunities extended to them to discharge their liability. In such circumstances,

BFSC was fully justified in invoking its statutory powers under Section 29 of the

SFC Act and proceeding with the sale of the mortgaged property in accordance

with the statutory scheme.

5. The auction purchaser, adding to the submissions of BSFC, have contended

that they are the bona fide purchasers of the suit property who, upon payment of

the entire auction sale consideration, which fact stood acknowledged vide order

dated 25.07.1996 passed by the High Court, have acquired a rightful title and

possession over the suit property; also, that they have been in possession for

nearly three decades. The principal grounds of challenge raised are that: (a) The

title suit was barred by the principles of acquiescence, res judicata, as also by the

bar operating u/s 69(2) of the Partnership Act, 1932; (b) The borrower’s right of

redemption of property stood extinguished upon the publication of the auction

notice. Despite being granted ample opportunities by BSFC and the High Court,

the borrowers failed to discharge their liability and remained a recalcitrant

defaulter. Reliance is placed on Orissa State Financial Corpn. v. Hotel

Jogendra

8

and M. Rajendran v. KPK Oils & Protiens India (P) Ltd.

9

; (c) The

8

(1996) 5 SCC 357.

9

(2026) 3 SCC 505.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 15

borrowers have repeatedly resorted to litigation with the sole object to delay the

recovery proceedings, thereby abusing and misusing the process of law; and

(d) Lastly, even assuming that certain procedural irregularities existed in the

conduct of the auction sale, the same cannot defeat substantive statutory rights,

particularly in the absence of any concrete proof of fraud or collusion. Reliance

has been placed on Patil Automation (P) Ltd. v. Rakheja Engineers (P) Ltd.

10

,

wherein this Court has reiterated that the procedural law is a handmaid of justice

and not its mistress.

6. Per contra, the borrowers have submitted that the High Court has rightly

affirmed the judgment of the Trial Court setting aside the auction sale. It is

contended that although BSFC possessed the statutory power to sell the

mortgaged property under Section 29 of the SFC Act, such power needs to be

exercised fairly, reasonably and in accordance with law. It is further submitted

that:

(a) BSFC acted arbitrarily and in collusion with the auction purchaser,

which was detrimental to the interest of the borrowers, inasmuch as – (i) no

public bidding took place on 18.03.1996 and the sale was ultimately

finalized on the basis of private negotiations done by the Managing Director

on 03.04.1996; (ii) prior to the publication of auction notice

correspondences, dated 13.02.1995 and 22.08.1995, had been exchanged

between BSFC and the auction purchaser concerning the proposed sale of

the mortgaged property, which raises serious apprehension of collusion and

a predetermined sale process; (iii) the mortgaged property was sold at an

undervalued price without calling for any valuation report; and (iv) despite

the borrowers having already repaid about Rs.16.50 Lakhs and expressing

willingness to deposit Rs.10 Lakhs as per the terms of the auction, BSFC

10

(2022) 10 SCC 1.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 16

had given preference to the auction purchaser and extended financial

accommodation to them by permitting them to pay auction consideration in

instalments while denying similar relief to the borrowers;

(b) The principle of res judicata will not apply in the facts of the present

case as the orders passed by the High Court in CWJC No.6104 of 1990 or

CWJC No.3472 of 1997 did not adjudicate upon the issue pertaining to the

validity of the auction sale, which forms the subject matter of the present

title suit; and

(c) The Courts below rightly held that the present suit was not barred by

Section 69(2) of the Partnership Act 1932, since the borrowers had not

sought enforcement of a contract entered with a third party in connection

with its business. Reliance was placed on Shiv Developers v. Aksharay

Developers

11

and Purushottam v. Shivraj Fine Arts Litho Works

12

.

OUR VIEW

7. We have heard the learned senior counsel(s) appearing for the parties and

perused the material placed on record. The sole issue that arises for our

consideration is whether the Courts below erred in setting aside the auction sale,

dated 18.03.1996, conducted by BSFC under Sections 29 and 30 of the SFC Act.

