Tulip Data Services Pvt Ltd vs Saturn Realters Private Limited
2022 Latest Caselaw 11931 Kant

                           1



     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 19TH DAY OF SEPTEMBER, 2022

                        PRESENT

              THE HON'BLE MR. ALOK ARADHE
                  ACTING CHIEF JUSTICE

                          AND

     THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY

             W.A.No.635 OF 2022 (GM-RES)
                         C/W
             W.A.NO.724 OF 2022 (GM-RES)

IN W.A.No.635 OF 2022:

BETWEEN:

EDELWEISS ASSET RECONSTRUCTION
COMPANY LIMITED
(ACTING IN ITS CAPACITY AS
A TRUSTEE OF EARC TRUST SC 244)
REGISTERED OFFICE AT EDELWEISS
HOUSE, OFF CST ROAD, KALINA
MUMBAI - 400 098
REPRESENTED BY ITS
AUTHORIZED REPRESENTATIVE
MS. DOLLY BHARTI
D/O SHRI MUKESH CHAND
AGED ABOUT 25 YEARS.                     ... APPELLANT

(BY SRI K.G. RAGHAVAN, SR. COUNSEL FOR
    SMT. ANUPARNA BORDOLOI, ADV.,)

AND:

1.     SATURN REALTORS PVT. LTD.
       REGISTERED OFFICE AT
                           2



     SY NO.86, 87, 90, 91
     SANDHYA TECHNO -1
     OPP. SUNSHINE HOSPITAL
     RAIDURG MAIN ROAD
     HYDERABAD - 500 032
     TELANGANA
     BY ITS DIRECTOR AND
     AUTHORIZED REPRESENTATIVE
     MR. MURALIDHAR SARANALA.

2.   TULIP DATA SERVICES PVT. LTD.
     THROUGH ITS AUTHORIZED SIGNATORY
     MR. VINEET KRISHNAN
     HAVING ITS OFFICE AT 162(P)
     163(P), 165(P), EPIP
     INDUSTRIAL AREA, WHITEFILED
     BEGNALURU - 560066.

3.   SADA IT PARKS PVT. LTD.
     THROUGH ITS AUTHORIZED SIGNATORY
     MR. VINEET KRISHNAN
     HAVING ITS OFFICE AT 162(P)
     163(P),165(P), EPIP
     INDUSTRIAL AREA, WHITEFILED
     BENGALURU- 560066.            ... RESPONDENTS

(BY SRI K.N. PHANINDRA, SR. COUNSEL FOR
    SRI BHARATH K, ADV., FOR R-2 & R-3
    SRI D.R. RAVISHANKAR, SR. COUNSEL FOR
    SRI. ARJUN RAO, ADV., FOR C/R-1)

     THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA
HIGH COURT ACT, PRAYING TO SET ASIDE THE IMPUGNED
ORDER DATED 06/07/2022 PASSED BY THE LEARNED SINGLE
JUDGE ON IN WP NO.2710/2022 (GM-RES) IN SO FAR AS IT
DIRECTS THE APPELLANT TO THE EXTENT THAT IT DIRECTS
THE APPELLANT TO REPAY THE ENTIRE AMOUNT DEPOSITED
BY THE PETITIONER AFTER DEDUCTING SALE EXPENSES,
WITHIN 15 DAYS FROM THE DATE OF RECEIPT OF A COPY OF
THIS ORDER AND ETC.
                              3



IN W.A.No.724 OF 2022

BETWEEN:

1.     TULIP DATA SERVICES PVT. LTD.
       THROUGH ITS AUTHORIZED SIGNATORY
       MR. VINEET KRISHNAN
       HAVING ITS OFFICE AT NO.162(P)
       163(P), 164(P), 165(P), EPIP INDUSTRIAL AREA
       WHITEFIELD, BANGALORE, KA - 560 066.

2.     SADA IT PARKS PVT. LTD.
       THROUGH ITS AUTHORIZED SIGNATORY
       MR. VINEET KRISHNAN
       HAVING ITS OFFICE AT NO.162(P)
       163(P), 164(P), 165(P),
       EPIP INDUSTRIAL AREA,
       WHITEFIELD, BANGALORE,
       KA - 560 066.                  ... APPELLANTS

(BY SRI K.N. PHANINDRA, SR. COUNSEL FOR
    SRI BHARATH K, ADV.,)

AND:

1.     SATURN REALTERS PRIVATE LIMITED
       REGISTERED OFFICE AT
       SY NO.86, 87, 90, 91
       SANDHYA TECHNO-1
       OPP. SUNSHINE HOSPITAL
       RAIDURGA MAN ROAD
       HYDERABAD, TELANGANA - 500 032.

