Karnataka High Court
Mr Subramanya Rao K vs The Authorized Officer Canara Bank on 12 January, 2024
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
Reserved on : 08.01.2024
Pronounced on : 12.01.2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 12TH DAY OF JANUARY, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.3677 OF 2022 (GM-RES)
BETWEEN:
1. MR. SUBRAMANYA RAO K.,
S/O LATE K.NARAYANA RAO
AGED ABOUT 58 YEARS
JAYANTHI NAGARA, 2ND CROSS
NEAR TALUK OFFICE, KARKALA - 574 104
UDUPI DISTRICT.
2. MRS. H.N.NAGARATHNA
W/O SUBRAMANYA RAO K.,
AGED ABOUT 56 YEARS
JAYANTHI NAGARA, 2ND CROSS
NEAR TALUK OFFICE, KARKALA - 574 104.
UDUPI DISTRICT.
... PETITIONERS
(BY SRI. ADITYA SONDHI, SENIOR ADVOCATE FOR
SRI. RAVIKUMAR A. S., ADVOCATE)
2
AND:
THE AUTHORIZED OFFICER
CANARA BANK, ARM-1
NO. 86, SPENCERS' TOWER
M.G.ROAD, BENGALURU - 560 001.
... RESPONDENT
(BY SRI. VIGNESH SHETTY, ADVOCATE FOR C/R)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO DIRECT THE
RESPONDENTS TO CONSIDER THE REPRESENTATION
DTD.28.1.2022 BY THE PETITIONERS ANNEXURE-E.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 08.01.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioners/auction purchasers are knocking at the doors
this Court seeking a direction for consideration of their
representation dated 28-01-2022 or in the alternative, direct refund
of an amount of `3.25 crores deposited with the Bank. In this order
reference to petitioner would be reference to both petitioners.
2. Heard Sri Aditya Sondhi, learned senior counsel appearing
for the petitioners and Sri Vignesh Shetty, learned counsel
appearing for the respondent.
3. Facts adumbrated are as follows:-
Loan is advanced by the respondent/Canara Bank ('the Bank'
for short) to one M/s SPR Spirits Private Limited. The borrower
defaults in repaying the amount which led the Bank to put up the
property of the borrower that was the subject matter of mortgage
with the Bank to sale. Accordingly, an e-auction sale proceeding
takes place on 29-11-2021. The subject property is sold for `13/-
crores and the petitioner emerges as the successful bidder for
having purchased it for the said sum. In terms of law, the petitioner
was directed to deposit 25% of the final bid amount which the
petitioner complied with on 30-11-2021 i.e., the next day.
Remaining 75% of the amount was directed to be paid within 15
days thereof i.e., on or before 14-12-2021. It is then the petitioner
communicates that he is making arrangements for payment of 75%
of the amount and sought time. In the same way time was sought
by the petitioner on four occasions and finally the Bank declined to
extend the time and forfeited the entire amount deposited by the
petitioner in terms of its communication dated 02-03-2022. The
Bank does not stop at that, but a second auction is said to have
been conducted of the same property in which the Bank recovers an
amount of `11.02 crores(statement of objections). This information
is sought by the petitioner which is not divulged by the bank. It is
later the petitioner goes on making representations for refund of
the amount or consideration of his representation for extension of
time. This was not considered. It appears that after the second
sale in which the Bank had recovered close to `12/- crores from the
auction purchaser therein struck a settlement with the borrower by
way of One Time Settlement ('OTS' for short) The OTS is accepted
by the borrower and an amount of `41,24,99,941.00 is paid by the
borrower in full and final settlement of the dues over the property.
It is, therefore, the petitioner coming to know about the OTS files
an application under the Right to Information Act seeking those
documents. The documents are not divulged holding that the
petitioner is a third party and is not entitled to those documents.
By then, the petitioner had preferred the subject writ petition
seeking the aforesaid prayer and on coming to know of OTS files an
application seeking a direction to refund the entire amount. The
Bank files its objections to the petition and also to the application.
It is at that stage, the matter was heard.
4. The learned senior counsel Sri Aditya Sondhi, appearing for
the petitioner would vehemently contend that the petitioner
emerged as a successful bidder in the auction, diligently deposited
25% of the total bid amount i.e., `3,25,00,000/- on the next day of
the auction sale, but due to pandemic could not fulfill remaining
payment immediately. He sought time to make payment and the
Bank had accepted the representation of the petitioner for
extension of time. The Bank then forfeits the amount contending
that law permits such forfeiture. It is at that juncture the petitioner
had approached this Court seeking refund. The petitioner then
comes to know that the Bank itself had entered into OTS with the
borrower and on such fulfillment of the terms closed the account of
the borrower. Therefore, if the Bank had entered into OTS with the
borrower, it cannot forfeit the amount of `3.25 crores of this
innocent auction purchaser. He would seek to place reliance upon
several judgments which would bear consideration in the course of
the order.
5. Per-contra, the learned counsel appearing for the
respondent Sri Vignesh Shetty would vehemently refute the
submissions contending that the petitioner himself is responsible for
such forfeiture. The Bank had put up the property for a second sale
in which the Bank had to reduce the price from `13/- crores to
`11.02 crores. Therefore, the loss is due to the action of the auction
purchaser for having not fulfilled the payment of remaining 75%.
He would admit that OTS no doubt is entered into with the borrower
and the account is closed. That does not mean that the petitioner
can escape the rigour of the statute. It permits forfeiture of the
amount. He would seek dismissal of the petition.
6. I have given my anxious consideration to the submissions
made by the respective learned counsel and have perused the
material on record.
7. The afore-narrated facts are not in dispute. The issue lies
in a narrow compass as to whether the Bank is entitled to forfeit
the amount deposited by the auction purchaser on the date of
auction and in what circumstances?