8. For ready reference, Sections 29 and 30 of the SFC Act 1951 reads as

follows:

“29. Rights of Financial Corporation in case of default.—(1) Where any

industrial concern, which is under a liability to the Financial Corporation under

an agreement, makes any default in repayment of any loan or advance or any

instalment thereof [or in meeting its obligations in relation to any guarantee given

by the Corporation] or otherwise fails to comply with the terms of its agreement

with the Financial Corporation, the Financial Corporation shall have the [right to

take over the management or possession or both of the industrial concerns], as

11

(2022) 13 SCC 772.

12

(2007) 15 SCC 58.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 17

well as the [right to transfer by way of lease or sale] and realise the property

pledged, mortgaged, hypothecated or assigned to the Financial Corporation.

(2) Any transfer of property made by the Financial Corporation, in exercise of its

powers *** under sub-section (1), shall vest in the transferee all rights in or to the

property transferred [as if the transfer] had been made by the owner of the

property.

(3) The Financial Corporation shall have the same rights and powers with respect

to goods manufactured or produced wholly or partly from goods forming part of

the security held by it as it had with respect to the original goods.

[(4) [Where any action has been taken against an industrial concern] under the

provisions of sub-section (1), all costs, [charges and expenses which in the opinion

of the Financial Corporation have been properly incurred] by it [as incidental

thereto] shall be recoverable from the industrial concern and the money which is

received by it *** shall, in the absence of any contract to the contrary, be held by

it in trust to be applied firstly, in payment of such costs, charges and expenses and,

secondly, in discharge of the debt due to the Financial Corporation, and the residue

of the money so received shall be paid to the person entitled thereto.]

(5) [Where the Financial Corporation has taken any action against an industrial

concern] under the provisions of sub-section (1), the Financial Corporation shall

be deemed to be the owner of such concern, for the purposes of suits by or against

the concern, and shall sue and be sued in the name of [the concern].

30. Power to call for repayment before agreed period.—Notwithstanding

anything in any agreement to the contrary, the Financial Corporation may, by

notice in writing, require any industrial concern to which it has granted any loan

or advance to discharge forthwith in full its liabilities to the Financial

Corporation,—

(a) if it appears to the Board that false or misleading information in any material

particular was given by the industrial concern in its application for the loan or

advance; or

(b) if the industrial concern has failed to comply with the terms of its contract with

the Financial Corporation in the matter of the loan or advance; or

(c) if there is a reasonable apprehension that the industrial concern is unable to

pay its debts or that proceedings for liquidation may be commenced in respect

thereof;or

(d) if the property pledged, mortgaged, hypothecated or assigned to the Financial

Corporation as security for the loan or advance is not insured and kept insured by

the industrial concern to the satisfaction of the Financial Corporation or

depreciates in value to such an extent that, in the opinion of the Board, further

security to the satisfaction of the Board should be given and such security is not

given; or

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 18

(e) if, without the permission of the Board, any machinery, plant or other

equipment, whether forming part of the security or otherwise, is removed from the

premises of the industrial concern without being replaced; or

(f) if for any reason it is necessary to protect the interests of the Financial

Corporation.”

9. A perusal of Section 29 of the SFC Act reveals that it provides the financial

corporation, inter alia, with right to sell the assets of the industrial concern and

realize the property pledged, mortgaged, hypothecated or assigned to it. This right

accrues when the industrial concern, which is under a liability to the financial

corporation under an agreement, makes any default in repayment of any loan or

advance or any instalment thereof, or in meeting its obligations as envisaged in

Section 29. A three-Judge bench of this Court, in Haryana Financial Corpn. v.

Jagdamba Oil Mills

13

, has succinctly explained the object and scope of this

Section in the following terms:

“6. The Corporation as an instrumentality of the State deals with public money.

