Telangana High Court
Mr. Rohit Bansal vs Union Of India on 18 June, 2024
THE HON'BLE THE CHIEF JUSTICE ALOK ARADHE
AND
THE HON'BLE SHRI JUSTICE ANIL KUMAR JUKANTI
WRIT PETITION No.8336 of 2022
ORDER:
(Per the Hon'ble the Chief Justice Alok Aradhe) Mr. L. Ravichander, learned Senior Counsel represents Mr. Mayur Mundra, learned counsel for the petitioner.
Ms. Ande Vishala, learned counsel represents Mr. Gadi Praveen Kumar, learned Deputy Solicitor General of India for respondent No.1.
Mr. G. Prabhakar Sarma, learned Standing Counsel for respondent No.2.
2. In this writ petition, the petitioner, who is an auction purchaser in an auction held on 23.12.2019 by respondent No.2 - State Bank of India (hereinafter referred to as "the Bank"), assails the action of the Bank in forfeiting a sum of Rs.83,75,000/- deposited by the petitioner being 25% of the bid amount. The said action is challenged inter alia on the ground that the same is arbitrary, illegal and is in violation of Articles 14, 19, 21 and 300A of the 2 Constitution of India as well as in contravention of Rule 8(6)(a) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as "the 2002 Rules").
3. Facts giving rise to filing of this writ petition briefly stated are that land measuring Acs.3.00 guntas and Acs.2.15 guntas forming part of Sy.Nos.182 and 183 respectively situated at Kondurugu Village and Mandal, Mahaboobnagar District, Telangana (hereinafter referred to as "the schedule property"), was a secured asset with the Bank. In exercise of powers under the 2002 Rules, an auction in respect of the schedule property was held on 23.12.2019. The said auction was confirmed on 24.12.2019. The petitioner, who was the highest bidder, deposited a sum of Rs.83,75,000/- being 25% of the bid amount.
4. As mandated by Rule 9(4) of the 2002 Rules, the petitioner was required to deposit 75% of the bid amount on or before the fifteenth day of confirmation of sale of the immovable property or within such time as may be agreed upon in writing between the purchaser and the secured 3 creditor, in any case not exceeding three months. Thus, the petitioner was required to deposit the balance amount by 07.01.2020. However, the petitioner did not pay the balance amount within the period of 15 days and approached the Bank by submitting a representation on 06.01.2020 seeking extension of time to deposit the balance amount. The Bank thereupon extended the time for depositing the balance amount upto 07.02.2020.
5. However, even in the extended time, the petitioner did not deposit the balance amount and thereafter again approached the Bank on 04.02.2020 seeking further extension of time. The Bank thereupon on 05.02.2020 again extended the time for depositing the balance of the bid amount till 20.03.2020. Even in the aforesaid extended time, the petitioner failed to deposit the balance amount.
6. Thereafter, the petitioner filed W.P.No.6400 of 2020 in which a prayer was sought seeking extension of time to deposit the balance bid amount. A Division Bench of this Court by order dated 08.10.2020 extended the time by a 4 further period of 8 weeks i.e., upto 07.12.2020. However, the petitioner neither complied with the order dated 08.10.2020 passed by a Division Bench of this Court nor deposited the amount upto 07.12.2020.
7. The petitioner did not take any action merely for a period of one year and submitted a representation on 06.12.2021 to the Bank in which a prayer was made not to forfeit the 25% of the bid amount deposited by the petitioner and to refund the aforesaid amount. The Bank issued notice dated 11.12.2021 by which auction in respect of the schedule property was scheduled to be held on 28.12.2021. Thereafter, the Bank issued a notice by a communication dated 23.12.2021 informing the petitioner that the 25% of the bid amount deposited by the petitioner has already been forfeited and it is not possible to refund the same. In the aforesaid factual background, the petitioner has approached this Court seeking refund of the 25% of the bid amount.
8. Learned Senior Counsel for the petitioner submitted that after order dated 08.10.2020 was passed in 5 W.P.No.6400 of 2020, the petitioner learnt that a civil suit namely, O.S.No.196 of 2019 is pending in the Court of the District Judge at Mahaboobnagar. The petitioner therefore did not deposit the remaining amount. Learned Senior Counsel fairly did not dispute the power of the Bank to forfeit the 25% of the bid amount deposited by the petitioner. However, it is contended that in the facts and circumstances of the case, the action of forfeiture of the 25% of the bid amount deposited by the petitioner is arbitrary and irrational.
9. Learned Senior Counsel for the petitioner further contended that non-disclosure by the Bank with regard to the pending litigation vitiates the auction and the clause 'as is where is' basis, does not absolve the Bank from disclosing about the existing encumbrance in respect of the schedule property.
