When a bank auctions a property under the SARFAESI Act to recover its dues, the auction process has specific procedural requirements — including the payment of an Earnest Money Deposit (EMD) before the auction and 25% of the sale price on the day of the auction itself. What happens if an auction purchaser pays the full 25% on auction day but there is a shortfall in the EMD paid earlier? Can the bank cancel the sale on this technical ground? The Hon'ble Supreme Court has said no.

What the Court Held

Once an auction purchaser complies with the primary statutory requirement — depositing 25% of the sale price on the day of the auction — a mere shortfall in the Earnest Money Deposit paid before the auction is not sufficient to invalidate the sale. The 25% payment on auction day is the critical statutory compliance. A technical shortfall in EMD, in that context, becomes insignificant.

The Court set aside the interference with the auction sale certificate that had been issued in the purchaser's favour, restoring the validity of the auction.

The SARFAESI Auction Process — Key Requirements

Under the Security Interest (Enforcement) Rules, 2002, the auction process for SARFAESI sales requires:

The Court's ruling makes clear that of these requirements, the 25% payment on auction day is the most critical — and its compliance cures a technical EMD shortfall.

For Auction Purchasers Under SARFAESI

If your auction sale is being challenged or cancelled on the ground of an EMD shortfall — and you paid the full 25% on the auction day — this Supreme Court ruling directly protects your sale. File an application before the DRT or approach the High Court to restrain any action that seeks to invalidate the auction on this technical ground.

Practical Guidance

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If you are an auction purchaser: always ensure you pay the full 25% on the auction day itself — this is the non-negotiable statutory requirement. Any shortfall in EMD can be argued as curable if the 25% was duly paid.

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If you are a borrower trying to challenge a SARFAESI auction: an EMD shortfall alone is now a weaker ground of challenge if the 25% was paid on auction day. Focus instead on more substantive grounds — improper notice, valuation disputes, or procedural defects in the Section 13(2) demand.

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For banks conducting SARFAESI auctions: this ruling protects genuine auction purchasers from technical cancellations that serve no purpose other than to benefit the defaulting borrower. Document all payments received carefully.

Case Reference
Lakshmi Mohan (Dead) Through LRs. & Anr. v. M/S. Airtech Projects Engineers Pvt. Ltd. & Anr. | Hon'ble Justice Pamidighantam Sri Narasimha & Hon'ble Justice Alok Aradhe | August 2026 | Hon'ble Supreme Court of India

Frequently Asked Questions

Questions people commonly search on this topic

Can a SARFAESI auction be cancelled for EMD shortfall if 25% was paid on auction day? +
No. The Supreme Court has held that once the auction purchaser complies with the statutory requirement of depositing 25% of the sale price on the day of the auction, a mere shortfall in Earnest Money Deposit does not vitiate the sale. The 25% auction day payment is the primary statutory compliance.
What is the EMD in a SARFAESI auction? +
Earnest Money Deposit (EMD) is the deposit required from bidders before they can participate in a SARFAESI auction. It is typically a percentage of the reserve price. The EMD is adjusted against the 25% payment required on the day of the auction.
What happens if I don't pay the balance 75% after winning a SARFAESI auction? +
If the successful bidder fails to pay the balance 75% within 15 days (or the specified period), the bank can forfeit the EMD and 25% paid, and re-auction the property. The bidder loses their right to the property and the amount paid.
How can a borrower challenge a SARFAESI auction? +
A borrower can challenge a SARFAESI auction by filing a Section 17 application before the Debt Recovery Tribunal (DRT). Grounds include: improper notice under Section 13(2), incorrect valuation, procedural defects, pending litigation affecting title, or fraud in the auction process. An EMD shortfall alone, where 25% was paid on auction day, is now a weaker ground after this Supreme Court ruling.