There can be no doubt that the approach has to be public-oriented. It can operate

effectively if there is regular realization of the instalments. While the Corporation

is expected to act fairly in the matter of disbursement of the loans, there is

corresponding duty cast upon the borrowers to repay the instalments in time,

unless prevented by insurmountable difficulties. Regular payment is the rule and

non-payment due to extenuating circumstances is the exception. If the repayments

are not received as per the scheduled time-frame, it will disturb the equilibrium of

the financial arrangements of the Corporations. They do not have at their disposal

unlimited funds. They have to cater to the needs of the intended borrowers with

the available finance. Non-payment of the instalment by a defaulter may stand in

the way of a deserving borrower getting financial assistance.

… … …

8. … While not insisting upon the borrower to honour the commitments

undertaken by him, the Corporation alone cannot be shackled hand and foot in the

name of fairness.

9. In matters like the present one, fairness cannot be a one-way street.

Corporations borrow money from the Government or other Financial

Corporations and are required to pay interest thereon. Where the borrower has no

genuine intention to repay and adopts pretexts and ploys to avoid payment, he

cannot make the grievance that the Corporation was not acting fairly, even if

requisite procedures have been followed.

… … …

13

(2002) 3 SCC 496.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 19

13. The fairness required of the Corporations cannot be carried to the extent of

disabling them from recovering what is due to them. The matter can be looked at

from another angle. The Corporation is an independent autonomous statutory

body having its own constitution and rules to abide by, and functions and

obligations to discharge. As such in the discharge of its functions, it is free to act

according to its own light. The views it forms and decisions it takes are on the

basis of the information in its possession and the advice it receives and according

to its own perspective and calculations. Unless its action is mala fide, even a

wrong decision by it is not open to challenge. It is not for the courts or a third

party to substitute its decision, however, more prudent, commercial or

businesslike it may be, for the decision of the Corporation. As was observed by

this Court in U.P. Financial Corpn. v. Naini Oxygen & Acetylene Gas

Ltd. [(1995) 2 SCC 754] in commercial matters the courts should not risk their

judgments for the judgments of the bodies to whom that task is assigned. As was

rightly observed by this Court in Karnataka State Financial Corpn. v. Micro Cast

Rubber & Allied Products (P) Ltd. [(1996) 5 SCC 65 : JT (1996) 6 SC 37] in the

matter of action by the Corporation in exercise of the powers conferred on it under

Section 29 of the Act, the scope of judicial review is confined to two

circumstances i.e. (a) where there is statutory violation on the part of State

Financial Corporation, or (b) where State Financial Corporation acts unfairly i.e.

unreasonably. … Similarly, the courts other than the High Courts are not to

interfere with action under Section 29 of the Act unless the aforesaid two

situations exist.”

(emphasis supplied)

9.1. In U.P. Financial Corpn. v. Gem Cap (India) (P) Ltd.

14

, this Court

held that the fairness required of the corporation cannot be carried to the

extent of disabling it from recovering what is due to it. It was observed that:

“10. It is true that the appellant-corporation is an instrumentality of the

State created under the State Financial Corporations Act, 1951. The said

Act was made by the Parliament with a view to promote

industrialisation of the States by encouraging small and medium

industries by giving financial assistance in the shape of loans and

advances, repayable within a period not exceeding 20 years from the

date of loan. We agree that the corporation is not like an ordinary

money-lender or a Bank which lends money. It is a lender with a

purpose — the purpose being promoting the small and medium

industries. At the same time, it is necessary to keep certain basic facts

in view. The relationship between the corporation and the borrower is

that of creditor and debtor. The corporation is not supposed to give

loans once and go out of business. It has also to recover them so that it

can give fresh loans to others. The corporation no doubt has to act

within the four corners of the Act and in furtherance of the object

14

(1993) 2 SCC 299.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 20

underlying the Act. But this factor cannot be carried to the extent of

obligating the corporation to revive and resurrect every sick industry

irrespective of the cost involved. Promoting industrialisation at the cost

of public funds does not serve the public interest; it merely amounts to

transferring public money to private account. The fairness required of

the corporation cannot be carried to the extent of disabling it from

recovering what is due to it. While not insisting upon the borrower to

honour the commitments undertaken by him, the corporation alone

cannot be shackled hand and foot in the name of fairness. Fairness is

not a one way street, more particularly in matters like the present one.

