Emphasizing that forfeiture is a statutory consequence under the Security Interest (Enforcement) Rules, 2002, the Allahabad High Court ruled that subsequent actions of the bank in reinitiating the SARFAESI action against the mortgaged property and forfeiting the earnest money, cannot guarantee refund of earnest money to the auction-purchaser in case of his failure in indicating any extenuating circumstances in depositing the balance amount within the prescribed time.
Facts of the case:
The petitioner filed a writ under Article 226 seeking refund of ₹17.49 lakhs (25% of the auction price) deposited in an e-auction held on 29.12.2023. The amount was forfeited by the respondent-bank under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, after the petitioner failed to deposit the remaining 75% within the stipulated time. The petitioner contended that the forfeiture is unjustified as the bank later withdrew the entire SARFAESI proceedings against the mortgaged property on 18.11.2024, only to initiate fresh action on the same date.
Submissions of the Petitioner:
The counsel for the petitioner outlined the exceptional circumstances wherein the forfeited amount should be returned/refunded to the petitioner on the grounds of the law of equity. He submitted that since the entire SARFAESI action taken by the bank was ipso facto withdrawn by it, on a later date, the forfeiture of the amount deposited by the petitioner would be contrary to the principles of law and would amount to unjust enrichment.
Submissions of the Respondent:
The counsel for the respondent/bank submitted that any steps taken by the bank subsequent to the failure of the auction purchaser would have no relevance whatsoever with regard to the said forfeiture.
Observations of the Court:
The Division Bench of Justice Shekhar B. Saraf and Justice Dr. Yogendra Kumar Srivastava quoted the decision in the case of Authorised Officer, Central Bank of India vs. Shanmugavelu, in which it was held that
“The consequence of forfeiture of 25% of the deposit under Rule 9(5) of the SARFAESI Rules is a legal consequence that has been statutorily provided in the event of default in payment of the balance amount. The consequence envisaged under Rule 9(5) follows irrespective of whether a subsequent sale takes place at a higher price or not, and this forfeiture is not subject to any recovery already made or to the extent of the debt owed. In such cases, no extent of equity can either substitute or dilute the statutory consequence of forfeiture of 25% of deposit under Rule 9(5) of the SARFAESI Rules.”
The Bench also referred to the opinion of Justice J.B Pardiwala in the afore-mentioned decision, where he observed 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”.
However, the Court emphasized that the petitioner seeking refund of the forfeited amount on the ground of reinitiation of the SARFAESI action by the bank upon the borrower, would not come within the contours of an ‘exceptional circumstance’, leading to dilution of the statutory consequence of forfeiture under Rule 9(5) of the 2002 Rules.
The decision of the Court:
While concluding that subsequent actions of the Bank in reinitiating the SARFAESI action cannot inure to the benefit of the petitioner in any manner whatsoever, as forfeiture is a statutory consequence under the 2002 Rules, the High Court dismissed the petition.
Case Title: Anil Kumar Jaiswal vs Union of India & Another
Case Number: Writ (C) No. 13012 of 2025
Coram: Hon’ble Justice Shekhar B. Saraf and Hon’ble Justice Dr. Yogendra Kumar Srivastava
Counsel for Petitioner: Adv Vipul Pandey
Counsel for Respondent: Adv Anil Kumar Bajpai and Ashish Agrawal
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