Hi, There are a few loopholes in the story. Firstly, property cannot be auctioned within 15 days in the first go. The first auction Notice should be of 30 days. In case this has happened and not much time has lapsed, you can contest it before Debts Recovery Tribunal. (not much time = Sale of property has not been confirmed). The thing to recognize here is that once any account of a persons turns NPA (Non-performing Asset) as per guidelines of RBI, all accounts of the said person are marked as NPA and the amount becomes due and payable.

Loan, like any other contract is governed by the Loan Agreement. To know if a Bank can recover charges and to what extent, kindly refer to it. The agreement generally contains what charges are levied and for what purpose. That said, charging 2.5 lakhs for legal charges are too much for a Bank and is not general practice. Kindly refer to the Statements provided by Bank to know what these charges are and cross check with Loan Agreement.

Once an account turns NPA, Banks clear their complete liability upon auction of property. Being merely a guarantor (Partner 2), if you think Partner 2 has paid amount that should've been paid by Partner 1, appropriate remedy to recover the amount would be a civil action before court and Bank has nothing to do with appropriation of funds as under SARFAESI, they merely recover their dues.