The above narration of facts shows that the respondents have no

intention of repaying any part of the debt. They are merely putting

forward one or other ploy to keep the corporation at bay. Approaching

the courts through successive writ petitions is but a part of this game.

Another circumstance. These corporations are not sitting on King

Solomon's mines. They too borrow monies from Government or other

financial corporations. They too have to pay interest thereon. The

fairness required of it must be tempered — nay, determined, in the light

of all these circumstances. Indeed, in a matter between the corporation

and its debtor, a writ court has no say except in two situations: (1) there

is a statutory violation on the part of the corporation or (2) where the

corporation acts unfairly i.e., unreasonably. While the former does not

present any difficulty, the latter needs a little reiteration of its precise

meaning. What does acting unfairly or unreasonably mean? Does it

mean that the High Court exercising its jurisdiction under Article 226

of the Constitution can sit as an appellate authority over the acts and

deeds of the corporation and seek to correct them? Surely, it cannot be.

That is not the function of the High Court under Article 226. Doctrine

of fairness, evolved in administrative law was not supposed to convert

the writ courts into appellate authorities over administrative authorities.

The constraints — self-imposed undoubtedly — of writ jurisdiction still

remain. Ignoring them would lead to confusion and uncertainty. The

jurisdiction may become rudderless.”

(emphasis supplied)

9.2. In S.J.S. Business Enterprises (P) Ltd. v. State of Bihar

15

, this

Court held that the reasonableness of the action of the Financial Corporation

under Section 29 of the SFC Act should be tested against the dominant

consideration to secure the best price. It was held as under:

“17. … It is axiomatic that the statutory powers vested in State financial

corporation under the State Financial Corporations Act, must be exercised

bona fide. The presumption that public officials will discharge their duties

honestly and in accordance with the law may be rebutted by establishing

15

(2004) 7 SCC 166.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 21

circumstances which reasonably probabilise the abuse of that power. In

such event it is for the officer concerned to explain the circumstances

which are set up against him. If there is no credible explanation

forthcoming the court can assume that the impugned action was improper.

(See Pannalal Binjraj v. Union of India [AIR 1957 SC 397] , AIR at p.

409.) Doubtless some of the restrictions placed on State financial

corporations exercising their powers under Section 29 of the State

Financial Corporations Act, as prescribed in Mahesh Chandra v. Regional

Manager, U.P. Financial Corpn. [(1993) 2 SCC 279] are no longer in

place in view of the subsequent decision in Haryana Financial

Corpn. v. Jagdamba Oil Mills [(2002) 3 SCC 496] . However, in

overruling the decision in Mahesh Chandra [(1993) 2 SCC 279] this Court

has affirmed the view taken in Chairman and Managing Director,

SIPCOT v. Contromix (P) Ltd. [(1995) 4 SCC 595] and said that in the

matter of sale under Section 29, State financial corporations must act in

accordance with the statute and must not act unfairly i.e. unreasonably. If

they do, their action can be called into question under Article 226.

Reasonableness is to be tested against the dominant consideration to secure

the best price for the property to be sold.

“This can be achieved only when there is a maximum public

participation in the process of sale and everybody has an

opportunity of making an offer. Public auction after adequate

publicity ensures participation of every person who is interested

in purchasing the property and generally secures the best price.”

