Case Name: BIHAR STATE FINANCIAL CORPORATION & ANR. v BHUSHAN SINGH & ORS.
Petition No.: SLP (C) Nos. 16552-53 of 2025 
Neutral Citation: 2026 INSC 673
Date of Judgement: 09.07.2026
Coram: Hon’ble Mr. Justice Sanjay Karol and Hon’ble Mr. Justice Nongmeikapam Kotiswar Singh
Relevant Statutes & Provisions: Section 29, Section 30 of State Financial Corporations Act, 1951, Section 69(2) of Indian Partnership Act

INTRODUCTION
The Supreme Court in this case examined the validity of an auction sale conducted by the Bihar State Financial Corporation (BSFC) under Section 29 and Section 30 of the State Financial Corporations Act, 1951 (SFC Act). This case arose from a challenge by defaulting borrowers who wanted to set aside the auction of their mortgaged property on the grounds of alleged procedural irregularities and unfair treatment by the Corporation. The Court was called upon to determine whether the auction sale could be invalidated despite the borrower’s prolonged and repeated defaults in repaying the loan and their failure to avail multiple opportunities granted for regularization of the account. 

FACTS
The borrowers obtained financial assistance from the BSFC for establishing an industrial unit, BSFC initially sanctioned a loan of Rs 8.50 lakhs in 1982 and subsequently granted an additional loan of Rs 3.15 lakhs in 1984. To secure the loans, the borrowers deposited the title deeds of their land and building and created an equitable mortgage over the property. The borrowers defaulted in repayment after which BSFC issued a notice under Section 29 of SFC,1951. They approached Patna High Court through a writ, the Court granted them an opportunity to clear dues and permitted BSFC to proceed with sale of mortgaged assets in event of any default. The borrowers failed to comply and  BSFC published a sale advertisement in March 1996 inviting tenders where an auction purchaser emerged as the successful bidder. Before sale could finalise, the borrowers instituted a civil suit seeking a declaration that the auction sale was void. BSFC provided the borrowers another opportunity to retain property by matching terms offered by the bidder but borrowers failed to take it. BSFC then finalized the sale, executed the necessary sale documents, and handed over possession of the property to the auction purchaser. The Trial Court and High Court set aside the auction sale. Aggrieved by the same, BSFC and the auction purchaser approached the Supreme Court. 

ISSUES
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. 

ARGUMENTS OF THE PARTIES
The appellants argued that the borrowers were chronic defaulters who had repeatedly failed to repay the loan despite being given multiple opportunities by BSFC and High Court. They contended that the auction sale was conducted lawfully under Section 29 and Section 30 of SFCA,1951 after due notice and publicity. It was further argued that the borrowers had failed to prove any fraud or material irregularity in the auction process and that the Court wrongly interfered with BSFC’s statutory recovery powers. The borrowers contended that the auction sale was arbitrary, unfair because BSFC had not obtained a proper valuation of the property before conducting the sale. They argued that BSFC had discriminated against them by permitting the auction purchaser to pay the sale consideration in installments while denying similar accommodation to them. The borrowers therefore sought cancellation of the auction sale and restoration of their rights. 

JUDGMENT AND ANALYSIS
The Court first examined Section 29 and Section 30 of the  SFC Act which states the rights of BSFC in case of default and the power of financial corporations to call for repayment before agreed period, respectively. The Court, after examination, held that the auction sale was valid and was carried out in exercise of BSFC’s statutory powers. The Court noted that the borrowers had remained in continuous default since 1988 and had failed to comply with repayment schedules fixed by the High Court. Even after repeated notices and opportunities, they did not regularize their account. Thus, BSFC was justified in their actions, the Court also emphasized that Financial Corporations deal with public money and cannot be prevented from recovering dues merely because borrowers continue to seek indulgence. They relied heavily on Haryana Financial Corporation v. Jagdamba Oil Mills, (2002) 3 SCC 496 and U.P. Financial Corporation v. Gem Cap (India) Pvt. Ltd., (1993) 2 SCC 299, where it was held that fairness is not a one-way street and that while Financial Corporations must act fairly, borrowers are equally obligated to honour their repayment commitments. 

The Court disagreed with the Trial Court and High Court that the sale deed should be invalidated merely because no formal valuation report had been obtained before the auction. The Court observed that the borrowers never objected to the basis on which the property was sold when the auction process was underway. Also, when BSFC offered the borrowers an opportunity to retain the property by matching auction terms, they attempted to fail those terms. Having sought the benefit of auction, they could not later contend that the process was fundamentally defective due to absence of valuation. 

The Court also rejected the contention that BSFC acted unfairly by allowing the auction purchaser to pay the consideration in installments while refusing similar accommodation to the borrowers. It held that the borrowers were habitual defaulters who had repeatedly breached their obligations, whereas the auction purchaser stood on a different footing. The Court relied upon Karnataka State Industrial Investment & Development Corporation Ltd. v. Cavalet India Ltd., (2005) 4 SCC 456, wherein it was held that unless the action of the BSFC 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 business like it may be, for the decision of the Financial Corporations. The judgment further highlighted that whatever the wisdom (or the lack of it) of the conduct of the Corporation, the same cannot be assailed for making the Corporation liable.

The Court further held that borrowers had failed to establish any fraud or material illegality in the auction process. The exchange between BSFC and auction purchaser before official auction notice merely showed the purchaser’s interest in acquiring the property and did not establish any predetermined goal. The Court further observed that the borrowers had consistently adopted different tactics by filing multiple writ petitions, applications, and suits over several years without making any genuine effort to clear the outstanding dues. Such conduct shows that they never intended to pay dues and wanted to lock the public money indefinitely in a cycle of litigation. In support of this reasoning, the Court relied upon Orissa State Financial Corporation v. Hotel Jogendra, (1996) 5 SCC 357, which held that Courts should protect honest litigants and not permit dilatory tactics that frustrate recovery of public funds. 

CONCLUSION
The Supreme Court allowed the appeals and upheld the auction sale conducted by the BSFC, it held that the borrowers had remained persistent defaulters for several years and had failed to avail themselves numerous opportunities to repay the outstanding dues and retain the mortgaged property. It found that BSFC acted within its statutory powers under Section 29 and Section 30 of the SFC Act 1951, and there was no evidence of fraud or illegality in the auction process.

Source-