A Co-Owner's Share Pulled From an ARC Auction: What the Delhi High Court Ruling Means

In May 2021, a recovery agent for a bank called the son of a senior citizen living abroad and told him there were loans outstanding against a house in New Delhi's Gulmohar Park. She owned a one-third share in that house. According to her, she had never applied for those loans, never received any of the money, and never signed the documents that carried her name as co-applicant. Five years later, with an asset reconstruction company advertising the whole property for e-auction, the Delhi High Court stepped in. On October 13, 2026, it ordered that her one-third share be excluded from the auction until a competent court decides whether the loan documents were forged.

The case, Shashi R. Jatia v. Prudent ARC and Others, W.P. (C) 7203/2026, is about Delhi property. Its lessons travel. For Bengaluru buyers considering a bank or ARC auction, and for families where one co-owner looks after a jointly owned property, it shows how a disputed mortgage can split a property in two at the auction stage.

The short answer. Justice Jasmeet Singh held that the existence of an alternative remedy before the Debts Recovery Tribunal is not an absolute bar to a writ petition where the action is alleged to be founded on fraud and forgery and the very existence of the security interest is under challenge, especially where a forensic report and a police status report support the allegation prima facie. The Court allowed the petition and excluded the petitioner's undivided one-third share from the e-auction, while placing no restriction on the remaining two-thirds. The trade-off: the ruling protects a co-owner who says she never mortgaged her share, but it leaves any auction buyer of the remaining share holding an undivided interest in a property still under litigation.

What happened in the Gulmohar Park case?

According to the judgment, the petitioner acquired her interest through an agreement to sell of 1982 and a deed of conveyance of 1995, and she and a relative were later recorded as owners of one-third and two-third shares. She lived in Mumbai and later abroad, while two relatives lived in and looked after the property. The relatives obtained five loan facilities from a private bank by creating a mortgage over the property, with total principal stated by the bank as Rs 14.96 crore, and the petitioner was shown as a co-applicant.

She says she first learned of the loans on May 29, 2021. She wrote to the bank, obtained loan documents on June 19, 2021, commissioned a private forensic examination that reported on June 25, 2021 that her signatures were forged, and complained to the Economic Offences Wing on August 31, 2021. An FIR was registered on January 28, 2022 against the two relatives and unknown bank officials. The bank issued a demand notice under Section 13(2) of the SARFAESI Act on June 18, 2022 for Rs 12.46 crore. Her civil suit was rejected at the threshold on June 9, 2023 on the ground that the Debts Recovery Tribunal had exclusive jurisdiction, and her appeal against that rejection is pending. The loans were later assigned to Prudent ARC, which issued an e-auction notice on April 25, 2026 for a sale on May 29, 2026.

Why did the High Court hear a writ instead of sending her to the DRT?

The ARC and the relatives argued that the remedy lay before the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, that a private ARC is not amenable to writ jurisdiction, and that the petition was delayed. The Court accepted that a private ARC does not become an instrumentality of the State merely by exercising SARFAESI rights, but asked whether the peculiar facts justified writ jurisdiction.

It held that they did. Relying on the Supreme Court's decision in Mardia Chemicals, as explained in later rulings, the Court said that where fraud by the secured creditor is alleged, the bar on civil courts in Section 34 of the SARFAESI Act does not exclude the civil court's jurisdiction, and that the remedy does not lie before the DRT under Section 17 in such a case. It noted that the allegations here were not merely a puff in the air, but prima facie made out on the basis of an independent forensic report and an EOW status report dated December 13, 2024 recording that the signatures were found to be forged. It then held that an efficacious alternative remedy is not an absolute bar to Articles 226 and 227 where the proceedings are alleged to be founded on fraud and forgery and the very existence of the security interest is under challenge.

Why did the Court reject the delay argument?