(SCC p. 601, para 12)

18. Adequate publicity to ensure maximum participation of bidders in turn

requires that a fair and practical period of time must be given to purchasers

to effectively participate in the sale. Unless the subject-matter of sale is of

such a nature which requires immediate disposal, an opportunity must be

given to the possible purchaser who is required to purchase the property

on “as-is-where-is basis” to inspect it and to give a considered offer with

the necessary financial support to deposit the earnest money and pay the

offered amount, if required.”

(emphasis supplied)

9.3. In Karnataka State Industrial Investment & Development Corpn.

Ltd. v. Cavalet India Ltd.

16

, laid down the following legal principles

governing the scope of Section 29 of the SFC Act:

“19. From the aforesaid, the legal principles that emerge are:

(i) The High Court while exercising its jurisdiction under Article 226 of

the Constitution does not sit as an appellate authority over the acts and

deeds of the Financial Corporation and seek to correct them. The doctrine

16

(2005) 4 SCC 456.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 22

of fairness does not convert the writ courts into appellate authorities over

administrative authorities.

(ii) In a matter between the Corporation and its debtor, a writ court has

no say except in two situations:

(a) there is a statutory violation on the part of the Corporation, or

(b) where the Corporation acts unfairly i.e. unreasonably.

(iii) In commercial matters, the courts should not risk their judgments for

the judgments of the bodies to which that task is assigned.

(iv) Unless the action of the Financial Corporation is mala fide, even a

wrong decision taken by it is not open to challenge. It is not for the courts

or a third party to substitute its decision, however, more prudent,

commercial or businesslike it may be, for the decision of the Financial

Corporation. Hence, whatever the wisdom (or the lack of it) of the

conduct of the Corporation, the same cannot be assailed for making the

Corporation liable.

(v) In the matter of sale of public property, the dominant consideration is

to secure the best price for the property to be sold and this could be

achieved only when there is maximum public participation in the process

of sale and everybody has an opportunity of making an offer.

(vi) Public auction is not the only mode to secure the best price by

inviting maximum public participation, tender and negotiation could also

be adopted.

(vii) The Financial Corporation is always expected to try and realise the

maximum sale price by selling the assets by following a procedure which

is transparent and acceptable, after due publicity, wherever possible and

if any reason is indicated or cause shown for the default, the same has to

be considered in its proper perspective and a conscious decision has to

be taken as to whether action under Section 29 of the Act is called for.

Thereafter, the modalities for disposal of the seized unit have to be

worked out.

(viii) Fairness cannot be a one-way street. The fairness required of the

Financial Corporations cannot be carried to the extent of disabling them

from recovering what is due to them. While not insisting upon the

borrower to honour the commitments undertaken by him, the Financial

Corporation alone cannot be shackled hand and foot in the name of

fairness.

(ix) Reasonableness is to be tested against the dominant consideration to

secure the best price.

20. True, the exercise of the right by a Financial Corporation under

Section 29 of the Act should be fair and reasonable. Ultimately, whether

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 23

the action of the Financial Corporation is bona fide or not would depend

on the facts and circumstances of each case.”

(emphasis supplied)

9.4. This Court, in Punjab Financial Corpn. v. Surya Auto Industries

17

,

while holding that the Financial Corporations being an instrumentality of the

State is expected to act fairly and reasonably qua its borrowers/debtors, but

it is not expected to flounder public money for promoting private interests,

held as under:

“21. The proposition of law which can be culled out from the decisions

noted above is that even though the primary function of a corporation

established under Section 3 of the Act is to promote small and medium

industries in the State, but it is not obliged to revive and resurrect every

sick industrial unit dehors the financial implications of such exercise. The

Corporation is not supposed to give loans and refrain from taking action

for recovery thereof. Being an instrumentality of the State, the Corporation

is expected to act fairly and reasonably qua its borrowers/debtors, but it is

not expected to flounder public money for promoting private interests.

22. The relationship between the Corporation and borrower is that of

creditor and debtor. The Corporation is expected to recover the loans

already given so that it can give fresh loans/financial assistance to others.