8. The property was put to auction pursuant to a sale notice
issued on 29-11-2021. The petitioner emerges as the successful
bidder. The communication of receipt of amount of 25% which
would be `3.25 crores reads as follows:
"Date: 30-11-2021
To,
SRI K.SUBRAMANYA RAO S/O SRI KARKALA NARAYANA RAO,
SMT. NAGARATHNA HN W/O SUBRAMANYA RAO K
# 1-207 2nd Cross Near Taluk Office,
Jayanthinagara Kukkundoor Karkala
Udupi Dist - 576 117, Karnataka.
Dear Sir/Madam,
Sub: PUBLIC AUCTION OF PROPERTY - IN THE
ACCOUNT OF M/S SPR SPRIRITS PVT.LTD. - LAND &
BUILDING AT No.19 (OLD NO. 283) 11TH CROSS,
WILLSON GARDEN, BENGALURU - 560 027) - REGD.
Ref: Sale Notice dated 22-10-2021 and out letter ARM-1/
CR-400/581/2021/AK date 29-11-2021.
In terms of the above acceptance letter dated 29-11-
2021, you have remitted 25% of the bid amount and
we are glad to inform you that the sale is confirmed in
your favour by the Bank and you are advised to remit
the balance of the bid amount at `13,00,00,000/- on
or before of 14th December 2021, failing which the
25% amount remitted by you shall be forfeited
forthwith without any further notice to you.
On receipt of the entire sale amount, the Sale
Certificate will be issued in your favour as per the
procedure."
(Emphasis added)
The Bank directed that the petitioner should pay the entire amount
of `13/- crores on or before 14-12-2021 failing which 25% would
be forfeited. The petitioner not being in a position to immediately
fulfill the payment of entire amount owing to COVID-19 pandemic,
submits a representation seeking extension of the period. The
representation is submitted on 10-12-2021. It reads as follows:
"Date:10-12-2021
Place: Karkala
From:
Smt. Nagarathna H.N.,
Mr. Subramanya Rao K.,
Residing at 1-207, 2nd Cross, Near Taluk Office,
Jayanthinagar, Kukkundoor
Kukkundoor, Karkala, Karkala Taluk, Udupi District-574 104.
To,
The Authorised Officer,
Arm-1 Canara Bank, Bangalore.
Sir,
Subject: Regarding the extension of time to pay the balance
bid amount;
As you are aware that, on 29-11-2021 we have purchased
the property bearing No.19, 11th Cross, Wilson Garden
Bangalore-560027 in E-Auction conducted by you. We also
paid 25% of the bid amount i.e., `3,25,00,000/- (Rupees
Three Crores Twenty Five Lakhs only) as per the terms and
conditions of the E-auction proceedings. Now we are require
to pay the 75% balance bid amount i.e., `9,75,00,000/-
(Nine Crores Seventy Five Lakhs only) within 15 days as per
your auction confirmation letter dated 30-11-2021.
We have approached for loan to HDFC Bank Limited for
payment of balance bid amount of `9,75,00,000/- by
pledging our other properties which is under process.
In the process of loan the HDFC Bank Ltd., sought
some details/clarification with regard to the existing
loan and furnished the same.
Since the loan process in HDFC Bank Limited is under
process, we request you to grant another 30 more
days time to pay the balance bid amount of
`9,75,00,000/- (Nine Crores Seventy Five Lakhs only)
with effect from 14.12.2021. Kindly do the needful."
(Emphasis added)
The petitioner represents to the Bank that he has approached HDFC
Bank Limited ('HDFC') for a loan for fulfilling the entire bid amount
and the HDFC is in the process of granting the said loan and has
sought certain clarification. Time of 30 more days was sought from
14-12-2021. This is accepted by the Bank by the following
communication:
"Date: 21-12-2021
To,
Smt. Nagarathna H N
Sri M. Subramanya Rao K
# 1-207, 2nd Cross Near Taluk Office
Jayanthinagar Kukkundoor Karkala Taluk
Udupi Dist-574 104.
Dear Sir,
Sub: PUBLIC AUCTION OF THE PROPERTY - IN THE
ACCOUNT OF M/S SPR SPIRITS PVT.LTD.
W.R.T.MORTGAGED SECURITY AT: Land & Building at
No.19 (Old No.283) 11th Cross, Wilson Garden,
Bengaluru - 560 027 - (Regd.)
Reference is made to your letter dated 10-12-2021
Your request for extension of time for payment of the
balance sale consideration of `9,75,00,000/- is
considered favourably and you are permitted time till
28-12-2021 for payment of the said amount.
It may be noted that failing to deposit the said amount
within the extended time frame by you in pursuance to
the said action, the amount already deposited will be
forfeited without any further notice.
On receipt of the entire sale amount, the sale
certificate will be issued in your favour as per
procedure."
(Emphasis added)
The time is extended not for 30 days but 15 days. The petitioner
then represented to the Bank on 13-01-2022 stating that HDFC has
sought some more days time to complete the loan process and
further sought time for making good the remaining 75%. The Bank
by its communication dated 13-01-2022 contended that it would be
a final chance by the following reply:
"Date: 13-01-2022
To,
Sri K.Subramanya Rao S/o Sri Karkala Narayana Rao,
Smt. Nagarathna HN W/o Subramanya Rao K
# 1-207 2nd Cross Near Taluk Office, Jayanthinagara
Kukkundoor Karkala, Udupi Dist-576 117, Karnataka.
Dear Sir/Madam,
Sub: M/s SPR SPIRITS PVT. LTD - E.Auction on 29-11-
2021 - REGD.
Reference is made to your letter dated 13-01-2022.
In the e-auction held on 29-11-2021 you were declared
successful bidder upon payment of 25% of final bid amount
and was required to pay remaining 75% within 15 days (i.e.,
14th December, 2021) but you failed to remit the same,
instead had requested for 30 days time extension which was
considered by the competent authority on special grounds
and you were permitted to pay by 28.12.2021.