10. In support of the aforesaid submissions, reliance has been placed on the decision of the Supreme Court in Haryana Financial Corporation and others vs. Rajesh 6 Gupta 1 , Karnataka High Court in Edelweiss Asset Reconstruction Company Limited vs. Saturn Realtors Pvt., Ltd., and others 2, decision of the Madras High Court in Jai Logistics vs. The Authorized Officer Syndicate bank 3, decision of the Madras High Court (Madurai Bench) in Poysha Power Generation (P) Ltd. vs. Registrar, Debts Recovery Tribunal, Madurai and others 4 and the judgments rendered by Division Benches of this High Court in Mandava Krishna Chaitanya vs. UCO Bank, Asset Management Branch 5, Mohammed Yusuf vs. State Bank of India 6 , Shaik Janimiya vs. State Bank of India 7 , Shyam Sundar vs. State Bank of India 8, Muddhapuram Srikanth Goud vs. Syndicate Bank 9 and K. Venkateswarlu vs. The Reserve Bank of India 10.
11. Learned Standing Counsel for the Bank submitted that the borrower defaulted in payment of the amount of loan. Thereupon, the Bank was constrained to invoke the 1 (2010) 1 SCC 655 2 AIR 2022 Kant 263 3 III (2010) BC 594 (Mad.) 4 2019 (2) CWC 513 5 W.P.No.39084 of 2017, dt. 21.02.2018 6 W.P.Nos.16691 & 16911 of 2019, dt. 30.10.2019 7 W.P.No.27987 of 2019, dt. 27.04.2020 8 W.P.No.11175 of 2020, dt.04.09.2020 9 W.P.No.19580 of 2019, dt. 29.11.2022 10 W.P.No.25302 of 2014, dt. 27.02.2023 7 provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "SARFAESI Act") and demand notice dated 06.03.2017 was issued. It is pointed out that after the demand notice was issued, the borrower entered into an agreement on 25.10.2018 for sale of schedule property with prospective purchaser. It is also pointed out that on the basis of the aforesaid agreement, prospective purchaser had filed a suit for specific performance of contract, namely, O.S.No.196 of 2019 on 22.10.2019 to which the Bank was not a party. It is further submitted that as there is no material on record to show that the factum of filing of the civil suit was within the knowledge of the Bank. It is argued that filing of the suit does not constitute an encumbrance on a party.
12. It is also contended that the writ petition suffers from delay and laches, as the petitioner having failed to comply with the directions dated 08.10.2020 contained in the order passed in W.P.No.6400 of 2020 and waited till February, 2022 to file the writ petition. It is further contended that despite extension of time, the petitioner 8 failed to deposit the remaining amount and therefore, the action of the Bank in forfeiting the 25% of the bid amount deposited by the petitioner is justified in the facts and circumstances of the case.
13. We have considered the rival submissions made on both sides and perused the record.
14. Before proceeding further, it is apposite to take note of the relevant statutory provisions.
15. Rule 8 of the 2002 Rules deals with sale of immovable secured assets. Rule 8(7) of the 2002 Rules, which is relevant for the purposes of controversy involved in the petition, is extracted below for the facility of reference:
"8(7) Every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include;
(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;9
(b) the secured debt for recovery of which the property is to be sold;
(c) reserve price of the immovable secured assets below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) deposit of earnest money as may be stipulated by the secured creditor;
(f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property."
16. From perusal of Rule 8(7)(a) of the 2002 Rules, it is evident that the notice of sale has to contain the description of immovable property including the details of encumbrances known to the secured creditor.
17. Rule 9 of the 2002 Rules deals with time of sale, issue of sale certificate and delivery of possession. The relevant extract of Rule 9 of the 2002 Rules reads as under:
"9. Time of sale, Issue of sale certificate and delivery of possession, etc.-
(1) No sale of immovable property under these rules, in first instance shall take place before the expiry of thirty days from the date on which the public notice of sale is 10 published in newspapers as referred to in the proviso to sub-rule (6) of rule 8 or notice of sale has been served to the borrower:
Provided further that if sale of immovable property by any one of the methods specified by sub-rule (5) of rule 8 fails and sale is required to be conducted again, the authorised officer shall serve, affix and publish notice of sale of not less than fifteen days to the borrower, for any subsequent sale.
(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 8:
Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.
(3) On every sale of immovable property, the purchaser shall immediately, i.e., on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on 11 or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.
(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold."
18. Thus, the consequence of forfeiture of 25% of the deposit under Rule 9(5) of the 2002 Rules is a statutory consequence, which is provided in the event of default of payment of the balance amount.