The proceedings initiated by the Corporation and action taken for recovery

of the outstanding dues cannot be nullified by the courts except when such

action is found to be in violation of any statutory provision resulting in

prejudice to the borrower or where such proceeding/action is shown to be

wholly arbitrary, unreasonable and unfair. The court cannot sit as an

appellate authority over the action of the Corporation and substitute its

decision for the one taken by the Corporation.”

(emphasis supplied)

10. Keeping in view the above exposition of law pertaining to Section 29 of

the SFC Act, we find it difficult to sustain the findings returned by the Courts

below, holding that the auction sale conducted by BSFC was unfair,

unreasonable, or arbitrary. This Court has consistently held that fairness is not a

one-way street. Whether the action taken by a financial corporation was bona fide

17

(2010) 1 SCC 297.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 24

and reasonable or not would depend on the surrounding circumstances. It is in

this context that the following conduct of the borrowers assumes significance:

(a) Firstly, the borrowers miserably failed to discharge their obligation

to repay the loan. BSFC repeatedly called upon them to clear their

outstanding dues, however, the borrowers failed to do so. Rather than

honouring their obligations, despite orders passed by the High Court, they

chose to initiate successive rounds of litigation, including filing multiple

writ petitions, spread over a period of eight years without any success, and

a civil suit to obstruct the recovery process.

(b) Secondly, in CWJC No.6104 of 1990, the High Court settled the

matter by mutual consent and, vide order dated 06.11.1990, fixed a detailed

repayment schedule. However, the borrowers failed to adhere to it and

deposited only a fraction of the required amount. Their subsequent

application seeking extension of time was dismissed by the High Court, vide

order dated 11.07.1991, wherein it was specifically observed that the

borrower’s conduct did not entitle them to any further indulgence. Although

liberty was reserved to approach BSFC for settlement, but the same was

never availed.

(c) Thirdly, the position became even more evasive when BSFC issued

notice dated 27.09.1994 under Section 29 & 30 of the SFC Act. The said

notice called upon the borrowers to discharge their liability in full, within

three months. They were also informed that, upon failure to do so, BSFC

would proceed to sell the mortgaged property through public auction,

negotiation or any other mode permissible in law. Pertinently, the borrowers

neither challenged the legality of the said notice nor complied with its terms,

thereby allowing the recovery process to reach the stage of auction.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 25

(d) Lastly, even after the auction process had commenced, BSFC, vide

letter dated 17.04.1996, offered the borrowers another opportunity to retain

the mortgaged asset by matching the terms of the tender and making

payment in accordance therewith within 21 days. Admittedly, the

respondent(s) did not respond to this notice even though they falsely pleaded

non-receipt thereof. Instead, they approached the High Court by filing a writ

petition, being CWJC No.6641 of 1996, seeking relief by way of injunction.

It was only in those proceedings that an undertaking was furnished to deposit

Rs.10 Lakhs, as per the terms of the auction but never showed the colour of

money. In our considered view, such belated willingness cannot be equated

with a genuine effort to discharge their liability; had the borrowers been

genuinely interested in retaining the property, they could have matched the

terms of the auction and complied with it.

11. The aforesaid circumstances, when viewed cumulatively, leaves little room

for doubt that BSFC did not act unreasonably or in an unfair manner. On the

contrary, the record reveals that several opportunities were afforded to the

borrowers to discharge their liability and retain the mortgaged assets. It was only

when the borrowers repeatedly defaulted in discharging their obligation that

BSFC proceeded to sell the mortgaged property, in exercise of its power under

Section 29 of the SFC Act. The fairness required of a financial corporation cannot

be carried to the extent of disabling it from recovering what is due to them. As

rightly held in Jagdamba Oil Mills (supra), while not insisting upon the borrower

to honour the commitments undertaken by him, the Corporation alone cannot be

shackled hand and foot, in the name of fairness.

