In an important decision delivered on September 25, 2025, the Supreme Court of India, presided by Justices Sanjay Kumar and Alok Aradhe, addressed critical questions on the legality and procedural integrity of e-auction sales of leasehold properties.
The Apex court, in Delhi Development Authority v. Corporation Bank & Ors. [Civil Appeal No. 11269 of 2016], scrutinized the responsibilities of public authorities, banks and the rights of good faith auction purchasers, ultimately quashing a multi-crore e-auction conducted by the Debt Recovery Tribunal (DRT).
BACKGROUND OF THE CASE
The Appeal before the Supreme Court arose from a protracted dispute involving the Delhi Development Authority (DDA), Corporation Bank and an auction purchaser. In 2001, DDA allotted a valuable plot in Jasola, New Delhi, to Sarita Vihar Club on leasehold basis, with explicit conditions regarding mortgage and transfer. When the Club defaulted on a bank loan, the Bank initiated recovery proceedings before the DRT, culminating in an e-auction of the property.
Multiple communications, objections and writ petitions ensued, centering on whether the mortgage and subsequent auction were conducted within the legal framework governing leasehold public property and whether all stakeholders, including DDA, had been given a fair hearing. DDA consistently objected to the auction process, contending that statutory dues were outstanding and that the auction violated both the lease conditions and applicable statutory rules for public property disposal.
KEY LEGAL ISSUES
The Hon’ble Supreme Court, in this case, was called upon to decide:
- Whether the e-auction and subsequent sale of the leasehold property violated statutory conditions, specifically the requirement of prior written consent for mortgage from DDA under the lease deed;
- Whether the Recovery Officer and DRT complied with statutory rules in the proclamation and conduct of sale, especially regarding material disclosures to bidders;
- The rights and protections afforded to bona fide auction purchasers acting without fault.
- The jurisdiction of public authorities to enforce statutory dues and safeguard public interest in property transactions
COURT’S ANALYSIS AND FINDING
- Mortgage and Sale of Leasehold Property: The Supreme Court analyzed Clause 5b of the lease deed, which required written consent from the Lieutenant Governor before any mortgage or charge of the plot. The Court found that no such written consent had been obtained and that DDA’s objections regarding statutory dues were ignored both by the Bank and by the DRT. Crucially, the Recovery Officer failed to disclose DDA’s claims and the encumbrances in the sale proclamation, violating Rule 53 of the Second Schedule to the Income Tax Act, 1961 as well as relevant Recovery of Debts and Bankruptcy Act provisions.
- Compliance with Auction Sale Rules: The Judgment underscored the mandatory duty of the Recovery Officer to reveal all material facts affecting the auction, particularly statutory claims of the public authority. The failure to quantify DDA’s claim for “unearned increase” and other dues rendered the proclamation defective, vitiating the legitimacy of the auction.
- Applicability of Res Judicata: The Court clarified that withdrawal of an earlier writ petition did not bar subsequent challenges since the initial withdrawal was based on undertakings and did not result in adjudication on merits. The principles of res judicata therefore did not operate in the present context.
- Rights of Auction Purchaser: The Supreme Court held that the bona fide auction purchaser, having placed bids in good faith and deposited the full sale price, is entitled to restitution. The Court directed the Bank to refund the entire amount deposited, with interest at 9% per annum, reiterating the moral and legal imperative against unjust enrichment and protecting innocent third parties in judicial sales.
DIRECTIONS OF THE COURT
- The Supreme Court quashed and set aside the High Court’s order upholding the e-auction, the proclamation dated 27.09.2012, and all ensuing acts of sale and confirmation in favour of the auction purchaser.
- The Bank was directed to refund the auction purchaser’s deposit with interest within one month.
- The Court reaffirmed the importance of due process and statutory compliance by all parties, especially banks and public authorities, in the disposal of leasehold or public properties.
CONCLUSION
This Supreme Court ruling serves as a cautionary tale for banks, public authorities and auction purchasers involved in leasehold property transactions. It underlines the necessity for strict adherence to statutory conditions, transparency in auction processes and protection for bona fide third parties.
Most significantly, it reasserts the imperative of accountability in public property transactions, ensuring that procedural lapses do not jeopardize either public interest or the equitable rights of third parties, but that violations must not be condoned, or else public trust in institutional processes erodes. The Judgment marks a fresh benchmark in the development of law governing judicial sales and the powers of public authorities.
Soumen Dash
(Legal Associate)
The Indian Lawyer & Allied Services
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