Bombay HC: SARFAESI Auction Buyer Protected Even If a Second Bank Claims the Same Flat

In a significant ruling for flat buyers in Maharashtra, the Bombay High Court has held that a SARFAESI auction purchaser who has obtained a registered sale certificate enjoys full security of title — and cannot be dispossessed by a second creditor bank claiming a competing charge on the same flat, even if that bank's mortgage was registered earlier.

Background

The case involved a Mumbai flat that had been mortgaged to two separate banks. When the first bank invoked SARFAESI proceedings and sold the flat at auction, the auction purchaser received a registered sale certificate. The second bank — which held a prior charge — then filed for eviction of the auction buyer, arguing its mortgage took precedence.

The court's ruling

The High Court dismissed the second bank's eviction proceedings. The court held that once a SARFAESI sale is completed and the sale certificate is registered, the auction purchaser acquires clear title. The second bank's remedy lies against the first bank (for distributing sale proceeds without settling the prior charge) — not against the innocent buyer who purchased at auction in good faith.

What this means for housing societies

• CHS committees must accept a valid SARFAESI sale certificate as proof of ownership and process membership transfer accordingly.
• A society cannot refuse NOC or membership to an auction buyer on the grounds that another creditor has raised a competing claim.
• Existing members who purchased flats at bank auctions are protected from eviction by third-party creditor disputes.
• Flat buyers at bank auctions should verify that the sale certificate is properly registered before taking possession.