It is noted that you had failed to honour the consideration
extended as a special case. Thus violating the Terms &
Conditions of the sale notice which clearly stipulates that
"The successful bidder shall deposit 25% of the sale
price (inclusive of EMD already paid) immediately on
declaring him/her as the successful bidder and the
balance within 15 days from the date of confirmation
of sale by the secured creditor. If the successful bidder
fails to pay the sale price, the deposit made by him
shall be forfeited by the Authorised Officer without any
notice".
Now we are once again in receipt of your letter dated
13.01.2022 requesting for 30 days time for payment of
balance of sale consideration. The same was placed to
competent authority who has noted your action of repeated
request as not appreciable and however, as a last and final
chance the authority has permitted time till 28 Jan 2022.
You are hereby advised to remit the balance amount on or
before 28 Jan 2022 failing which the amount deposited will
be forfeited without any further notice."
The petitioner however again represented on 28-01-2022 and on
09-02-2022, explained the circumstances and sought some more
time to make good the amount, as the officials of HDFC Bank had
all been infected with COVID-19 and sanction process is yet to
complete. The representation dated 09-02-2022 reads as follows:
"Date: 09-02-2022
Place: Karkala
From,
Smt. Nagarathna H.N.,
Mr. Subramanya Rao K,
Residing at 1-207, 2nd Cross,
Near Taluk Office,
Jayanthinagar, Kukkundoor, Kukkundoor,
Karkala,
Karkala Taluk,
Udupi District-574 104.
To,
The Authorised Officer,
Arm-1 Canara Bank,
M.G. Road, Bangalore-01.
Sir,
Subject: Regarding the extension of time to pay the balance
bid amount.
******
1. As you are aware that on 29-11-2021 we have
purchased the property bearing No.19, 11th Cross,
Wilson Garden, Bengaluru 560 027 in E-Auction
conducted by you. We also paid 25% of the bid
amount i.e., `3,25,00,000/- (Rupees Three Crores
Twenty Five Lakhs only) as per the terms and
conditions of the E-auction proceedings. Now we are
require to pay the 75% balance bid amount i.e.,
`9,75,00,000/- (Nine Crores Seventy Five Lakhs only)
within 15 days as per your auction confirmation letter
dated 30-11-2021.
2. We have approached for loan to Bank Ltd., for
payment balance bid amount of `9,75,00,000/-
by pledging our other properties. However, later
on the HDFC Bank Ltd., after taking lot of time
the HDFC Bank Ltd. refused to grant loan even
after furnishing the entire documents by giving
reasons of COVID-19 since we purchasing Hotel
in Covid situation.
3. We approached IIFL for loan by mortgaging our
property to pay the `9,75,00,000/- (Nine Crores
Seventy Five Lakhs only).
4. Meantime we also received letters that the
property we have purchased in auction is
involved in loan transaction with SVC Co-
operative Bank. We request you to confirm the
title of the above said property being absolutely
clear from any legal issues, attachment. We are
investing our hard earned money apart from
raising loan on the security of the properties we
own.
5. We request you to permit us to inspect the original
title deeds of the property auctioned.
6. If for any reason the title of the property auctioned is
not clear we reserve ours selves the liberty of seeking
return of the 25% of the bid amount we have
deposited with you.
7. After taking all the details and also considering
the COVID-19 situation, the IIFL has agreed to
sanction loan. They have completed all the
formalities and agreed to sanction the loan. The
IIFL official also communicated the loan process
to you over the telephone on the last occasion.
You have extended time for payment of
`9,75,00,000/- (Nine Crores Seventy Five Lakhs
only) only for 10days in spite of our request for
30 days time. The amount to be raised as loan is
a huge amount and therefore the process takes
longer time. Due to COVID outbreak, the IIFL
Bank Officials could not complete the formalities.
The officials of the IIFL also infected with COVID
and due to these reasons they could not visit the
properties and our place in time. Now they have
completed all the processes. The IIFL Bank
sought 20 more days time to sanction and
complete the loan process. Hence, we request
you to grant another 30 more days time to pay
the balance bid amount of `9,75,00,000/- (Nine
Crores Seventy Five Lakhs only) with effect from
10-02-2022 or else to refund the bid amount of
25% deposited with you. Further we have
already requested you to grant loan from Canara
Bank any Branch Bangalore by pledging auction
property as well my other two properties, hope
we you oblige and do the needful."
(Emphasis added)
After the representation dated 09-02-2022 the petitioner knocked
at the doors of this Court on 11-02-2022 in this petition seeking the
aforesaid prayer. During the pendency of the writ petition it
appears that the Bank reiterates its stand and communicates the
following order on 02-03-2022:
"Date: 02-03-2022
To,
Sri K.Subramanya Rao S/o Sri Karkala Narayana Rao,
Smt. Nagarathna HN W/o Subramanya Rao K
# 1-207 2nd Cross Near Taluk Office, Jayanthinagara
Kukkundoor Karkala, Udupi Dist-576 117, Karnataka.
Dear Sir/Madam,
Sub: M/s SPR SPIRITS PVT. LTD - E.AUCTION ON
29.11.2021 - REGD.
Ref: Our letter dated ARM-1/CR-400/586/2021/2021 dated
30-11-2021.
In the subject e-auction you were declared the highest
bidder an auction was confirmed in your favour vide above
referred letter upon payment of 25% of the final bid amount
and was required to pay the remaining 75% before the
fifteenth day of confirmation of sale of the immovable
property or such extended period as may be agreed upon in
writing between purchaser and the secured creditor.
The sale was confirmed on 30-11-2021 and upon
repeated request from your end for extension of time
the competent authority permitted time within the
framework of the SARFAESI Act. The requested
permission was conveyed to you every occasion
quoting the adversities as per the prevailing laws in
case of your defaulting the payment within the
stipulated time frame. As per the Rule 9(4) of Security
Interest (Enforcement) Act, 2002 we have permitted
maximum time possible to avoid un-pleasantness.
As you have failed to make the remaining amount of
the auction proceeds within the time frame as
stipulated in the Rule 9(4) of Security Interest
(Enforcement) Act, 2002, the Bank is constrained to
invoke Rule 9(5) of Security (Enforcement) Act, 2002.
