“Non-Authorised Officer Immunity” under the SARFAESI Act: Supreme Court Clarifies Criminal Liability of Bank Officials – A Commentary on Sivakumar v. Inspector of Police (2025 INSC 558)

1. Introduction

The decision in Sivakumar v. The Inspector of Police & Anr., 2025 INSC 558, marks a significant clarification on the extent of criminal liability that can be fastened on bank officials for actions taken (or alleged omissions) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”).

The controversy arose from a public auction conducted by HDFC Ltd. in 2012 to liquidate mortgaged property after the borrower defaulted. The auction purchaser (de-facto complainant) later discovered that the property had been acquired by the Tamil Nadu Housing Board in 2003, and consequently lodged both consumer and criminal proceedings alleging suppression of material facts and cheating.

While the High Court of Madras refused to quash the criminal proceedings, the Supreme Court was called upon to decide whether the appellant, who became Branch Manager only in 2014 (two years after the auction and issuance of the sale certificate), could be prosecuted for the alleged offences of cheating, forgery and issuing false certificates.

2. Summary of the Judgment

Allowing the appeal, the Supreme Court quashed all criminal proceedings against the appellant. The Court emphasised that:

• The appellant was not the “authorised officer” within the meaning of Rule 2(a) of the Security Interest (Enforcement) Rules, 2002 at the time of auction and issuance of the sale certificate.
• No material indicated any active role or mens rea on the part of the appellant in relation to the alleged fraudulent auction.
• Continuing criminal prosecution would amount to an abuse of process and cause a miscarriage of justice.

Consequently, the Court set aside the High Court’s refusal to quash and ordered that CC No. 308/2016 on the file of Judicial Magistrate No. 1, Tirunelveli, stand quashed as against the appellant.

3. Detailed Analysis

3.1 Precedents & Statutory Provisions Considered

• K. Virupaksha v. State of Karnataka, (2020) 4 SCC 440 – Held that once SARFAESI proceedings have been invoked and actions are taken in good faith, initiation of criminal proceedings on identical facts is impermissible.
• Mrs. Leelamma Mathew v. Indian Overseas Bank & Ors., Civil Appeal No. 7128/2012 – Cited by respondent to contend that disclaimers such as “as-is-where-is” do not absolve sellers from duty of disclosure under Section 55 of the Transfer of Property Act, 1882.
• Section 32 SARFAESI Act – Grants immunity to secured creditors and their officers for actions taken in good faith.
• Rule 2(a) Security Interest (Enforcement) Rules, 2002 – Defines “authorised officer” as an officer not below the rank of Chief Manager authorised by the Board to exercise rights under the Act.
• Embedded principles from State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 – Though not expressly cited, the Court’s reasoning mirrors the Bhajan Lal categories for quashing where the continuation of proceedings is an abuse of process.

3.2 Core Legal Reasoning

1. Status and Timing: The Court dissected the chronological facts and determined that the appellant attained the position of Manager only in November 2014, whereas the auction, acceptance of consideration, and issuance of the sale certificate occurred in 2012. Hence, the appellant was not in the chain of transaction.

2. Lack of Authorised Capacity: Because SARFAESI mandates that only an “authorised officer” can execute sale under Section 13 and Rules made thereunder, criminal intent cannot be imputed to someone who lacked legal capacity to act in that sphere at the relevant time.

3. Abuse of Criminal Process: Invoking the principles in Bhajan Lal and Virupaksha, the Court held that continuation of the proceedings would be oppressive and amount to giving a civil dispute an unjust criminal colour.

4. Good-Faith Shield under Section 32: Though the ultimate ratio did not rest solely on statutory immunity, the Court observed that the absence of appellant’s involvement coupled with the legislative policy to protect bona fide officers strengthens the case for quashing.

3.3 Potential Impact of the Decision

• Narrowing Criminal Exposure of Bank Officers: The judgment reassures bankers that criminal prosecution will not lie for acts that pre-date their tenure or fall outside their authorised functions.
• Clarity on “Authorised Officer” Doctrine: By giving substantive weight to Rule 2(a), the Court implicitly mandates strict compliance—only duly authorised officials can shoulder liability or responsibility for auction sales.
• Strengthening Section 32 Immunity: Although not an absolute bar, the judgment fortifies the idea that actions (or omissions) during SARFAESI enforcement are primarily governed by in-house regulatory and civil mechanisms unless clear mala fides are demonstrated.
• Guidance for Quashing Petitions: High Courts exercising Section 482 CrPC powers may now more readily quash proceedings against later-appointed officials where the record discloses no contemporaneous involvement.
• Balancing Consumer Rights and Banking Efficiency: While protecting bank staff, the Court leaves open the aggrieved consumer’s civil remedies against the appropriate parties (e.g., the bank entity or officers actually in charge at the material time).

4. Complex Concepts Simplified

SARFAESI Act (2002)

An Act enabling banks and financial institutions to enforce their security interest (e.g., mortgaged property) without court intervention when borrowers default.

Authorised Officer

An officer (not below Chief Manager in a public bank or equivalent) empowered by the secured creditor’s Board to carry out measures like taking possession and auctioning assets under SARFAESI.

Section 482 CrPC

Provision granting High Courts inherent powers to make orders necessary to secure the ends of justice, including quashing criminal proceedings.

Quashing of Chargesheet

The process by which a High Court (or Supreme Court) terminates criminal proceedings at the threshold because continuing them would be illegal, frivolous or an abuse of process.

Good-Faith Immunity (Section 32 SARFAESI)

Legal protection shielding lenders and their officers from suits or prosecution for actions performed honestly while exercising powers conferred by SARFAESI.

5. Conclusion

The Supreme Court’s ruling in Sivakumar establishes a clear precedent: criminal liability cannot be foisted on a bank official who was neither the authorised officer nor even in office at the time of alleged wrongful acts under SARFAESI. By emphasising the chronology of employment and statutory definition of “authorised officer,” the Court insulated bona fide officials from vexatious prosecutions, thereby reinforcing Section 32’s legislative intent.

Future litigants will find it harder to criminalise purely civil or consumer disputes arising from SARFAESI auctions, especially where no contemporaneous mens rea is demonstrable against the officer under scrutiny. Equally, banks must remain vigilant in their disclosures during auction processes, for liability may still attach to those in charge during the relevant period. Overall, the decision strikes a judicious balance between protecting legitimate public auction purchasers, maintaining accountability within financial institutions, and preventing the misuse of criminal law as a tactical weapon in civil disputes.