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