Thus, it is informed that provision quoted above has
been invoked and amount deposited by you with
regard to the said e-auction has been forfeited."
(Emphasis added)
9. Certain developments take place during the pendency of
the writ petition. The petitioner however, is kept in dark. The
petitioner, on coming to know that another sale has taken place of
the very property in respect of which the petitioner had emerged as
successful bidder, files an application under the Right to
Information Act seeking those details. The stand of the Bank was
that in the second sale the Bank had suffered loss as the property
had to be sold for a lesser price than what was the amount of bid
when the petitioner had participated in the auction. The same was
not divulged holding that the petitioner was a third party. It is
then, the petitioner files an application before this Court on
03-11-2023 appending certain documents including Encumbrance
Certificate qua the subject property. The Encumbrance Certificate
does not show any name of auction purchaser or transfer of
property to the name of the auction purchaser. Therefore, if the
Bank had put up the property for sale for the second time and has
registered a sale certificate in favour of the second auction
purchaser, it ought to have been reflected in the Encumbrance
Certificate in the least. The Bank has filed its statement of
objections but has no where mentions the notification of second
sale or name of the successful bidder in the second sale. Therefore,
the second sale having taken place at the hands of the Bank itself is
in doubt.
10. Yet another circumstance that would belie the stand of
the Bank is that the Bank generates talks of OTS with the borrower
and settles the entire loan that was in due for an amount of
`41,24,99,941.00 and it is stated that the entire loan amount is
recovered. This is not made known to the petitioner. In reply to the
application so filed, the Bank admits the said payment and
settlement. The relevant paragraphs of the objections to the
application reads as follows:
"C. With reference to paragraphs 4 & 5 (3 in
the I.A) of the said Application, save and
except what are matter of record, every
allegation contrary thereto and/or
inconsistent therewith are denied and
disputed. The Bank sold the property in a
subsequent sale by issuing sale notice
dated 02-03-2022. The sale was held on
19-03-2022 in which the successful bidder
paid paid Rs.11.02 crores. The Respondent
Bank has also issued the sale certificate to
the successful auction purchaser. As
already stated above, the respondent Bank
had incurred loss of Rs.1.98 crores as the
property was subsequently sold for
Rs.11.02 crores only. The respondent Bank
had also incurred a loss of Rs.25.13 crores
as extra interest due to non-payment of
sale amount within due date till the date of
next sale. The petitioners claim that the
Bank had incurred only Rs. 1.98 crores is
without any proof of the same. It is not the
respondent's duty to inform the petitioner
about any transaction entered between the
Respondent Bank and the borrower. The
petitioners cannot claim it as a right and
file such frivolous applications. The
respondent Bank has every right to invoke
Rule 9(5) of Security (Enforcement) Act,
2002 and forfeit the money if the same is
not paid within the stipulated time.
D. With reference to paragraph 5 of the said
Application, save and except what are
matter of record, every allegation contrary
thereto and/or inconsistent therewith are
denied and disputed. The respondent Bank
has produced all the documents which are
necessary for the present case. However,
the documents pertaining to OTS cannot be
claimed by the petitioner as the petitioner
is a third party to the transactions entered
between the respondent Bank and the
borrower. Sheer lies and wrong notion of
law being narrated by the petitioners to
deprive the respondent of its legitimate
claim and frustrate the proceedings being
initiated under Law. However, the
respondent Bank states that the account of
the borrowers have been settled under OTS
on 05.03.2023 and an amount of
`41,24,99,941.00 (Rupees Forty One Crore
Twenty Four Lakhs and ninety Nine
Thousand and Nine Hundred Forty One
only) has been recovered in the account.
7. The petitioners have filed the present
application with the sole intention to harass the
Respondent Bank and restrain of its legitimate
claim. There is no substance in the present
Application and the same is wholly
unmeritorious, contrary to the well settled
principles of law. Sheer lies being narrated by
the petitioners to deprive the respondent of its
legitimate claim and frustrate the proceedings
being initiated under law."
(Emphasis added)
Therefore, in the cross fire between the borrower and the Bank who
at all times have spoken for OTS and closed the loan, the petitioner
is caught and his amount of `3.25 crores is forfeited by the Bank. It
would have been an altogether different circumstance if the Bank
had not spoken to the borrower and negotiated for OTS. The
situation now is that the Bank has initiated OTS and closed the
entire loan amount recording full and final settlement, on the
borrower paying the entire loan amount. This is the admission in
the statement of objections. But, what is projected now is loss of
`1.98 crores by the Bank for putting up the property to second sale.
No document is produced by the Bank along with the objections to
the application, except making averment that the Bank sold the
property in the subsequent sale by issuing a sale notice on
02-03-2022 and the sale was held on 19-03-2022.
11. Two circumstances would again belie the statement of
objections even. The first objection by the Bank was filed on
28-03-2022. It is verified by the Assistant General Manager and the
authorized officer through an affidavit appended to the statement of
objections which is also dated 28-03-2022. The objections filed to
the application quoted supra mentions two dates of subsequent
sale, one is the sale notice on 02-03-2022 and holding the sale on
19-03-2022. Both these dates are prior to 28-03-2022. No
document of sale notice or confirmation of sale or sale certificate
issued in favour of any auction purchaser in the second sale is
appended. It is neither appended to the statement of objections nor
to the objections filed to the application. It is only an averment by
the Bank. To the contrary, the petitioner has produced
Encumbrance Certificate which shows no confirmation of sale being
registered in favour of any auction purchaser.
12. Therefore, when the documents produced by the
petitioner demonstrate that the Bank has not registered
confirmation of sale in favour of any auction purchaser, it cannot be
said that the Bank has suffered any loss for it to forfeit the amount.