2.     EDELWEISS ASSET RECONSTRUCTION
       COMPANY LIMITED
       (ACTING IN ITS CAPACITY AS
       A TRUSTEE OF EARC TRUST SC 244)
       REGISTERED OFFICE AT

       EDELWEISS HOUSE, OFF CST ROAD
       KALIN, MUMBAI - 400 098.
                              4



3.   SPACE WORLD DATA CENTRE
     PRIVATE LIMITED
     UNIT NO.125 AND 126, FIRST FLOOR
     VARDHAMAN PREMIUM MALL
     DEEPALI PITAMPURA
     DELHI - 110 033.                 ... RESPONDENTS

(BY SRI D.R. RAVISHANKAR, SR. COUNSEL FOR
    SRI ARJUN RAO, ADV., FOR C/R-1
    SRI DHYAN CHINAPPA, SR. COUNSEL FOR
    SMT. ANUPARNA BORDOLOI, ADV., FOR R-2
    SRI UDAYA HOLLA, SR. COUNSEL FOR
    SRI M.S. GANAPATHY AND
    SRI ADITYA SETHI, ADVS., FOR R-3)

     THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA
HIGH COURT ACT PRAYING TO ISSUE A WRIT OF
CERTIORARI OR ANY OTHER APPROPRIATE WRIT OT QUASH
THE JUDGMENT DATED 06.07.2022 PASSED BY THE LD.
SINGLE JUDGE IN WP No.2710/2022 TITLED AS M/s SATURN
REALTERS    PVT.    LTD.     vs   EDELWEISS     ASSET
RECONSTRUCTION Co. PVT. LTD.

     THESE APPEALS HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 08.09.2022, COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, VISHWAJITH
SHETTY J., DELIVERED THE FOLLOWING:

                       JUDGMENT

These two writ appeals are filed challenging the order

dated 06.07.2022 passed by the learned Single Judge of this

Court in W.P.No.2710/2022.

2. W.A.No.635/2022 is filed by the respondent in

W.P.No.2710/2022, while W.A.No.724/2022 is filed by the

borrowers/impleading applicants in IA-3/2022 filed in

W.P.No.2710/2022. Having regard to the similitude of facts

involved in the appeals, with the consent of the learned

Counsel appearing for the parties in these appeals, both the

appeals are heard together and disposed of by this common

judgment.

3. We have heard the learned Senior Counsel appearing

for the parties and also perused the material on record.

4. Brief facts of the case, as revealed from the records

are, the property belonging to the borrowers was brought for

sale by the appellant (Financial Institution) in

W.A.No.635/2022 under the provisions of the Securitisation

and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (for short, 'the Act of 2002') as

well as the Security Interest (Enforcement) Rules, 2002 (for

short, 'the Rules of 2002'). Respondent no.1 (hereinafter

referred to as 'first auction purchaser') who was the

successful bidder in the auction had failed to deposit the

entire bid amount within the stipulated time, and therefore, a

notice/endorsement dated 25.01.2022 was issued to him

calling upon him to pay the balance amount within the

stipulated time, failing which, it was informed that the

Financial Institution would be constrained to forfeit the

deposited amount with it and cancel the auction sale in terms

of the provisions of the Rules of 2002. The said

notice/endorsement dated 25.01.2022 was challenged by the

first auction purchaser in W.P.No.2710/2022. In the said writ

petition, the Financial Institution was arrayed as the sole

respondent.

5. Subsequently, during the pendency of the writ

petition, IA-3/2022 was filed by the borrowers to implead

them as party respondents to the writ petition. During the

pendency of the writ petition, on 20.04.2022, the learned

Single Judge of this Court after hearing the learned Senior

Counsel appearing for all the parties including the impleading

applicant, had passed a detailed order permitting the

Financial Institution to conduct fresh auction with liberty to

the first auction purchaser to participate in the fresh auction

proceedings. The Financial Institution was directed not to

insist for earnest money deposit from the first auction

purchaser, since by then, the first auction purchaser had

already deposited the entire bid amount of Rs.135.01 crores

before this Court pursuant to the interim orders passed by

the learned Single Judge.

