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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
K. V. Aravind, J.
Sri. Kalyanamurthy. K., S/o Kodanda Ramachar - Petitioner
Versus
State Bank Of India, Asset Recovery Management Branch And Ors. – Respondents
Writ Petition No.23327/2022(GM-RES)
Decided On : 19-12-2023
Mandamus - Forfeiture of Deposit - Security Interest (Enforcement) Rules, 2002 - Rule 9
Fact of the Case:
The petitioner participated in an auction for the sale of immovable property and deposited 25% of the sale price. The respondent extended the time for payment, but subsequently forfeited the amount paid by the petitioner due to non-compliance with the auction terms. The petitioner sought a refund citing financial difficulties and health issues.
Finding of the Court:
The court found that the respondent's forfeiture of the entire amount was not justified as the excess amount paid by the petitioner, beyond 25% of the bid amount, could not be considered as a deposit under Rule 9. The court directed the respondent to refund the excess amount along with applicable interest.
Issues: 1. Whether forfeiture of deposit by the Authorized Officer is justified? 2. Whether forfeiture of deposit in excess of 25% is justified in view of Rule 9 of the Rules?
Ratio Decidendi: The court held that the respondent's forfeiture of the entire amount was not justified as the excess amount paid by the petitioner, beyond 25% of the bid amount, could not be considered as a deposit under Rule 9. Any retention of amount by the respondent without authority of law would amount to unjust enrichment.
Final Decision: The writ petition was allowed in part, and the respondent was directed to refund a sum of Rs.10,00,000/- along with applicable interest from the date of payment till refund.
ORDER :
This petition seeking mandamus to the respondent to refund a sum of Rs.31,73,750/-forfeited due to non-compliance of conditions of Sale Notice dated 16.12.2021, Annexure-B.
2. Brief facts:
The respondent issued statutory notice for sale under Security Interest (Enforcement) Rules, 2002 (for short 'Rules') for sale of immovable property bearing Site No.43, Katha No.195/1/06, Property No.106, II Block, Dasappa Layout, Kowdenahalli, Ramamurthy Nagar, K.R.Puram Hobli, Bengaluru. In terms of the sale notice, auction was held on 08.12.2021. The petitioner participated in the auction and declared successful bidder with highest quoted amount of Rs.86,95,000/-. The petitioner deposited 25% in compliance of the terms and conditions of e-auction. As per the conditions of the auction, 75% of the sale price is to be deposited on or before 15th day of confirmation of sale or within such extended period. Sale confirmation is on 16.12.2021. Fifteen days to make payment of 75% expires on 31.12.2021.
3. Rule 9 of the Rules provides for extension of time as agreed between the parties with an outer limit of extension not exceeding three months. The petitioner by letter dated 29.12.2021 made a request for extension to make payment till 20.01.2022. Time was extended by the respondent accordingly. On 20.01.2022, further extension was requested till 20.02.2022. The respondent accepted and extended the time accordingly. As there was no response subsequent to extension of time till 20.02.2022, the respondent issued letter dated 04.03.2022 requesting the petitioner to make payment of the difference amount on or before 08.03.2022. The letter further indicated, failure to pay the amount would result in forfeiture of amount already paid.
4. The petitioner through e-mail dated 08.03.2022 requested two weeks' time to make the payment on the ground that he is suffering from age related health issues and hence not able to pay the remaining amount within the stipulated time.
5. The respondent by letter dated 16.03.2022 addressed to the petitioner forfeited the amount of Rs.31,73,750/-for failure to comply with the terms and conditions of auction in terms of Rule 9(4) of the Rules.
6. Sri.D.V.Venkatesh, learned counsel for the petitioner submits that the petitioner has deposited a sum of Rs.31,73,750/-and deposit of 25% stands complied with. Remaining amount of Rs.55,21,250/-was not deposited within the extended period as agreed by the respondent in view of financial difficulties due to Covid-19 pandemic. Learned counsel further submits that the petitioner was suffering from Kidney disease and was undergoing treatment. In support of his contention has filed medical records along with memo dated 04.12.2023. The bid amount offered by the petitioner was Rs.86,95,000/-. In view of cancellation of auction, the property has been re-auctioned and has been sold for a sum of Rs.87,79,000/-. There is no financial loss caused to the respondent. Forfeiture of amount paid by the petitioner would amount to unjust enrichment. On the above submissions prays for direction to the respondent to release the forfeited amount.
7. Miss Chithra Nirmala P., learned counsel appearing for the respondent submits that the entire procedure and discretion of the Bank has been provided under Rule 9 of the Rules. The petitioner has been provided with extension to the outer limit provided under Rule 9 of the Rules. In view of failure to comply with the terms and conditions of the auction, order of forfeiture has been rightly made which is in conformity with Rule 9(5) of the Rules. Merely because property has been sold subsequently for a higher price would not entitle the petitioner to seek refund of forfeited amount. In support of her contention, she places reliance on the judgment of the Hon'ble Supreme Court in the case of Authorised Officer, State Bank of India vs. C. Natarajan and another, 2023 SCC OnLine SC 510 .
8. Heard learned counsels for the parties and perused the records.
The excess amount paid by the petitioner, beyond 25% of the bid amount, could not be considered as a deposit under Rule 9, and any retention of amount by the respondent without authority of law would....
Rule 9(5) of the SARFAESI Act mandates forfeiture of earnest money for non-payment of the balance auction price, overriding general contract law principles.
The extension of the time limit for depositing the remaining sale amount and the forfeiture of the deposit are governed by the agreement between the purchaser and the secured creditor, and judicial r....
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)
(1) Auction sale of secured asset – Forfeiture of earnest money deposit – Consequence of forfeiture of 25% of deposit under Rule 9(5) of SARFAESI Rules is a legal consequence that has been statutoril....
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