What the Bank has done is keeping the petitioner in the dark, as
also this Court, by not divulging any documents with regard to the
second sale and confirmation of sale in favour of any subsequent
auction purchaser. Therefore, it is construed that there is no such
sale and if there is no such sale, it is axiomatic that there is no loss
caused to the Bank. The Bank then initiates OTS and closes the
loan of the borrower. Therefore, according to the Bank all was well
and ended well. It is only the petitioner who is now shown end of
the stick by forfeiture in the circumstances. In the considered view
of the Court, the Bank being a State under Article 12 of the
Constitution of India, has conducted itself in a manner which does
not behoove its status. The petitioner thus becomes entitled to the
refund of the amount deposited by him on the date of auction.
13. Judgments are relied on by the learned counsel for the
respondent/Bank to contend that it is entitled to forfeit the amount.
There can be no qualm about the principles laid down therein. The
applicability of those judgments is what is to be seen. In
AGARWAL TRACOM PRIVATE LIMITED v. PUNJAB NATIONAL
BANK1 the Apex Court holds as follows:
".... .... ....
28. We also notice that Rule 9(5) confers express
power on the secured creditor to forfeit the deposit made by
the auction-purchaser in case the auction-purchaser commits
any default in paying installment of sale money to the
secured creditor. Such action taken by the secured creditor
is, in our opinion, a part of the measures specified in Section
13(4) and, therefore, it is regarded as a measure taken
under Section 13(4) read with Rule 9(5). In our view, the
measures taken under Section 13(4) commence with any of
the action taken in clauses (a) to (d) and end with measures
specified in Rule 9.
.... .... ...."
Reliance by the learned counsel for the respondent is placed on the
afore-quoted paragraph. It only permits forfeiture of the amount
deposited in the event of default by the auction purchaser. The
Bank entering into OTS and closing the loan of the borrower did not
form consideration before the Apex Court.
(2018) 1 SCC 626
14. On the other hand, certain judgments relied on by the
learned senior counsel for the petitioner are apposite to be
considered. This Court in the case of E.ALI v. THE SYNDICATE
BANK2 has held as follows:
"11. Chapter III of the Act provides for enforcement
of security interest. Sub-Section (1) of Section 13 states that
notwithstanding anything contained in Sectioas 69 or 69A of
the Transfer of Property Act, 1882, any security interest
created in favour of any secured creditor may be enforced,
without the intervention of the Court or Tribunal by such
creditor in accordance with the provisions of the said Act.
Sub-Section (2) of Section 13 provides for issuance of
notice to the borrower to discharge his full liabilities to the
secured creditor within 60 days from the date of notice
failing which the secured creditor shall be entitled to exercise
all or any of the rights under sub-Section (4).
The expression 'borrower' has been defined in sub-
Section (1)(f) of Section 2, which means any person who has
been granted financial assistance by any Bank or financial
institution or who has given any guarantee or created any
mortgage or pledge as security for the financial assistance
granted by any Bank or financial institution and includes a
person who becomes borrower of a securitization company or
reconstruction company consequent upon acquisition by it of
any rights or interest of any Bank or financial institution in
relation to such financial assistance. Thus, the person, who
has given guarantee or created any mortgage or pledge as
security for the financial assistance granted by the Bank is
also a borrower.
ILR 2015 KAR 3060
Sub-Section (3) of Section 13 provides for the
particulars to be given in the notice to the borrower and sub-
Section (3 A) provides for the consideration of objections, if
any, filed by the borrower.
Sub-Section (4) of Section 13 lays down the
consequences in case the borrower fails to discharge his
liability in full within the period specified in sub-Section (2).
It states that in case the borrower fails to discharge his
liability in full within the period specified in sub-Section (2),
the secured creditor may take recourse to one or more of the
measures mentioned in Clauses (a) to (d) of the said
provision to recover his secured debt. Under sub-Section
(4)(a) of Section 13, the secured creditor is authorized to
take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment or
sale for realising the secured asset and sub-Section (4)(b)
provides for taking over the management of the business of
the borrower including the right to transfer by way of lease,
assignment or sale for realizing the secured asset.
Sub-Section (6) of Section 13 states that any transfer
of secured asset after taking possession thereof or take over
of management under sub-Section (4), by the secured
creditor or by the manager on behalf of the secured creditors
shall vest in the transferee all rights in or in relation to the
secured asset transferred as if the transfer had been made
by the owner of such secured asset.
The other two relevant provisions are sub-Sections (8)
and (13) in Section 13. Sub-Section(8) states that if the
dues of the secured creditor together with all costs, charges
and expenses incurred by him are tendered to the secured
creditor at any time before the date fixed for sale or transfer,
the secured asset shall not be sold or transferred by the
secured creditor, and no further step shall be taken by him
for transfer or sale of that secured asset.
Sub-Section (13) states that no borrower shall, after
receipt of notice referred to in sub-Section (2), transfer by
way or 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.
12. Section 14 authorises the Chief Metropolitan
Magistrate or District Magistrate to assist secured creditor in
taking possession of secured asset. It states that where the
possession of any secured asset is required to be taken by
the secured creditor or if any of the secured asset is required
to be sold or transferred by the secured creditor under the
provisions of the said Act, the secured creditor may, for the
purpose of taking possession or control of any such secured
asset, request, in writing, the Chief Metropolitan Magistrate
or District Magistrate within whose jurisdiction any such
secured asset or other documents relating thereto may be
situated or found, to take possession thereof and the Chief
Metropolitan Magistrate or as the case may be the District
Magistrate shall on such request being made to him take
possession of such asset and documents relating thereto and
forward such assets and documents to the secured creditor.
13. Rule 8 of the Security Interest (Enforcement)
Rules, 2002 ('Rules' for short) provides for sale of immovable
secured assets and Rule 9 provides for time of sale, issue of
sale certificate and delivery of possession. Sub-Rule (9) of
Rule 9 states that the authorized officer shall deliver the
property to the purchaser free from encumbrances known to
the secured creditor on deposit of money as specified in sub-
Rule (7).
14. From sub-Section (4)(a) of Section 13, it is clear
that if the borrower fails to discharge his liability in full within
the period specified in sub-Section (2), the secured creditor
may take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment or
sale for realizing the secured asset. If the dues of the
secured creditor are paid under sub-Section (8) of Rule 13
before the date fixed for sale or transfer, the secured asset
shall not be sold or transferred by the secured creditor.