6. The Financial Institution conducted the fresh auction

of the property belonging to the borrowers on 18.05.2022

and the first auction purchaser had participated in the said

auction proceedings unsuccessfully. The successful bidder

(hereinafter referred to as 'second auction purchaser') in the

auction that was held on 18.05.2022 had filed IA-4/2022

before the learned Single Judge to implead it as a party

respondent to the writ petition. In the meanwhile, the

borrowers had approached the jurisdictional Debt Recovery

Tribunal challenging the proceedings initiated by the Financial

Institution under Section 13 of the Act of 2002 in

TSA.No.10/2021 and the Debt Recovery Tribunal had granted

an interim order of stay of the first sale. The said order was

challenged by the Financial Institution in W.P.No.13795/2021

and the Delhi High Court by its order dated 06.12.2021

stayed the order of the Debt Recovery Tribunal with an

observation that the sale would be subject to the result of the

writ petition which was pending before the learned Single

Judge of this Court.

7. The learned Single Judge, thereafter, heard the

learned Senior Counsel appearing for the parties to the writ

petition and also the learned Senior Counsel appearing for the

impleading applicants in the writ petition and vide the order

impugned disposed of the writ petition permitting the

Financial Institution to confirm the sale in favour of the

second auction purchaser subject to the result of

W.P.No.13795/2021 pending before the High Court of Delhi

and the proceedings before the Debt Recovery Tribunal. The

Financial Institution was also directed to repay the entire

amount deposited by the first auction purchaser after

deducting the sale expenses, within 15 days from the date of

receipt of the copy of the order. All the contentions of the

borrowers were kept open. Being aggrieved by the said order,

the Financial Institution as well as the borrowers have

preferred these two appeals.

8. Sri K.G.Raghavan, learned Senior Counsel appearing

on behalf of the Financial Institution referring to Clauses 16 &

18 of the terms and conditions of the first auction sale at

Annexure-R2, submits that the successful bidder was required

to deposit 25% immediately on confirmation of the highest

bid or on the next day and the balance amount of sale

consideration was to be paid within 15 days of the

confirmation of sale. Failure to deposit the balance amount

within the prescribed period, would entitle the Financial

Institution to forfeit the earnest money deposit/deposited

amount without any further notice and no claim shall be

entertained against the Financial Institution in respect

thereof. He submits that the first auction purchaser totally

deposited an amount of Rs.34.50 Crores including the earnest

money deposit on 12.11.2021 and though the sale was

confirmed in its favour on 12.11.2021, the balance sale

consideration was not deposited within 15 days thereafter

and invoking Rule 9(4) of the Rules of 2002, further time was

granted to the first auction purchaser to deposit the balance

sale consideration, which expired on 09.02.2022. It is under

these circumstances, the endorsement dated 25.01.2022 was

issued to the first auction purchaser and instead of complying

with the same, it had challenged the same in a writ petition

and pursuant to the interim orders passed in the writ petition,

the balance bid amount was deposited by the first auction

purchaser on 31.03.2022.

