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IN THE HIGH COURT OF KARNATAKA
P. Krishna Bhat, J.
P Balaji Babu - Appellant
Versus
State Bank Of India & Ors. - Respondents
Writ Petition No. 46450 of 2014 (GM-RES)
Decided On : 26-04-2022
FORFEITURE - Loan Recovery - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Rule 8 of the Security Interest (Enforcement) Rules, 2002 - Refund of deposit with interest
Fact of the Case:
The petitioner deposited a sum of Rs.24.10 lakhs as part of a property sale initiated by respondent No.1 under the SARFAESI Act. The petitioner later discovered that the property had been transferred to another party before the sale. The respondent refused to refund the deposit and forfeited the amount. The petitioner filed a writ petition seeking a refund with interest.
Finding of the Court:
The court found that the respondent was aware of the transfer of the property before the sale and had not disclosed this material fact in the sale notification. The court also noted that the loan account had been settled by the respondent, and there was no justification for retaining the deposit. The court directed the respondent to refund the amount with interest.
Issues: 1. Suppression of material fact in the sale notification. 2. Settlement of the loan account by the respondent. 3. Justification for retaining the deposit by the respondent.
Ratio Decidendi: The court held that the respondent's failure to disclose the transfer of the property and the settlement of the loan account justified the petitioner's refusal to pay the full sale price. The court also emphasized the principle of doing justice by promoting honesty and good faith.
Final Decision: The writ petition was allowed, and the respondent was directed to refund the amount of Rs.24,10,000 with interest at 8% p.a. from the date of deposit.
ORDER
1. Calling in question the action of respondent No.1 in forfeiting a sum of Rs.24.10 lakhs deposited by him, petitioner is seeking direction to refund the same with interest thereon at 18% p.a., in this writ petition.
2. It is the case of the petitioner that one Sri.Jignesh N. Patel was the owner of immovable property bearing No.9/1, Old No.5, Khatha No.30/A of Nayandahalli, Mysore Road, Bengaluru. He obtained loan from respondent No.1-State Bank of Mysore (which has now been merged with State Bank of India) for his business purposes and by way of security he created mortgage on the aforementioned property at Nayandahalli, Mysore Road, Bengaluru. The loan having remained outstanding, respondent No.1 initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI Act') and took over possession of the mortgaged property. The property was brought to sale for the recovery of outstanding loan and respondent No.1 issued a newspaper publication dated 15.10.2010 (as per Annexure- A). The petitioner having noticed the same, deposited the EMD of Rs.5,63,500/- in terms of Annexure-A and submitted his sealed tender. Same was accepted as per the communication of respondent No.1 dated 15.11.2010 for a sum of Rs.56,40,000/-. Accordingly, petitioner was directed to deposit 25% of the amount on the same date, which was inclusive of EMD amount already deposited by him. Thus, in all petitioner deposited a sum of Rs.24,10,000/- before respondent No.1.
3. Further as per the communication of respondent No.1 dated 15.11.2010 (Annexure-B) petitioner was required to deposit the balance amount of Rs.42,30,000/- by 30.11.2010. When he made enquiries in the Office of jurisdictional Sub-Registrar, he came to know that borrower had even before the sale notification dated 15.10.2010 alienated the property concerned in favour of his wife Smt.Naina J. Patel by executing a registered gift deed. Therefore, petitioner made a representation to respondent No.1 to get the gift deed executed by the borrower Sri.Jignesh N. Patel in favour of his wife annulled so as to avoid any dispute regarding the title of property which was going to be transferred to the petitioner as a successful bidder in the sale held by respondent No.1. However, respondent No.1 refused to do so and insisted on the petitioner to make full payment and subsequently forfeited the amount of Rs.24,10,000/- deposited by the petitioner. Aggrieved by the same petitioner has filed this writ petition seeking reliefs as aforesaid.
4. In support of his prayer petitioner advances the following contentions:
Respondent No.1 has suppressed the fact in the sale notification (Annexure-A) that borrower was not having title over the property as mentioned therein and in fact it was Smt.Naina J. Patel, who was the owner of property as on the date sale notification was issued.
Respondent No.1 was aware of the same in view of Smt.Naina J. Patel filing a writ petition in W.P.No.122/2008 against respondent No.1 in this writ petition and others.
The liability of borrower to respondent No.1 was settled between them by means of One Time Settlement (OTS) and borrower has paid the same and the account was closed.
Respondent No.1 has admitted the same in the affidavit dated 26.03.2022.
Respondent No.1 has not suffered any loss or damage on account of non deposit of balance amount by the petitioner and therefore, respondent No.1 was not entitled to forfeit the sum of Rs.24,10,000/- deposited by the petitioner.
5. In support of above grounds the petitioner places reliance on the following decisions:
(1) W.P.No.15546/2011 - DD 01.06.2015 [E.Ali vs. Syndicate Bank and others]
(2) AIR 2010 SC 338 [Haryana Financial Corporation & Another vs. Rajesh Gupta]
(3) W.P.No.6354/2010 - DD 07.10.2010 - Madras High Court [Chemstar Chemicals & Intermediates (P) Ltd vs. The Commercial Tax Officer]
(4) W.P.No.27079/2009 - DD 12.07.2010 - Madras High Court [J
AI
The court emphasized the duty to disclose material facts in sale notifications and the principle of doing justice by promoting honesty and good faith.
Point of Law : Rule 8 of the Security Interest (Enforcement) Rules, 2002 provides for the manner of holding sale of immovable secured assets.
Forfeiture of 25% bid amount under SARFAESI Rules 9(5) is mandatory on default, unaffected by higher subsequent sale or absence of loss; equity cannot override statutory provision. (28 words)
The main legal point established in the judgment is that the Bank's actions must adhere to the statutory provisions and be fair and transparent, especially in the context of property auctions under t....
The main legal point established in the judgment is that the confirmation of sale by the secured creditor is essential, and in the absence of such confirmation, no default can be attributed to the bi....
The duty of the bank to disclose encumbrances and material defects in the title of the auctioned property, as mandated by Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002, and the requ....
The duty of the authorized officer to disclose material defects in the property's title overrides the defense of selling the property 'as is where is'. However, after a change in the fundamental scen....
A petitioner who has successfully participated in an auction sale conducted by a Bank under the SARFAESI Act, 2002 is entitled to refund of the entire money with interest if there has been a misrepre....
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