Therefore, if the secured assets are in lawful possession of
the third party, for example, a tenant or a mortgagee, etc.,
the secured creditor can only take symbolic possession of the
property under the SARFAESI Act. Sale of immovable
property with vacant possession will always fetch better
price. The object of sale by holding public auction or by
inviting tenders from the public under sub-Rule (5) of Rule 8
is to fetch the best price. The secured asset has to be sold in
public auction after taking physical possession as far as
possible and transfer the same to the purchaser is spelt out
in sub-Section (6) of Section 13 and sub-Rule (9) of Rule 9.
It is also clear that before the date fixed for sale or actual
transfer of the property, if the borrower pays the dues to the
secured creditor, the secured asset shall not be sold or
transferred by the secured creditor. In my view, if the
property is in possession of the borrower or if it has been
transferred to third parties contrary to sub-Section (13) of
Section 13, the secured creditor has to first take vacant
possession under Section 14 from the borrower or the third
party as the case may be and thereafter it has to be sold by
holding public auction or by inviting tenders.
15. In the instant case, the secured creditor has not
taken physical possession of the property though it was in
possession of the borrower. Before actual transfer of the
possession of the property could be made, the borrower has
paid the entire dues to the secured creditor in terms of the
settlement arrived at between them. In the circumstances,
question of the bank transferring the property to the
petitioner does not arise. This is in conformity with sub-
Section (8) of Section 13. In view of the same, the bank
cannot retain 25% of the amount deposited by the petitioner
in pursuance of the auction made in terms of the sale notice
at Annexure 'A'.
The afore-quoted judgment was a case where an auction purchaser
had defaulted in payment and the borrower later cleared entire
dues to the secured creditor in terms of a settlement arrived at. The
co-ordinate Bench holds that the Bank could not have forfeited the
amount or retained the amount of 25% in pursuance of the auction
sale, in the light of the settlement. Another coordinate bench of
this Court in P.BALAJI BABU v. STATE BANK OF INDIA3, while
considering an identical circumstance of the Bank entering into
OTS, has held as follows:
".... .... ....
12. The next substantial contention urged by the
learned counsel for the petitioner is that respondent No. 1
has settled the loan account of borrower Sri. Jignesh Patel by
accepting the proposal of OTS and receiving the amount
under the same. Respondent No. 1 has filed an affidavit on
26.03.2022, wherein para 2 and 3 of the said affidavit read
as follows:
"2. I state that there was a loan account of M/s
Bangalore Timbers, represented by its Proprietor (Mr.
Jignesh N. Patel). On verification, I came to know that
the said loan account was settled under One Time
Settlement Scheme and under the said scheme the
Bank has waived interest and other charges.
3. I state that when the outstanding loan
amount was due from the borrower M/s Bangalore
Timbers, the then Asset Recovery Branch initiated
proceedings under the provisions of The Securitisation
and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 and I came
to know during the course of proceedings under
SARFAESI Act, the property was auctioned and one
Sri. P. Balaji Babu was one of the bidders and the
same was accepted by the Asset Recovery Branch and
it is not within my knowledge the further development
of the public auction. However, from the records
available in the Branch, I state that the loan account
was closed through compromise under One Time
Settlement Scheme by third party Dr. Ramanuja and
the Bank under the said scheme has waived interest
and other charges."
2022 SCC OnLine Kar 853
13. The above shows that loan account for realization
of which the sale was held was ultimately settled to the full
satisfaction of respondent No. 1 by receiving the payment
favouring the account of the borrower Sri. Jignesh N. Patel
by third party Dr. Ramanuja and closed the account. Since
payment has been accepted and loan account has been
closed, respondent No. 1 cannot now say that it has suffered
any loss or damages. If that is so, there is no justification on
the part of respondent No. 1 in retaining the amount
deposited by the petitioner in whose favour respondent No. 1
in any case was not in a position to pass full title on account
of the borrower/mortgagor transferring the property in
favour of Smt. Naina J. Patel. Respondent No. 1 has taken a
position in the writ petition that since the assets were taken
over by it under the provisions of SARFAESI Act, the gift
deed executed by Sri. Jignesh N. Patel in favour of Smt.
Naina J. Patel would not have any legal effect on the efficacy
of sale and transfer of title in favour of highest bidder
pursuant to sale notification dated 15.10.2010 (Annexure-A).
The validity of such contention need not be gone into for two
reasons namely, firstly, respondent No. 1 has settled the
loan account with its borrower by making OTS proposal and
accepting payment towards the account of the borrower Sri.
Jignesh N. Patel on the premise of full and final settlement
and once that is done the security given for the due payment
of the loan gets released rendering it no more available for
sale. Secondly, even if the contention of respondent No. 1 on
the legal effect of sale under the SARFAESI Act is correct, the
petitioner was justified in entertaining a doubt regarding the
outcome of such a sale on passing title to him and on the
said basis insisting upon respondent No. 2 to clear the title
and withholding the balance sale price and in such a situation
respondent No. 1 having settled the loan account with the
borrower cannot mulct the further part consideration amount
deposited by the petitioner. Since respondent No. 1 has not
suffered any loss or damage, it is not entitled to retain the
amount of Rs. 24,10,000/- deposited by the
petitioner UNION OF INDIA v. RAMPUR DISTILLERY AND
CHEMICAL CO. Ltd.
.... .... ...."
Further, it becomes apposite to refer to the judgment of the Apex
Court in the case of ALISHA KHAN v. INDIAN BANK4 wherein the
Apex Court has held as follows:
".... .... ....
3. Having gone though the impugned judgment and
orders passed by the High Court, we are of the opinion that
the High Court ought to have allowed the refund of the
amount deposited being 25% of the auction sale
consideration. Considering the fact that though initially the
appellant deposited 25% of the auction sale consideration,
however, subsequently she could not deposit balance 75%
due to COVID-19 pandemic. It is required to be noted that
subsequently the fresh auction has taken place and the
property has been sold. It is not the case of the respondents
that in the subsequent sale, lesser amount is received. Thus,
as such, there is no loss caused to the respondents.