9. A reference is made to Rule 9(3) of the Rules of 2002

and it is submitted that 25% of the bid amount inclusive of

the earnest money is required to be deposited on the same

day or on the next day and Rule 9(4) provides that the

balance amount is required to be deposited within 15 days

from the date of confirmation of the sale. Reference is also

made to Rule 9(5) of the Rules of 2002 and it is submitted

that power to forfeit the deposit amount in the event of

auction purchaser failing to comply Rule 9(4) is provided

under the said Rule and in the absence of any challenge to

the said Rule, the learned Single Judge was not justified in

directing the Financial Institution to refund the earnest

money/deposit amount to the first auction purchaser. He

submits that the fact that the second auction purchaser has

purchased the property for an amount of Rs.138 Crores, and

therefore, the Financial Institution has not suffered any loss

cannot be a ground to direct the Financial Institution to repay

the amount forfeited by it in exercise of Rule 9(5) of the

Rules of 2002. In support of the aforesaid submissions,

reliance is placed on the judgment of the Hon'ble Supreme

Court in the case of NATIONAL HIGHWAYS AUTHORITY OF

INDIA VS GANGA ENTERPRISES & ANOTHER and in

G.M.FOODS & ANOTHER VS INCOME TAX & WEALTH TAX

SETTLEMENT COMMISSIONER . He also submits that similar

power of forfeiture is found even under Order XXI Rule 86

CPC and reference is made to the judgment of the Hon'ble

Supreme Court in the case of MANILAL MOHANLAL SHAH &

OTHERS VS SARDAR SAYED AHMED SAYED MAHMAD &

ANOTHER3 and it is submitted that in the said case it has

been held that Order XXI Rule 86 CPC is

mandatory in nature. It is further submitted that the sale

certificate has been already issued to the second auction

purchaser, and therefore, the auction is completed and the

entire amount of Rs.138 Crores has been deposited by the

second auction purchaser, and therefore, the writ appeal filed

by the borrowers is not maintainable, more so for the reason

that the orders passed by the learned Single Judge are made

subject to the outcome of the proceedings initiated by the

borrowers before the Debt Recovery Tribunal which is now

the subject matter of the writ petition before the Delhi High

Court.

(2003)7 SCC 410

AIR 2015 CALCUTTA 245

AIR 1954 SC 349

10. Sri K.N.Phaneendra, learned Senior Counsel

appearing for the borrowers submits that the first auction

purchaser should have approached the Debt Recovery

Tribunal if they were aggrieved by the endorsement dated

25.01.2022 and the writ petition against the same was not

maintainable. He also submits that the Financial Institution is

not a 'State' within the meaning of Article 12 of the

Constitution of India, and therefore, the writ petition filed by

the first auction purchaser was not maintainable. He submits

that the first auction sale was stayed by the Debt Recovery

Tribunal and the order passed by the Debt Recovery Tribunal

is now the subject matter of the writ petition before the Delhi

High Court. He also submits that the second auction was held

in violation of Rule 8(5) of the Rules of 2002. In support of

his argument, he has placed reliance on the judgment in the

case of M/S. HOTEL VANDANA PALACE, BELGAUM VS THE

AUTHORISED OFFICER & OTHERS4, W.P.No.2004/2022

disposed of on 08.08.2022, PHOENIX ARC PRIVATE LIMITED

VS VISHWA BHARATI VIDYA MANDIR & OTHERS5.

2011 SCC Online Kar 3928

(2022)5 SCC 345

11. Per contra, Sri D.R.Ravishankar, learned Senior

Counsel for the first auction purchaser submits that the

Financial Institution has accepted the order dated 20.04.2022

passed by the learned Single Judge in its entirety, and

therefore, there is no justification to turn around and now

contend that it is entitled to forfeit the amount deposited by

the first auction purchaser when admittedly the second

auction purchaser has deposited the entire amount of Rs.138

Crores before the Financial Institution and the sale is already

confirmed in its favour. He refers to the judgment of the

Division Bench of this Court in W.A.No.262/2020 disposed of

on 02.04.2021 and submits that Rule 9(5) of the Rules of

2002 must be given a practical interpretation rather than a

liberal or pedantic interpretation, and submits that the word

'shall' found in the said Rule is directory and not mandatory.

He also submits that since the second auction purchaser has

now deposited the entire amount of Rs.138 Crores with the

Financial Institution, the Financial Institution has not suffered

any loss and in identical circumstances, the Hon'ble Supreme

Court in the case of ALISHA KHAN VS INDIAN BANK in

SLP(C).No.15959-60/2021 disposed of on 13.12.2021 has set

aside the order of forfeiture and directed the Bank to refund

the amount earlier deposited by the auction purchaser. He

submits that the judgments relied upon by the learned Senior

Counsel appearing for the borrowers with regard to the

maintainability of the writ petition are rendered in the writ

petitions which were filed at the instance of the borrowers,

and therefore, the said judgments would not be applicable to

the facts of this case.

12. Sri Dhyan Chinnappa, learned Senior Counsel

appearing for the Financial Institution in the appeal filed by

the borrowers submits that the second sale was with the

permission of the Court and the order passed by the learned

Single Judge permitting the second sale was unsuccessfully

challenged by the borrower in an intra court appeal. He refers

to paragraph 15 of the impugned order passed by the learned

Single Judge and submits that liberty is reserved to the

borrowers to challenge the procedure adopted by the

Financial Institution in bringing the property for sale by

initiating appropriate proceedings before the Debt Recovery

Tribunal, and therefore, they cannot be considered as

aggrieved party, and accordingly, the writ appeal cannot be

maintained. He submits that the learned Single Judge has

observed that the order passed in the writ petition would be

subject to the outcome of the writ petition pending before the

Delhi High Court, and therefore, the borrower cannot have

any grievance against the order passed by the learned Single

Judge and in the event he succeeds before the Delhi High

Court, both the sales would get annulled. He, therefore, prays

to dismiss the writ appeal filed by the borrowers.

