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IN THE HIGH COURT OF KARNATAKA
K.V. Aravind, J.
Santhosh Kumar B.S. – Appellant
Versus
Uco Bank – Respondent
Writ Petition No.14632 of 2021
Decided On : 18-01-2024
MANDAMUS - REFUND OF FORFEITED DEPOSIT - SECURITY INTEREST (ENFORCEMENT) RULES, 2002; SARFAESI ACT, 2002 - The court discussed Rule 8(7) and Rule 9 of the Security Interest (Enforcement) Rules, 2002, emphasizing the obligation of the bank to disclose material facts about the property and the necessity for transparency in public auctions. The court found that the bank's failure to provide requested documents and misrepresentation of the property status led to an arbitrary forfeiture of the deposit, which was deemed illegal and unjust enrichment. The court's decision was influenced by the principles of natural justice and the bank's duty to act transparently.
ORDER
K.V. Aravind, J.
This petition seeking mandamus to the respondent to refund a sum of Rs.24,00,000/- forfeited vide Annexure-E dated 14.10.2020.
2. Brief facts:
The respondent-Bank conducted e-auction for sale of immovable property bearing No.34, New PID No.012-W0934-22 situated at Shettyahalli Village, Yashwanthpura Hobli, Bangalore North Taluk, Bengaluru. The auction was conducted on 08.09.2020. The petitioner participated in e-auction and was successful bidder purchasing the subject property for a sum of Rs.55,75,000/-. The petitioner deposited 25% of the bid amount Rs.14,00,000/- including the earnest money of Rs.5,50,000/- within the stipulated time. The balance amount of Rs.41,75,000/- was to be deposited within fifteen days from the date of e-auction, which is 22.09.2020. The petitioner has paid further sum of Rs.10,00,000/- from 19.10.2020 to 27.10.2020. The respondent issued sale intimation letter dated 08.09.2020. By letter dated 09.09.2020, the respondent intimated the petitioner to pay balance amount of Rs.41,75,000/- within fifteen days from 22.09.2020.
3. It is the case of the petitioner that after the payment of 25%, the respondent was requested to provide copies of the documents relating to the subject property, which was not furnished. The property was notified for auction sale as A khata property whereas it was B khata property, no clarification though requested was provided by the respondent - Bank. Due to fraud committed by the Bank Officials in sanctioning loan against subject property, CBI is investigating and the subject property is subject matter of CBI investigation, which has been suppressed by the Bank. No clarification issued by the Bank even after several requests.
4. The respondent by Annexure - E dated 14.10.2020, forfeited the deposit of Rs.14,00,000/- by canceling the auction sale due to non-deposit of the remaining consideration of the auction amount.
5. Sri. Sharath Kumar Shetty, learned counsel appearing for the petitioner reiterating the grounds urged in the petition submits that in terms of auction sale, sum of Rs.14,00,000/- being 25% of the total bid amount, has been deposited within the stipulated time, the respondent - Bank was requested to provide photocopies of documents, title deeds, tax paid receipts, khata certificate etc. in respect of the property. Though several times the petitioner has visited the Bank, the same has not been provided. The subject property was auctioned as A khata property whereas it is B khata, no clarification issued on this aspect even after several reminders. The bank officials have committed fraud while sanctioning the loan against the subject property; the same is being investigated by the CBI, which aspect has been suppressed by the Bank.
6. Failure to deposit the remaining amount within the stipulated period is due to non-furnishing of the documents and information requested by the petitioner and not due to any other reasons. The Bank dealing with the public money is expected to conduct its business and affairs in a transparent manner, due to the suppression of material facts which goes to the root of the title of the property auctioned by the Bank, the forfeiture of the amount is without authority of law and leads to unjust enrichment. On the above submissions, prays to allow the writ petition.
7. Sri. Vignesh Shivaram Shetty, learned counsel appearing for respondent submits that the petitioner has committed default in making payment of remaining amount of 75% as per the terms and conditions of the auction and forfeiture is strictly in conformity with Rule 9 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules' for short). The request of the petitioner for documents and clarifications would have been considered if the petitioner has made payment of balance 75% of the sale price. The writ petition is not maintainable in view of alternative remedy of statutory appeal under Section 17 of the Securitization and Reconstructi
A bank's misrepresentation of property details in an auction can invalidate the sale, and forfeiture of the deposit is unjustified if the sale is characterized by a lack of fair disclosure.
The court affirmed that banks must comply with statutory requirements and not engage in arbitrary actions against successful auction bidders, protecting rights under Article 14.
Forfeiture of EMD under Rule 9 of SARFAESI Rules is impermissible during a binding judicial stay, as it violates natural justice and can lead to unjust enrichment.
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....
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