4. Considering the aforesaid facts and circumstances,
we allow these appeals and set aside the order of forfeiture
of 25% of the amount of auction sale consideration and
direct the respondent Bank to refund/return the amount
earlier deposited by the appellant, deposited as the part
auction sale consideration (minus 50,000/- towards the
expenditure which were required to be incurred by the
respondent Bank for conducting the fresh auction) within a
period of four weeks from today."
The Apex Court holds that the High Court ought to have allowed
refund considering the fact that the petitioner had deposited the
amount of 25% and the balance of 75% was not paid owing to
COVID-19 pandemic and the Bank had subsequently sold the
2021 SCC OnLine SC 3340
property in a fresh auction. `50,000/- expenditure was permitted to
be withheld and the remaining amount was directed to be refunded.
It is these judgments that would become applicable to the facts of
the case on hand and not the one relied on by the learned counsel
for the respondent.
15. The High Court of Andhra Pradesh in the case of SYED
HIDAYATHULLA V. AUTHORIZED OFFICER, CANARA BANK5
has held as follows:
"This writ Petition is filed for the following relief:
'to issue an appropriate order, writ or direction more
particularly one in the nature of writ of Mandamus declaring
the inaction on the part of the respondent Bank in not
considering the representation submitted by the petitioner
dated 11.10.2019 through e-mail for refund of part sale
consideration amount paid by the petitioner pursuant to the
auction held by the respondent Bank on 26.08.2019 for sale of
vacant site admeasuring 302.50 square yards situated at D.
No. 21/B and 21/B2, near D. No. 45-32/16, Near Little Flower
School and Chennakesava Towers, Ring Road, 1st Line, Vidya
Nagar, Guntur in respect of Loan A/c No. 2492261010159 of
M/s. Perumallu Agro Industries as illegal, arbitrary and
contrary to law and consequently direct the respondent Bank
to refund the part sale consideration amount paid by the
petitioner pursuant to the auction held by the respondent Bank
on 26.08.2019 for sale of vacant site admeasuring 302.50
square yards situated at D. No. 21/B and 21/B2 near D. No.
45-32/16 Near Little Flower School and Chennakesava Towers,
Ring Road, 1st Line, Vidya Nagar, Guntur in respect of Loan A/c
2023 SCC OnLine AP 1048
No. 2492261010159 of M/s. Perumallu Agro Industries in the
interest of justice...'
.... ... ...
4. Relying upon two judgments reported in Mandava
Krishna Chaitanya v. UCO Bank, Asset Management
Branch1 and Adhya Industries v. Vijaya Bank2, learned senior
counsel argues that the writ must be decided in his favour as
the Rule is now caveat venditor and not caveat emptor.
.... ... ...
6. COURT: The procedure of sale of immovable
property is spelt out in Rules 8 and 9 of the Rules framed
under the SARFAESI Act. Rule 9 talks of the deposit to be
made. As per Rule 9(3) of the Rules, the purchaser has to pay
25% of the sale price immediately in addition to the EMD that
is already deposited. The balance amount shall be paid on or
before 15th day of confirmation of sale or such extended
period. The time for payment of balance consideration cannot
go beyond three (3) months as per Rule 9(4) of the Rules.
Rule 9(5) states that in default of the payment within the
period in sub-rule (4) of the Rules, the deposit shall be
forfeited to the secured creditor and the property shall be re-
sold.
.... ... ...
16. However, this Court also notices the submission
about the One Time Settlement. The Bank had entered into a
One Time Settlement with the primary borrower and settled
the case. The details of the same are not fully furnished
despite petitioner's requests. The alleged postponement of
auction urged by the respondents is not borne out by any
record. Since he made an offer under the One Time
Settlement, the Bank had decided to close the issue. The title
deed of the property is also returned to the original borrower.
A sum of Rs. 15 lakhs which was paid by the present writ
petitioner was not adjusted and it is still lying separately as
per the counter affidavit filed. The Bank argued that this issue
of One Time Settlement has nothing to do with the petitioner's
claim for refund. This Court has to therefore decide it. Since
the Bank does not have any further claim and has voluntarily
given up its claim against the original borrower by its One
Time Settlement proposal, which is an accord and satisfaction,
the Bank cannot lay any claim on the amount of Rs. 15 lakhs
lying in the Bank's custody. This is to be refunded to the writ
petitioner. For their own reasons the Bank has accepted a
lesser sum of money; compromised the matter and returned
the title deeds to the borrower.
17. As far as the original Rs. 22.50 lakhs is concerned,
here also, the Bank acted in a high handed manner. The right
to forfeit the amount would only arise if the failure is clear.
Before 25.10.2019 the right to forfeit will not arise, since as
per the Rule in question, the amount had to be forfeited if the
deposit is not made 'within the period' and the end date for
payment is on 25.10.2019. Hence, till that date, it is the
amount belonging to the writ petitioner and it cannot be
adjusted towards the loan account of the 'defaulting borrower'.
Even after 25.10.2019, it could be adjusted to the secured
creditor only amended Rule 9 (5) of the Rules). This Rule 9 (5)
has been specifically amended by GSR 1046 (E) on
03.11.2016 and the words 'secured creditor' were included in
the Rules. They cannot credit it to the borrowers account. This
action of the Bank is questionable and high handed besides
being contrary to Rule 9 (5) of the Rules. As a nationalized
Bank, their actions must be fair and transparent. This is also
to be refunded since the Bank did not have any right over the
amount on that date. The final accord and satisfaction in the
form of One Time Settlement also goes against them. They
have not pleaded and proved that due to a 'loss sustained',
they could forfeit the amount. Their conduct in accepting a
lesser amount as One Time Settlement estops them from
claiming the amounts deposited by the writ petitioner.