13. Sri Udaya Holla, learned Senior Counsel appearing

on behalf of the second auction purchaser submits that the

second auction has been held by the Financial Institution

pursuant to the orders passed by the learned Single Judge on

20.04.2022 after hearing the parties to the writ petition and

the said order was unsuccessfully challenged by the

borrowers in an intra court appeal. He submits that since the

sale of the property belonging to the borrowers is made

subject to the outcome of the writ petition pending before the

Delhi High Court, for which the borrowers are a party, there is

no merit in the writ appeal filed by the borrowers, and

accordingly, prays to dismiss the appeal.

14. In reply, learned Senior Counsel appearing for the

Financial Institution submits that the borrowers who

admittedly have failed to repay the total outstanding of

Rs.426 Crores, cannot maintain the writ appeal challenging

the order passed by the learned Single Judge, when

admittedly their challenge to the order dated 20.04.2022

passed by the learned Single Judge permitting the Financial

Institution to conduct the second sale was rejected in an intra

court appeal by this Court. He submits that both the sales are

now made subject to the outcome of the writ petition which is

pending before the Delhi High Court which arises out of the

proceedings initiated by the borrowers before the Debt

Recovery Tribunal, and therefore, the borrower cannot have

any grievance against the order passed by the learned Single

Judge.

15. We have considered the rival submissions made and

have perused the records. The Financial Institution had

brought the mortgaged property belonging to the borrower

for sale since their loan account was over due and according

to the Financial Institution the borrower were due to pay a

total amount of Rs.426 crores to them. In the auction sale

that was held on 11.11.2021, the first auction purchaser was

the successful bidder for a sum of Rs.135.01 crores. The first

auction purchaser had deposited a sum of Rs.34.50 crores

before the sale officer on 12.11.2021 which included the

earnest money deposit and the sale was confirmed in its

name on 12.11.2021. In the meanwhile, the borrower had

challenged the sale notice before the Debt Recovery Tribunal,

Delhi, and the said case was transferred to Debt Recovery

Tribunal, Jaipur. On 18.11.2021, the Debt Recovery Tribunal,

Jaipur, had granted an interim order of status quo with

regard to the further proceedings related to public auction

that was held on 11.11.2021. In the writ petition filed by the

Financial Institution challenging the said order of status quo

granted by Debt Recovery Tribunal, Jaipur, the High Court of

Delhi stayed the order of status quo passed by Debt Recovery

Tribunal, Jaipur, and in effect allowed the proceedings to

continue in relation to the public auction held on 11.11.2021

in which the first auction purchaser was the successful bidder.

16. The first auction purchaser had requested for

extension of time to deposit the balance sale consideration

and after considering the same, the Financial Institution had

extended the time on 09.12.2021 which was to expire on

09.02.2022. On 25.01.2022, a letter was issued to the first

auction purchaser by the financial institution to pay the

balance sale consideration within the extended period of time,

failing which, action was proposed to forfeit the amount in

deposit. The said order dated 25.01.2022 was questioned by

the first auction purchaser before the learned Single Judge of

this Court in W.P.No.2710/2022 and on 07.02.2022, the

learned Single Judge had granted two weeks time to the first

auction purchaser to deposit a sum of Rs.15 crores and a

further sum of Rs.15 crores was directed to be deposited

within two weeks thereafter. In view of the interim order

passed on 07.02.2022 by the learned Single Judge of this

Court, on an application made by the Financial Institution, the

further proceedings before the Debt Recovery Tribunal,

Jaipur, was stayed by it.

17. The first auction purchaser thereafter deposited the

balance sale consideration before the Financial Institution on

31.03.2022, and therefore, as on 31.03.2022, the entire bid

amount of Rs.135.01 crores was deposited by the first

auction purchaser. However, the fact remains that the first

auction purchaser had failed to deposit the bid amount within

the prescribed time as provided under the Rules of 2002, and

the terms and condition of the auction sale. It is under these

circumstances, the learned Single Judge heard the learned

Senior Counsel appearing for the parties to the writ petition

and also the borrower who had filed an application for

impleading, and by a detailed order dated 20.04.2022

permitted the Financial Institution to conduct a fresh auction

and accordingly in the fresh auction that was held on

18.05.2022, the second auction purchaser was declared the

successful bidder for a sum of Rs.138 crores and on deposit

of the entire amount of Rs.138 crores within the time

prescribed, the sale was also confirmed in its favour.

