Alternative Remedy Not Absolute Bar To Writ Petition In SARFAESI Matters Where Security Interest Itself Is Alleged To Be Founded On Fraud & Forgery: Delhi High Court

The Court held that a co-owner’s one-third undivided share in a Delhi property cannot be sold in an e-auction until the veracity of the loan documents is adjudicated by a competent court. It accepted that a private asset reconstruction company is not an instrumentality of the State under Article 12 of the Constitution of India, but found this was not decisive in the facts, since an assignee steps into the shoes of the assignor and cannot acquire a greater right.

A Single Judge Bench of Justice Jasmeet Singh observed, “…the existence of an efficacious alternative remedy is not an absolute bar to the exercise of jurisdiction under Articles 226 and 227 particularly where the proceedings impugned before the Court are alleged to be founded upon fraud and forgery and the very existence of the underlying security interest is under challenge”.

“Hence I am of the view that the undivided 1/3rd share of the petitioner in property cannot be permitted to be sold in e auction till the veracity of the loan documents is adjudicated by a competent court of jurisdiction”, it noted further.

Senior Advocate Vaibhav Gaggar appeared for the petitioner and Senior Advocate Rajiv Nayar appeared for the respondent.

The petitioner, Shashi R. Jatia, owns a one-third undivided share in property No. B-50, Gulmohar Park, New Delhi. The remaining two-thirds belongs to her sister-in-law, respondent No. 3. Five loan facilities totalling ₹14.96 crore were obtained from ICICI Bank by mortgaging the property, with the petitioner shown as co-applicant. She stated that her signatures were forged and that she learnt of the loans only in May 2021.

The Economic Offences Wing registered an FIR on January 28, 2022. Its status report of December 13, 2024 recorded that forensic examination found her signatures forged. The loans were assigned to Prudent ARC on September 25, 2024, which issued an e-auction notice on April 25, 2026.

Her civil suit before the Saket Courts was rejected under Order VII Rule 11 CPC, read with Section 34 of the SARFAESI Act, on June 09, 2023. Her appeal remains pending before the District Judge. She then filed the writ petition. The respondents objected on grounds of alternate remedy under Section 17, non-maintainability against a private entity, delay and laches, suppression of facts and a defective power of attorney.

Referring to Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, the Court held that where fraud is alleged against the secured creditor, civil court jurisdiction is not excluded by Section 34, and the remedy does not lie before the Debts Recovery Tribunal. Without examining the evidentiary value of the forensic and EOW reports, it found the allegations prima facie made out.

It observed that if the fraud is later proved, the recovery action would be without jurisdiction, and that an auction would create third-party rights and further litigation. It rejected acquiescence and laches, noting the petitioner acted promptly after learning of the loans and that her letter of June 29, 2021 did not admit authorising them. The suppression plea failed since the Tribunal’s orders showed no one appeared for her, and the power of attorney objection was held hyper-technical.

The Court allowed the petition and excluded the petitioner’s undivided one-third share from the auction. No restriction was imposed on the remaining two-thirds share.

Cause Title: Shashi R. Jatia v. Prudent ARC & Ors. (Neutral Citation: 2026:DHC:9120)

Appearances:

Petitioner: Senior Advocate Vaibhav Gaggar, Advocates Abhijeet Chauhan and Mayank Singhal.

Respondent: Senior Advocate Rajiv Nayar, Advocates Naveen Soni, Sidhant Kumar, Om Batra and Anwita.

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