The relatives argued that the petitioner had given them general powers of attorney years earlier, between 2005 and 2008, authorising loans against the property, and that she had acquiesced. The Court did not accept this at this stage. It noted that the petitioner's case is that the five facilities date from 2015 to 2020, that she never signed them, and that she acted promptly after learning of them in 2021. It added that even assuming the relatives were operating under the powers of attorney, that did not give them the right to forge her signatures. Whether she knew of and accepted the mortgage, the Court said, is a question of fact for the competent forum.

That detail matters for Bengaluru families who hand powers of attorney to relatives to manage property. PropNewz explained the risks in our guide to GPA sales and power of attorney risk. A power of attorney given years ago can become the centre of a dispute long after the family has moved on.

What does this mean for a Bengaluru buyer at a bank or ARC auction?

The Court's own reasoning describes the buyer's risk. It said that if the whole property were sold on an as is where is basis and a competent court later found the loan documents forged, third-party rights would have been created, the petitioner would be forced to recover her property from an auction purchaser or be left with a money claim, and the auction purchaser's rights would also be prejudiced, leading to further rounds of litigation.

For a buyer, an auction is not a shortcut around title checks. PropNewz covered the basics in our guide to buying bank auction property and the SARFAESI sale certificate. This case adds specific warning signs: a property with more than one owner, a co-owner who is not a borrower, criminal complaints about the loan documents, and civil litigation over the mortgage. Any of these should lead you to read the court records before bidding.

1. Get the full list of owners and each owner's share.
2. Check which owners actually signed the mortgage and loan papers.
3. Search for FIRs or complaints about the loan documents.
4. Look for civil suits or appeals concerning the property.
5. Check whether any DRT or court has stayed or limited the sale.
6. Confirm exactly what share is being auctioned.
7. Take legal advice before paying any earnest money deposit.

What should co-owners learn from this case?

Joint ownership needs active management, especially when one owner lives elsewhere. Our guide on how to hold title jointly covers structuring. The Gulmohar Park case shows what can happen when one co-owner stays away for years while others live in the property and deal with lenders.

Practical habits help. Review the encumbrance record for the property periodically. Revoke powers of attorney in writing when they are no longer needed and keep proof that you did. If a lender, recovery agent or tribunal contacts you about a loan you did not take, ask for the documents at once, as the petitioner here did, and take legal advice. The judgment records that she was not served in the DRT proceedings and that nobody appeared for her on two dates, which is a reminder to keep your contact details current with every authority that holds your property records.

Is the dispute over?

No. The judgment decides only that her share cannot be sold in the e-auction until the veracity of the loan documents is adjudicated by a competent court. The questions of forgery, knowledge and acquiescence remain to be decided on evidence, and her appeal against the rejection of her civil suit is pending. The Court said it was not required to go into the reliability or evidentiary value of the status report and forensic report at this stage, only that they prima facie showed fraud. Nothing in the order decides the case against any party finally.

Frequently asked questions

What did the Delhi High Court decide in Shashi R. Jatia v. Prudent ARC?

On October 13, 2026, it allowed the writ petition and excluded the petitioner's undivided one-third share in a Gulmohar Park property from an ARC's e-auction until a competent court decides whether the loan documents bearing her signatures were forged. It placed no restriction on the remaining two-thirds.

Does a DRT remedy always bar a writ petition against a SARFAESI auction?

Not always. The Court held that an efficacious alternative remedy is not an absolute bar to writ jurisdiction where the proceedings are alleged to be founded on fraud and forgery and the existence of the security interest itself is challenged, here with prima facie forensic support.

Can a power of attorney be used to justify a forged mortgage?

The Court said that even assuming relatives were operating under earlier powers of attorney, that did not give them the right to forge the petitioner's signatures. Whether she knew of and accepted the mortgage is a question of fact for the competent forum to decide on evidence.

What should a Bengaluru buyer check before bidding at a bank auction?

Confirm all owners and their shares, who signed the mortgage, and whether any FIR, civil suit, appeal or tribunal order concerns the property or limits the sale. The Delhi case shows an auction can be narrowed by a court to exclude a disputed share.

Last updated 2026-10-31. PropNewz Team.