18. In the meanwhile, on 07.05.2022, the appeal filed

by the borrower before the Debt Recovery Tribunal, Jaipur, in

TSA NO.10/2021 was allowed and the said order was stayed

by the Delhi High Court in W.P.No.7530/2022 on 13.05.2022.

Therefore, before the mortgaged property was brought for

sale on 18.05.2022 in the second auction sale, the order

passed by Debt Recovery Tribunal, Jaipur, was stayed by the

Delhi High Court.

19. Before proceeding further, it is apposite to take

note of Rule 9(5) which is extracted below for the facility of

reference.

"(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited 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."

20. A reading of Rule 9(5) of the Rules of 2002 makes it

clear that the Financial Institution has power to forfeit the

EMD/deposited amount if the successful purchaser does not

deposit the entire sale consideration within the prescribed

time. It is not in dispute that the auction purchaser has

deposited the entire bid amount of Rs.135.01 crores only as

on 31.03.2022, which admittedly was beyond the prescribed

period. However, the fact remains that in the second auction

sale that was held on 18.05.2022 pursuant to the order

passed by the learned Single Judge on 20.04.2022, the

second auction purchaser had quoted a bid amount of Rs.138

crores and was declared as a successful bidder and the entire

bid amount of Rs.138 crores has been already deposited by it

before the Financial Institution who in turn has also confirmed

the sale in favour of the second auction purchaser.

21. In similar circumstances, the Division Bench of

this Court in W.A.No.262/2020 (THE AUTHORISED OFFICER

vs. S.N.MAHADEVA) considering the provisions of the Rules of

2002, has held in paragraphs 9, 10 and 11 as follows:

"9. The question is, whether, in every case the secured creditor has to forfeit the earnest money deposited, merely because of the use of the word 'shall' in Sub-rule (5) of Rule 9 of 2002 Rules. On a reading of the same, we find that the expression 'shall' has to be read not in a mandatory way, but is only an enabling provision, which is directory. It should be read as 'may' giving a discretion to the secured creditor to either forfeit or not to forfeit the earnest money deposit, keeping in mind the facts and circumstances of each case. In the event, the earnest money deposited is not forfeited, then the defaulting auction purchaser can be given an other opportunity to participate in the subsequent sale and if he turns out to be highest bidder, the earnest money already deposited by him can be adjusted towards the bid amount subsequently bid by the auction purchaser15 and thereafter, the provisions of

Sub-Rules (2) to (4) of Rule 9 of 2002 Rules shall apply.

10. The object of reading the expression 'shall' as 'may' in Sub-rule (5) of Rule 9 of 2002 Rules is to give the auction purchaser one more opportunity to bid for the secured asset offered for sale and a free play to the secured creditor, so that ultimately the secured creditor will be able to sell the secured asset and if circumstances are such, the auction purchaser, who was a defaulter, may ultimately clinch the deal in a subsequent sale, in which event, he must be given the benefit of earnest money that he has already deposited. The reason as to why we say so is, if discretion is given to the secured creditor not to forfeit the earnest money deposited and instead, give the defaulting purchaser another opportunity to bid for the secured asset, that would ensure that there is a bidder who would ultimately bid for the secured asset, as there are many occasions, when the secured asset would not attract any bidder at16m all. In such a case, any number of bids or sale notices put up by the secured creditor would be frustrated when there are ultimately no bidders or takers for the said secured assets. Under the circumstances, we feel that discretion should be given to the secured creditor not to

forfeit the bid amount in the event there is default in payment of balance bid amount and instead, if the property is offered for sale subsequently, an opportunity must be given to the defaulting bidder to have an other opportunity to bid for the said secured asset and in the event, such a defaulting bidder happens to be the highest bidder, the benefit of the earnest money deposited earlier must be given to such a bidder and adjusted accordingly.