19. The Supreme Court in Authorised Officer, State Bank of India v. C.Natarajan 11 dealt with issue whether Rule 9 of the 2002 Rules which is a special provision will have precedence over Sections 73 and 74 of the Indian Contract Act, 1872. In the aforesaid decision, it was held that bearing in mind the stark reality, Rule 9(5) of the 2002 Rules has to be interpreted pragmatically to serve twin purposes, firstly to facilitate due enforcement of security interest by the secured creditor and secondly to prohibit 11 2023 SCC OnLine SC 510 12 wrongdoers from being benefited by a liberal construction thereof. It was further held that after the earnest money deposit is forfeited, the Courts should ordinarily restrain from interfering unless existence of a very rear and exceptional circumstances are shown. In paragraph 34, it was held as under:
"34. Insofar as challenge to an order of forfeiture that is made upon rejection of an application for extension of time prior to expiry of ninety days and within the stipulated period is concerned, the scrutiny could be a bit more intrusive for ascertaining whether any patent arbitrariness or unreasonableness in the decision-making process has had the effect of vitiating the order under challenge. However, in course of such scrutiny, the tribunals/courts must be careful and cautious and direct their attention to examine each case in some depth to locate whether there is likelihood of any hidden interest of the bidder to stall the sale to benefit the defaulting borrower and must, as of necessity, weed out claims of bidders who instead of genuine interest to participate in the auctions do so to rig prices with an agenda to withdraw from the fray post conclusion of the bidding process. In course of such determination, the tribunals/courts ought not to be swayed only by supervening events like a subsequent sale at a higher price or at the same price offered by the defaulting bidder or that the secured creditor has not in the bargain suffered any loss or by sentiments and should stay at a 13 distance since extending sympathy, grace or compassion are outside the scope of the relevant legislation."
20. The aforesaid decision was referred to with approval in Authorised Officer, Central Bank of India v. Shanmugavelu 12 and while dealing with Rule 9 of the 2002 Rules, it was held that forfeiture of entire earnest money deposit does not amount to unjust enrichment. In paragraph 118, it was held as follows:
"118. Thus, this Court held that where extraneous conditions exist that might have led to the inability of the successful auction purchaser despite best efforts from depositing the balance amount to no fault of its own, in such cases the earnest-money deposited by such innocent successful auction purchaser could certainly be asked to be refunded."
21. Thus from the aforesaid enunciation of law, it is evident that in exceptional cases, the Courts can interfere with action of the Bank in forfeiting the 25% of the bid amount and what would constitute an exceptional case must be determined by the Court on the facts of each case by recording cogent reasons for the conclusion arrived at by it.
12 2024 SCC OnLine SC 92 14
22. In the backdrop of aforesaid relevant statutory provisions and the legal principles enunciated by Supreme Court, we may advert to the facts of the case in hand. The action of the Bank in forfeiting the 25% of the bid amount deposited by the petitioner is not held to be either arbitrary or unreasonable for the following reasons:
(1) The borrower did not repay the amount of loan.
Therefore, the Bank in exercise of powers under the SARFAESI Act had sent a demand notice dated 06.03.2017. On receipt of the aforesaid demand notice, the provisions of Section 13(13) of the SARFAESI Act came into force, which is extracted below for the facility of reference:
"13(13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor."
(2) The borrower, in view of the statutory mandate contained in Section 13(13) of the SARFAESI Act could not have dealt with the schedule property in 15 any manner. However, the borrower executed an agreement in favour of prospective purchaser on 25.10.2018.
(3) The Bank admittedly is not a party to the suit namely O.S.No.196 of 2019 which was instituted on 22.10.2019. There is no material on record to show that the Bank had knowledge about the pendency of the civil suit at the time when it issued a sale notice after about nine days from the date of institution of the suit.
(4) The petitioner was a successful bidder in an auction which was confirmed on 24.12.2019. The petitioner was required to deposit the balance amount on 07.01.2020. However, at the instance of the petitioner, time was extended from time to time twice by the Bank upto 20.03.2020. The petitioner failed to avail the aforesaid opportunities to deposit the balance of bid amount.
(5) Thereafter, the petitioner filed a writ petition namely W.P.No.6400 of 2020 seeking extension of 16 time. A Division Bench of this Court by an order dated 08.10.2020 granted eight weeks further time to the petitioner to deposit the remaining amount. Even the extended time limit fixed by this Court expired on 07.12.2020. The petitioner did not repay the amount within the extended time limit.
(6) The petitioner thereafter waited nearly for a period of one year and for the first time submitted a representation on 06.12.2021 requesting the Bank not to forfeit the amount. Thus, the petitioner, who was granted repeated opportunities to repay the balance amount, has failed to comply with his obligation under Rule 9 of the 2002 Rules. (7) No specific stand has been taken in the writ petition as to the date on which the petitioner came to know about the institution of the subsequent suit which was in any case of no consequence either to the petitioner or to the Bank.
(8) The petitioner even after making a request for refund of the earnest 25% of the bid amount on 17 06.12.2021 has filed the writ petition in the month of February, 2022.
23. For the aforementioned reasons and in the facts and circumstances of the case, in our considered opinion, the action of the Bank in forfeiting the 25% of the bid amount deposited by the petitioner cannot be said to be unjustified.
24. In the result, Writ Petition fails and is hereby dismissed.
Miscellaneous petitions, pending if any, stand closed. There shall be no order as to costs.
___________________________ ALOK ARADHE, CJ ___________________________ ANIL KUMAR JUKANTI, J Date: 18.06.2024 ES/KL