Rule 9(5) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is directory in nature, and forfeiture is justified only to compensate for the party adversely affected by nonperformance of the contract.

JUDGMENT :

S. VISHWAJITH SHETTY, J.

1. 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 I.A. No. 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, I.A. No. 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 I.A. No. 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 T.S.A. 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 app