Why Auction Purchasers Can Sue Banks in Civil Court but Must First Master the Mandatory Statutory Notice Hurdle under Co-operative Society Laws
In the complex intersection of banking recovery and civil litigation, a common question arises: can an auction purchaser sue a bank for damages in a civil court? While the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, is often viewed as an impenetrable fortress protecting banks from civil suits, a recent judgment from the Bombay High Court provides a nuanced roadmap. The ruling in the case of Jalgaon Peoples Co-operative Bank Ltd. vs. M/s. Om Sai Extrusions Pvt. Ltd. offers a masterclass in the procedural hurdles that can make or break a commercial litigation strategy.
The Auction Purchaser is Not a BorrowerOne of the most significant takeaways from this judgment is the clarification of the jurisdictional bar under Section 34 of the SARFAESI Act. Typically, borrowers are barred from approaching civil courts because the Act provides a specialized remedy through the Debts Recovery Tribunal (DRT). However, the court observed that an auction purchaser occupies a different legal space. Since the statutory remedy for compensation under Section 19 of the SARFAESI Act is specifically tailored for "borrowers", an auction purchaser—who is essentially a third-party contractual partner—may still find the doors of the civil court open for claims arising from a breach of the Memorandum of Understanding (MoU).
The Wide Net of 'Touching the Business'Even if a suit is not barred by SARFAESI, it must survive the rigors of state-specific co-operative laws. The court delved deep into Section 164 of the Maharashtra Co-operative Societies Act, 1960, which requires a mandatory two-month statutory notice before suing a society. The respondent argued that a claim for damages due to delayed possession did not "touch the business" of the bank. The court rejected this narrow view, reinforcing that the recovery of loans through the sale of mortgaged property is an integral, core function of a co-operative bank.
"The recovery of loans through the sale of mortgaged property constitutes an integral part of a co-operative bank’s business."This interpretation means that almost any dispute arising from a bank's recovery process will trigger the requirement for a prior statutory notice. Procedural Lapses are Fatal, Not Just Formal
The judgment serves as a stern reminder that statutory notice requirements are not mere formalities; they are conditions precedent. The Trial Court had initially allowed the suit to proceed, but the High Court set this aside, invoking Order VII Rule 11(d) of the Code of Civil Procedure. The failure to issue the Section 164 notice was deemed "fatal" to the suit. In the realm of co-operative law, the absence of this notice strips the court of the power to even entertain the plaint, regardless of how much merit the underlying claim for damages might have.
The Silver Lining: The Right to RefileWhile the bank succeeded in getting the current plaint rejected, the judgment was not a total loss for the auction purchaser. The court maintained a constructive balance by granting the respondent liberty to file a fresh suit after complying with the notice requirements.
"The respondent / original plaintiff is at liberty to file fresh suit after giving notice under Section 164 of the MCA Act, 1960."This ensures that while procedural discipline is maintained, the substantive right to seek justice for alleged negligence or breach of contract is not permanently extinguished.
For legal practitioners and commercial entities, this judgment underscores a vital lesson: when litigating against co-operative institutions, the procedural "handshake" of a statutory notice is just as important as the merits of the case itself. Understanding the distinction between a borrower’s statutory remedies and an auction purchaser’s contractual rights is essential for navigating the gauntlet of Indian debt recovery laws.
Case: JALGAON PEOPLES CO OPERATIVE BANK LTD THROUGH ITS CHIEF EXECUTIVE OFFICER AND ANOTHER v. M/S OM SAI EXTRUSIONS PVT LTD THROUGH ITS MANAGING DIRECTOR P P CHOUDHARI
Law: Code of Civil Procedure, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, Maharashtra Co-operative Societies Act, Multi-State Co-operative Societies Act, Law of Tort.
Citation: 2026:BHC-AUG:21143
Decision Date: 05-05-2026