12. The Courts below have concurrently decreed the suit of the borrowers

holding that the action taken by BSFC was unreasonable and unfair, primarily on

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 26

the ground that the mortgaged property was not valued prior to being put to

auction. In the peculiar facts of the present case, we are unable to agree that such

omission, by itself, rendering the auction sale to be set aside. It is pertinent to note

that the borrowers never objected to the basis of which the property was proposed

to be sold at the time. The sale advertisement dated 02.03.1996 and letter dated

17.04.1996 which called upon the borrowers to match the terms of the offer,

clearly stated that the auction consideration would be equivalent to BOS, i.e., the

balance outstanding amount as on the date of handing over possession of the unit

or execution and registration of the sale deed, whichever is earlier. More

importantly, the borrowers themselves sought to retain the property on the very

same terms that were offered to the auction purchaser, which fact is evident from

order dated 17.07.1996 passed in CWJC No.6641 of 1996 wherein they

undertook to deposit Rs. 10 lakhs. Having tried to avail the benefit of those

specific terms, it does not lie in their mouth at a subsequent stage to contend that

the absence of a valuation report, by itself, vitiated the entire process and caused

them prejudice.

13. Even otherwise, the fairness of auction sale cannot be examined in isolation

from the conduct of borrowers themselves. Undisputedly the borrowers had taken

a loan to set up an industrial unit and had remained in persistent default since

1988 onwards. Despite repeated reminders and opportunities afforded by BSFC,

no meaningful effort was made by the borrowers to discharge their liability. Left

with no other option, BSFC issued 1

st

notice for auction on 24.11.1988 proposing

to take over and sell the mortgaged property. The borrowers thereupon

approached the High Court and conceded to regularize their account leading to

the withdrawal/quashing of the notice dated 24.11.1988. However, the matter did

not rest there. The borrowers continued to commit defaults, which led to the

issuance of a similar subsequent auction notice on 27.09.1994. For more than

eight years, the borrowers remained persistent defaulters and forced BSFC to

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 27

multiple litigation. Thus, in our considered view, the action so taken was fully in

accordance with the statutory scheme and cannot be categorized as arbitrary or

unreasonable.

14. Further, we find it untenable to accept the grievance of the borrowers that

BSFC acted unfairly and arbitrarily by permitting the auction purchaser to pay

the auction sale consideration in instalments, while denying similar

accommodation to the borrowers. It is well settled that a financial corporation is

an independent autonomous body having its own functions and obligations to

discharge. As such in the discharge of its functions, it is free to act according to

its own right and take commercial decisions based on the information in its

possession. [See: U.P. Financial Corpn. v. Naini Oxygen & Acetylene Gas

Ltd.

18

] The borrowers, in the present case, are recalcitrant defaulters who had

repeatedly failed to discharge their liability. Hence, they cannot claim parity with

the auction purchaser. In such circumstances, the decision of BSFC not to extend

similar financial accommodation to the borrowers cannot be held to be arbitrary

or mala fide, but must be viewed as a commercial decision taken in the ordinary

course of business to recover its dues. In any event such a plea is fallacious for as

is recorded in the order dated 25.07.1996 passed by the High Court that the entire

sale consideration stood deposited by the auction purchaser. Between 18.03.1996,

the date of auction sale, and 14.05.1996, the date of completion of sale, the option

of matching up was given to the borrowers.

15. The conduct of the borrowers throughout suggests a consistent attempt to

delay the recovery proceedings by initiating successive rounds of litigation. The

borrowers first challenged the notification of sale dated 24.11.1988 in CWJC

No.6104 of 1990; thereafter, upon default, sought extension of time to comply

18

(1995) 2 SCC 754.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 28

with the repayment schedule; instituted Title Suit No.39/1996; filed CWJC

No.6641 of 1996; and thereafter filed CWJC No.3472 of 1997. Such conduct

shows that the borrowers continued to litigate at every stage while the outstanding

dues remained unpaid, which was nothing but an abuse of process of law. At this

juncture, it would be germane to refer this Court’s observation in Orissa State

Financial Corpn. v. Hotel Jogendra (supra), wherein it was held that – “Public

money is meant to be recycled to all the needy entrepreneurs. The dilatory tactics

defeat the public policy and the court process becomes an instrument of abuse.