11. We also find that the object of the Act and the Rules made thereunder are for recovery of outstanding debts by sale of the secured assets and bearing in mind the same, we do not think that the object and purpose of Sub-Rule (5) of Rule 9 is to punish the auction purchaser17 or to cause hardship to him, rather, the Rule must be read in such a manner that the secured creditor ultimately has the discretion to ensure that there is certain auction purchaser or bidder, who is interested in buying the secured asset, which would ultimately ensure recovery of outstanding debts from the borrowers. Thus the Sub-rule (5) of Rule 9 must be given a purposeful and a practical interpretation rather than a literal or pedantic one. In this context, it is relevant to observe usually, use of the expression "may" is directory requirement and

the expression "shall" would mean mandatory requirement. Normally, mandatory enactment must be obeyed or fulfilled exactly. But, it is sufficient that directory enactment be obeyed or fulfilled substantially. However, a directory provision must be distinguished from a discretionary power. A directory provision gives no discretion and has to be obeyed, but, failure to obey it does nor render in disobedience of it, a nullity. But, a discretionary power would leave the18 donee of the power free to use or not to use it at his discretion. A mandatory provision could also be read as giving discretion to the authority to exercise power having regard to the object of the Act. Usually, use of expression "shall" would raise a presumption that the particular provision is imperative. However, this prima facie inference about the provisions being imperative may be rebutted by other considerations such as object and scope of the enactment and the consequences flowing from such construction. (Source: Justice G.P.Singh "Principles of Statutory Interpretation" 13 th Edition) Thus, there are numerous instances where the word "shall" has been construed as merely directory. Rule 9(5) of the 2002 Rules is one such example. This would be so on ascertaining the real intention of the legislature

by carefully understanding the object of the provision".

22. It is in the background of the judgment in

W.A.No.262/2020, the learned Single Judge had passed an

order on 20.04.2022 permitting the Financial Institution to

conduct fresh sale and also permitted the first auction

purchaser to participate in the said sale proceedings without

depositing any earnest money. In W.A.No.262/2020, the

Division Bench of this Court has held that Rule 9(5) is

required to be construed as directory and not mandatory.

We are in agreement with the aforesaid reasons recorded by

a Division Bench of this Court, wherein it is held that Rule

9(5) of the Rules of 2002 is directory in nature. In the case

of Alisha Khan (supra), the Hon'ble Apex Court considering

the fact that in the subsequent sale that was held by the

bank, the property was sold and as such there was no loss

caused to the bank, had set aside the order of forfeiture of

25% of the amount of auction sale consideration deposited by

the successful bidder in the first auction and directed the

bank to refund the amount after deducting the amount

towards expenditure incurred by the bank for conducting the

second sale/fresh auction.

23. Earnest money/security is furnished to ensure that

a genuine party participates in the bid. The principle of

forfeiture of the earnest money in meant to deter non-

genuine parties or imposters from participating in the bid. It

is also meant to make good the loss the bank may suffer in

the event of a non-genuine party or imposter participating in

the bid commits default and also to recover the expenditure

the bank incurs for conducting the sale. For justifying

forfeiture, loss is required to be pleaded or proved. In the

present case, the Financial Institution has not pleaded or

proved any loss that it has suffered due to belated deposit of

the bid amount by the first auction purchaser. In the

absence of any pleading or proof regarding the loss suffered

by the Financial Institution as a result of the default

committed by first auction purchaser, there is no justification

on the part of the Financial Institution in forfeiting the earned

money deposit.

24. The Hon'ble Supreme Court in the case of GENERAL

M AN AG ER , SR I S I DD ESHW AR A C O OP ERAT IV E BA NK

LIMITED & ANOTHER , has held that though Rule 9 of the

Rules of 2002 is mandatory in nature, it can always be

waived by a party for whose benefit such provision has been

made. This view has been reiterated in the subsequent

judgment in VASU P.SHETTY VS HOTEL VANDANA PALACE &

OTHERS . In the said cases, the secured asset was not

brought for second sale, whereas in the present case, the

secured asset is brought for second sale and undisputedly, it

is sold for a higher price compared to the first sale. In

identical circumstances, the Hon'ble Supreme Court in Alisha

Khan's case supra had directed the Bank to refund the

amount that was deposited by the first auction purchaser.

Though we are in respectful agreement with the law laid

down by the Hon'ble Supreme Court in Ikbal's case as well as

Vasu P.Shetty's case supra, in our considered view, the same

cannot be made applicable to the facts of this case, as

undisputedly, in the present case, the secured asset has been

(2013)10 SCC 83

(2014)5 SCC 660

brought for second sale and the Financial Institution has

gained in the second sale.

