1. Loan default — SARFAESI Act proceedings — Auction of secured asset — Dispute over refund of surplus auction proceeds with interest. (Para 3 , 4 , 5 , 6 )
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2024 Supreme(SC) 1365
SUPREME COURT OF INDIA
J.B. PARDIWALA, PANKAJ MITHAL, JJ.
The Authorised Officer Karnataka Bank – Appellant
VERSUS
M/s. RMS Granites (P) Ltd. & Ors. - Respondents
Civil Appeal No. of 2024 (Arising out of SLP (C) No.7965 of 2023)
Decided On : 12-11-2024
Advocates appeared:
For the Petitioner(s): Mr. Anoop Prakash Awasthi, AOR
For the Respondent(s): Mr. Balaji Srinivasan, AOR Mr. Aditya Nath, Adv.
For the Petitioner(s): Mr. Anoop Prakash Awasthi, AOR
For the Respondent(s): Mr. Balaji Srinivasan, AOR Mr. Aditya Nath, Adv.
Interest on delayed payment is not a penalty but an equitable right, and should be calculated from the date of rejection of the writ petition.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Review of High Court order - The High Court directed the bank to refund excess auction amount of Rs.1,11,90,354.32 along with interest from 20.09.2010, which was contested by the bank. The court found no justification for retaining the amount and ruled that interest should be paid from the date of rejection of the writ petition on 28.10.2021. (Paras 2, 17, 19)
(B) Concept of awarding interest on delayed payment - Interest is not a penalty but a normal accretion on capital, and equity demands that the principal amount along with interest be returned to the rightful owner. (Para 16)
Facts of the case:
The original borrowers defaulted on a loan, leading to auction proceedings by the bank. The auction fetched Rs.2,17,00,000, exceeding the dues of Rs.1,11,90,354.32. The legality of the auction was upheld by the DRT and DRAT, and a writ petition was dismissed by the High Court. A review petition was filed, leading to the impugned order. (Paras 3-6)
Findings of Court:
The bank was directed to refund the excess amount along with interest at 9% per annum from the date of rejection of the writ petition. (Paras 19)
Issues: The main issue was whether the bank was entitled to retain the excess auction amount and the applicable interest. (Para 13)
Ratio Decidendi: The court ruled that the High Court erred in directing interest from an earlier date and clarified that interest should be calculated from the date of rejection of the writ petition, emphasizing the principle that retaining funds unjustly warrants compensation in the form of interest. (Paras 17-19)
Result: Appeal disposed of with directions for payment of interest.
Legal Category Hierarchy
Table of Contents
2. Bank claims pending proceedings hindered refund; borrowers argue entitlement to interest for the period the bank retained the excess proceeds. (Para 14 , 15 )
3. Interest is a normal accretion on capital, not a penalty; however, the High Court erred in granting interest from 2010 under review jurisdiction. (Para 16 , 17 , 18 )
4. Interest on delayed payment is an equitable accretion on capital to prevent unjust enrichment, subject to the legal justification of the commencement date. (Para 16 , 17 )
5. Appeal disposed with direction to pay interest at 9% per annum from the date of rejection of the writ application. (Para 19 )
6. What is the legal nature of interest on delayed payments?
Interest is not a penalty or punishment but the normal accretion on capital. Equity requires that if a party retains a principal amount, they should pay interest to prevent the payer from pocketing the benefit of that capital. (Para 16 )
7. Can a court grant interest from a remote date within its review jurisdiction?
The court held that the High Court, in the exercise of its review jurisdiction, ought not to have directed that the excess amount be refunded with interest from a date preceding the original writ rejection. (Para 17 )
8. When should orders regarding the refund of excess amounts with interest be passed?
Appropriate orders regarding the refund of excess amounts with applicable interest should be passed by the court at the time of rejecting the writ application rather than in subsequent review proceedings. (Para 18 )
ORDER
1. Leave granted.
2. This appeal arises from the order passed by the High Court of Karnataka dated 19th January 2023 in Review Petition No. 521 of 2022 preferred by the original petitioners i.e. respondents herein by which the High Court disposed of the Review Petition holding as under:-
“This petition has been filed seeking review of the judgment dated 28.10.2021 passed by this Court in W.P.No.1583/2017 by which the writ petition preferred by the petitioner has been dismissed.
2. Learned counsel for the petitioner, while inviting the attention of this Court to affidavits of both the Directors of petitioner No.1- Company, submitted that they undertake to withdraw the challenge to the sale which has already been conducted by respondent No. 1. It is therefore, submitted that excess amount which has been released by the Bank by sale of property of petitioner amounting to Rs.1,11,90,354.32p. which is admittedly lying in deposit with the respondent-Bank be refunded to the petitioner.
3. Learned counsel for the respondent - Bank has opposed the submission made by the learned counsel for the petitioner.
4. We have considered the submissions made on both sides and have perused the record. Taking into account the fact that the entire amount of dues has been recovered by the respondent No.1 - Bank from the petitioner and an amount of Rs.1,11,90,354.32p. is lying in deposit with the respondent No.1-Bank, we see no justification as to why the amount should be illegally retained by the respondent No.1- Bank without any authority. The respondent No.1-Bank is therefore directed to refund the amount of Rs.1,11,90,354.32p. along with applicable interest w.e.f. 20.09.2010 within a period of one week.
Accordingly, the review petition is disposed of.”
3. Thus, it appears that the respondents herein were the original borrowers. As they defaulted in the repayment of the loan amount, proceedings were instituted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by the appellant bank.
4. The property upon which charge was created, was put to auction. On the date of the auction, the amount due and payable by the original borrowers was to the tune of Rs.1,11,90,354.32 paisa (Rupees One crore eleven lakhs ninety thousand three hundred fifty four and thirty two paise only). In the auction proceedings the bank was able to fetch an amount of Rs. Two crore and Seventeen lakh.
5. It appears that the legality and validity of the auction proceedings was challenged before the Debt Recovery Tribunal (for short ‘DRT’). DRT rejected the challenge. The matter went in appeal before the Debts Recovery Appellate Tribunal (for short “DRAT”). The DRAT directed the original borrowers to make a pre-deposit of a particular amount. The amount was not deposited.
6. In such circumstances, the borrowers went before the High Court by filing a Writ Petition. The Writ Petition also came to be rejected.
7. Later, a review application came to be filed by the borrowers before the High Court which led to the passing by the impugned order.
7. Later, a review application came to be filed by the borrowers before the High Court which led to the passing by the impugned order.
9. The appellant bank being aggrieved with the impugned order passed by the High Court is here before this Court with the present appeal.
10. We enquired with the learned counsel appearing for the appellant bank whether the amount of Rs.1,11,90,354.32 paise (Rupees One crore eleven lakhs ninety thousand three hundred fifty four and thirty two paise only), as directed by the High Court, has been refunded to the original borrowers or not?
11. In reply to the aforesaid, our attention was drawn to annexure P-19 which is a letter dated 24th February 2023 addressed by the bank to the borrower company which reads thus:-
“Karnataka Bank Ltd.
OVERSEAS BRANCH
Branch : Bangaluru-Overseas
Manandi Plaza, # 3, St. Mark's Road, Bangalore -560 001
Dist : Bengaluru Urban, Kamataka
Phone :