Court would protect only honest and sincere litigants.” These observations apply

with full force to the facts of the present case. In our considered opinion, the

borrowers never made any meaningful effort to discharge their liability despite

being offered numerous opportunities. The conduct of the borrowers of

embarking upon successive rounds of litigation, therefore, is one which

disentitles them from claiming any equitable relief.

16. There is yet another reason why the auction sale ought not to have been set

aside. Recently, a coordinate Bench of this Court in Celir LLP v. Sumati Prasad

Bafna

19

, underscored the well settled legal position that once an auction is

confirmed, Courts must ordinarily refrain from setting it aside unless there is any

material irregularity or if such sale was vitiated by any fraud or collusion. [See

also: Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product

(Gujarat) Ltd.

20

; Ram Kishun v. State of U.P.

21

; PHR Invent Educational

Society v. UCO Bank

22

] In the present case, the borrowers have failed to establish

any fraud or collusion between BSFC and the auction purchaser. The

correspondences dated 13.02.1995 and 22.08.1995, relied upon by the borrowers,

19

2024 SCC OnLine SC 3727.

20

(2008) 9 SCC 299.

21

(2012) 11 SCC 511.

22

(2024) 6 SCC 579.

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 29

exchanged between the auction purchaser and BSFC prior to the publication of

the advertisement of the auction sale, does not establish any fraud or collusion.

At best, the said letters merely indicate that the auction purchaser was interested

in buying the suit property, well that about all. Pursuant to a public advertisement,

the auction purchasers submitted their bid. Transaction is not cloaked in secrecy.

In fact, there were two borrowers who participated in the private negotiations.

Mere suspicion, in the absence of any cogent material, cannot lead to any

inference of collusion. Pertinent here is to note that the auction process

culminated in the execution of an agreement of sale-cum-payment of loan dated

07.06.1996 and the auction purchaser has remained in possession of the suit

property for nearly three decades. The rights that have crystallized pursuant to a

statutory sale cannot be lightly unsettled after such a long lapse of time,

particularly in the absence of any established fraud, collusion or material

illegality.

17. We are, however, unable to agree with the submissions advanced by the

appellant(s) that the suit itself was barred by the principle of res judicata or by

Section 69(2) of the Partnership Act. A perusal of the record confirms that the

validity of the auction sale was never directly or substantially in issue before the

High Court in CWJC No.6104 of 1990 and CWJC No.3472 of 1997. Likewise,

the present suit was essentially filed against the statutory action taken by BSFC

and was not seeking enforcement of any contractual right against a third party.

Hence, neither the bar of res judicata nor the statutory bar contained in Section

69(2) of the Indian Partnership Act would operate in the facts of the present case.

To that limited extent, we affirm the findings returned by the Courts below.

18. In view of the foregoing discussion, we are of the considered view that the

Courts below erred in setting aside the auction sale dated 18.03.1996. The

findings that the sale was vitiated on account of unfairness, arbitrariness or

C.A.NOS.…./2026@SLP © NO. 16552-53/2025 30

illegality cannot be sustained in law and are accordingly set aside. Therefore, the

appeals are allowed accordingly. The impugned judgment and order dated

18.03.2025 passed by the High Court of Judicature at Patna in First Appeal

No.268 of 1999 and First Appeal No.272 of 1999, as well as the judgment and

decree dated 19.05.1999 passed by the Trial Court in Title Suit No.39/1996, are

set aside to the aforesaid extent.

Pending application(s), if any, shall stand disposed of.

……….……………………………………J.

(SANJAY KAROL)

…………………………………………….J.

(NONGMEIKAPAM KOTISWAR SINGH )

NEW DELHI;

JULY 9, 2026