Chronic Defaulters Cannot Challenge Auction Sale Under Section 29 SFC Act

Case Snapshot

• Case Name: Bihar State Financial Corporation & Anr. v. Bhushan Singh & Ors.

• Citation: 2026 INSC 673

• Bench: Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh

• Date of Judgment: July 9, 2026

• Area of Law: Financial Law, State Financial Corporations Act, Auction Sale, Recovery

Judgment in Brief

The Supreme Court allowed the appeals and restored the auction sale conducted by the Bihar State Financial Corporation (BSFC) under Section 29 of the State Financial Corporations Act, 1951. The Court held that the borrowers, who were chronic defaulters and had repeatedly failed to discharge their liability despite multiple opportunities, could not challenge the auction sale on grounds of procedural irregularities. The Court emphasized that fairness is not a one-way street; financial corporations cannot be shackled hand and foot in the name of fairness when borrowers persistently default. The absence of a valuation report, by itself, did not vitiate the auction sale, especially when the borrowers had sought to retain the property on the same terms offered to the auction purchaser. The auction purchaser, who had been in possession for nearly three decades, was held to be a bona fide purchaser.

Relevant Facts

• The borrowers took a loan of Rs. 11.65 lakhs from BSFC for setting up an industrial unit, creating an equitable mortgage over land and building.

• Upon default, BSFC issued a notice under Section 29 on November 24, 1988.

• The borrowers filed a writ petition (CWJC No. 6104 of 1990), and the High Court fixed a repayment schedule on November 6, 1990, with liberty to BSFC to sell the property in case of default.

• The borrowers failed to adhere to the schedule and their subsequent application for extension was dismissed on July 11, 1991.

• BSFC issued another notice on September 27, 1994, under Sections 29 and 30, calling upon the borrowers to discharge their liability within three months, failing which the property would be sold.

• Since the borrowers failed to respond, BSFC published a sale advertisement on March 2, 1996, and conducted an auction on March 18, 1996.

• The auction purchaser was declared successful, but the sale

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