18. It transpires that the defaulting borrower has
benefited twice (a) by the part bid amount (Rs. 22.50 lakhs)
being credited to his loan account and (b) by the reduction in
the liability due to the One Time Settlement proposal being
accepted while the writ petitioner is penalized by adjustment
etc.
19. In a decision reported in Ram Kishun v. State of
U.P. , the Hon'ble Supreme Court in para 13 clearly held that
while auctioning such property in such circumstances, the
financial institution should not behave like property dealers;
should act in a fair manner and in strict conformity with the
statutory provision. Undoubtedly, public money should be
recovered and recovery should be made expeditiously. But it
does not mean that the financial institutions which are
concerned only with the recovery of their loans, may be
permitted to behave as they please and be permitted further
to dispose of the secured assets in any unreasonable or
arbitrary manner or in flagrant violation of the statutory
provisions. In this case, in conclusion, it is held that the
petitioner is entitled to relief for the reasons mentioned in
paras 6 to 9 and in paras 16-17.
20. For all the reasons mentioned above, the writ
petition is allowed. No order as to costs. As a sequel, the
miscellaneous petitions if any shall stand dismissed."
The High Court of Calcutta in the case of S.L. ISPAT PRIVATE
LIMITED V. PUNJAB NATIONAL BANK6, has held as follows:
"9. He argues that on one hand the bank was
considering the OTS proposal of Brilliant and on the other hand
was proceeding with the auction process. Such OTS of Brilliant
was ultimately accepted after receipt of 25% amount from the
appellant. It is not a case that the bank through such OTS had
received a lesser amount than the bids offered in the e-auction
by Ispat. In support of his arguments, Mr. Dutta has placed
reliance upon the judgments delivered in the cases of Alisha
Khan v. Indian Bank (Allahabad Bank), reported in 2021 SCC
OnLine SC 3340 and V. Sridhar v. The Authorized Officer
Indian Bank, Chennai, reported in AIR 2018 Mad 87.
... ... ...
2023 SCC OnLine Cal 33
14. The appellants have contended that though the
property has been auctioned on 'as is where is basis' and 'as is
what is basis', the bank could not have shirked its
responsibility to disclose the encumbrances from taking clear
possession moreso when there was no clause in the public
notice to the effect that the properties were being
transferred 'without any representations and warranties on the
part of the bank relating to encumbrances/statutory liabilities
etc. attached to the properties'. The bank could not have
forfeited 25% of the total bid amount having proceeded
simultaneously with the e-auction process and the OTS
proposal as submitted by the original owner/borrower.
15. The word 'forfeiture' has not been defined under
the SARFAESI Act but it amounts to loss of a legal right by
means of some breach of an obligation. If left absolutely
unfettered to the discretion of the authority, it may possibly
result in an extremely harsh order. The power of resumption
and forfeiture needs be exercised only as a last resort and in a
reasonable manner. Such reasonability has to be established
on the basis of the facts and circumstances of the case. We
are not satisfied with the manner in which the bank had
ultimately forfeited the earnest money paid by the appellant.
The appellants' apprehension that there was a dispute as
regards possession of the properties put up for sale could not
have been ruled out since admittedly for non-payment of the
dues the bank made an attempt to sell the mortgaged
properties of the borrower, namely, Brilliant in the year 2016
and at that juncture Brilliant applied for OTS upon depositing
an amount of Rs. 20 lakhs, as would be explicit from the letter
dated 1st August, 2017 by which an enhanced proposal for OTS
was submitted by the borrower.
16. That on the date of e-auction i.e., on
6th September, 2017, the bank was in seisin of a proposal
towards OTS submitted by Brilliant on 1st August, 2017. The
initial OTS proposal dated 1st August, 2017 was enhanced from
Rs. 6 crores to Rs. 7.9 crores upon retaining the upfront
amount of Rs. 60 lakhs deposited by Brilliant on 23rd August,
2017 and the final decision was taken by the bank to accept
the same on 29th December, 2018. The 'no due certificate' was
also issued in favour of Brilliant on the said date with an
advice to withdraw all cases. In view of such sequence of
facts, it cannot be argued that there was no continuity and link
between the first OTS proposal and the subsequent enhanced
proposal.
... ... ...
18. For the reasons as discussed hereinabove, we are of
the opinion that the impugned notice/e-mail dated 7th October,
2017 and the order impugned in the present appeal are not
sustainable in law and the same are, accordingly, set aside.
The bank is directed to refund the forfeited amount being Rs.
1,70,80,250/- to the appellants within a period of four weeks
from the date of communication of this order."
16. In the light of the afore-narrated facts and the judgments
rendered by the Apex Court and co-ordinate Benches of this Court
and the High Court of Andhra Pradesh and Calcutta, I am of the
considered view that the petitioner would become entitled to refund
of the amount. The Bank projects a second sale said to have been
conducted, but the same is nowhere seen in the documents
appended to the objections to the petition or to the application.
Therefore, if the Bank actually conducted a second sale and
documents are divulged to the petitioner, he would not become
entitled to any interest on the amount that is with the Bank even as
on today. The petitioner would then become entitled only to the
principal amount. The expenditure that the Bank has incurred for
the second sale, if any, shall be adjusted towards the interest on
`3.25 crores which is lying with the Bank for the last 24 months.
17. For the aforesaid reasons, I pass the following:
ORDER
(i) Writ Petition is allowed in part.
(ii) A mandamus issues to the respondent to refund the
amount of `3.25 crores to the petitioner within 8 weeks
from the date of receipt of a copy of this order.
(iii) Interest on the aforesaid amount shall be paid to the
petitioner on the Bank failing to divulge the details of
second auction and confirmation of sale in favour of the
auction purchaser to the petitioner.
(iv) It is made clear that if no such document is divulged,
the petitioner would become entitled to interest at the
savings bank rate for the refund amount.
Consequently, I.A.No.1 of 2023 also stands disposed.
Sd/-
JUDGE
bkp
CT:SS