25. Further, undisputedly, the borrower had challenged

the sale notice and same was the subject matter of a appeal

filed before Debt Recovery Tribunal, Jaipur, and writ petition

filed before Delhi High Court. In this background, if the first

auction purchaser had requested the Financial Institution to

cancel the sale and refund the amount deposited by it at the

time confirmation of first sale, the same cannot be found fault

with. In the second auction sale the property was sold for a

higher price, and therefore, the Financial Institution had

gained and not suffered any loss. The purpose of forfeiture is

to compensate the party adversely affected by non-

performance of the contract. Therefore, there is no

justification for the Financial Institution to forfeit the earnest

money deposited by the first auction purchaser, more so

having regard to the fact that the second auction purchaser

had deposited the entire bid amount within the time

prescribed before the Financial Institution. Therefore, in our

considered view, the learned Single Judge was completely

justified in directing the Financial Institution to refund/return

the entire amount deposited by the first auction purchaser.

26. The judgments on which the learned Senior Counsel

appearing for the Financial Institution has placed reliance

cannot be made applicable to the facts and circumstances of

the present case. In none of the said cases, the

bank/financial institution had successfully brought the

secured assets for fresh sale fetching them a higher amount,

resulting no financial loss to them. It is trite law that

judgments can be relied as precedents only if it is established

that it would be applicable to the facts and circumstances of

the case on hand.

27. Reliance placed by the learned Senior Counsel

appearing for the Financial Institution on Order XXI Rule 86

CPC is misconceived as there are specific provisions

governing the sale herein under the Rules of 2002. Though

we are in respectful agreement with the law laid down in

Manilal Mohanlal Shahs's case (supra), the said judgment

would not be applicable to the present case as the same has

been rendered interpreting Order XXI Rule 86 of CPC.

28. In so far as the appeal filed by the borrowers is

concerned, it is required to take note that in the writ petition

filed by the first auction purchaser before the learned Single

Judge in W.P.No.2710/2022, the lis was only between the

first auction purchaser and the Financial Institution and the

prayer made in the writ petition was to quash the

notice/endorsement issued by the Financial Institution

threatening forfeiture of deposited amount and reconsider

their representation dated 21.01.2022 made with a request to

cancel the sale and refund the deposited amount. The

borrowers are, therefore, neither a necessary nor a proper

party to the writ petition. The learned Single Judge had,

therefore, rightly not ordered their impleadment as party

respondent to the writ petition, though he has heard them.

The only relief granted in the writ petition is against the

Financial Institution, wherein the Financial Institution is

directed to refund/return the entire deposited money to the

first auction purchaser. The said order/direction is challenged

by the Financial Institution in a independent appeal and the

Financial Institution has not urged any ground before us

regarding the maintainability of the writ petition before the

learned Single Judge. Therefore, in our considered view, it is

not open for the borrowers to raise a plea regarding the

maintainability of the writ petition, more so when the learned

Single Judge has not recorded any finding with regard to the

validity of the second auction sale that was held on

18.05.2022 and when the learned Single Judge has reserved

liberty to the borrowers to challenge the validity of the said

sale before the appropriate authority. All contentions of the

borrower have been left open and second auction sale is

made subject to the result of W.P.No.7530/2022 pending

before the Delhi High Court. Therefore, we find merit in the

contentions urged by learned Senior Counsels appearing for

the financial institution as well as the second auction

purchaser that the borrowers cannot be considered as

aggrieved persons against the impugned order passed by the

learned Single Judge. The question regarding the

maintainability of writ petition therefore need not be

considered by us at the instance of the borrower in an appeal

filed by them against the order passed by the learned Single

Judge for which undisputedly they are not a party and when

the Financial Institution who was the party respondent to the

writ petition had not raised the said ground before us.

29. The question whether the second auction sale

violates Rule 8(5) of the Rules of 2002 also need not be

answered by us, as the learned Single Judge has not recorded

any finding with regard to the validity of the second auction

sale held on 18.05.2022. The borrowers have been granted

liberty by the learned Single Judge to challenge the validity of

second auction sale before the appropriate authority, and

therefore, the validity of the second auction sale or otherwise

need not be considered by us. Under the circumstances, we

do not find any merit in the writ appeal filed by the

borrowers. Accordingly the following order:

The writ appeals are dismissed.

SD/-

ACTING CHIEF JUSTICE

SD/-

JUDGE

KK