The Andhra Pradesh High Court has held that an auction sale conducted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) cannot proceed when the property is subsequently attached by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA) and directed refund of the amount deposited by the auction purchaser along with interest.
The bench of Chief Justice Dhiraj Singh Thakur and Justice R. Raghunandan Rao has observed that the provisions of SARFAESI Act namely Section 26-E and Section 31-B of the DRT Act give priority to the dues of the secured creditors as opposed to the dues of the State. However, the question would still remain as to whether the claim of the State, under the Prevention of Money Laundering Act can be treated to be a debt of the Government.
The bench noted that under the amended provisions of the Registration Act (Section 22-C as applicable in Andhra Pradesh), no transfer or registration of property is permissible when such property is under attachment by a competent authority. Consequently, the Court held that the auction process had effectively become unworkable and legally untenable.
The dispute arose after a bank, having classified certain loan accounts as non-performing assets, initiated recovery proceedings under the SARFAESI Act and conducted an e-auction on July 12, 2024. The auction purchaser emerged successful with a bid of ₹3.47 crore and deposited ₹87.3 lakh as part consideration. However, before completion of the transaction, the property was provisionally attached by the Enforcement Directorate on July 30, 2024 under the PMLA.
Despite the attachment, the bank insisted that the purchaser pay the remaining balance, warning of forfeiture of the deposited amount. Meanwhile, the Sub-Registrar also confirmed that the property stood electronically blocked due to the ED attachment, making registration impossible.
Importantly, while the bank argued that its rights as a secured creditor under Section 26-E of the SARFAESI Act would take precedence over government claims, the Court chose not to adjudicate the issue of priority between SARFAESI and PMLA. Instead, it confined its decision to the practical impossibility of completing the transaction in light of the subsisting attachment.
There were two claims over the said property. The first claim is the claim of the bank on the ground that it had been mortgaged to the bank and that the bank was entitled to sell the property, under the
provisions of the SARFAESI Act, for recovery of its dues. The second claim is the claim of the Enforcement Directorate, under the provisions of the Prevention of Money Laundering Act, 2002 inasmuch as the said property is said to be “proceeds of the crime” which are liable for attachment and confiscation.
The Court emphasized that it would be unjust to compel the auction purchaser to wait indefinitely after having already paid a substantial amount, particularly when the legal status of the property remained uncertain.
Relying on the Supreme Court’s decision in Govind Kumar Sharma v. Bank of Baroda, the High Court set aside the auction sale and directed the bank to refund ₹87.3 lakh along with interest at 12% per annum from the date of payment until repayment. The Court further directed that the refund be completed within four weeks.
Case Details
Case Title: Darabattula Nagaraju Versus The Union Of India and Others
Citation: JURISHOUR-982-HC-2026(AP)
Case No.: Writ Petition Nos.22598 & 22496 Of 2024
Date: 23/04/2026
Counsel For Petitioner: Leo Law Associates Llp
Counsel For Respondent: S Satyanarayana Moorthy
