IMPORTANT POINT
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.

JUDGMENT :

N.V. Anjaria, C.J.

Heard learned Advocate Mr. Shetty Vignesh Shivaram for the appellant, learned Senior Advocate Mr. Aditya Sondhi with learned Advocate Mr. A.S. Ravikumar for respondent Nos.1 and 2 appearing on caveat, at length.

2. The appellant herein is the Canara Bank-original respondent No.1 in the writ petition filed by the respondents herein. The appellant-Bank has challenged the judgment and order dated 12th January 2024 passed by learned Single Judge.

2.1 Allowing the petition in part, a mandamus came to be issued to the respondent-appellant Bank to refund the amount of Rs.3.25 crores to the petitioner. It was directed to pay the interest on the said amount if the Bank fails to provide the details of second auction and confirmation of sale in favour of the auction purchasers, to the petitioner.

3. The facts in the back drop may be noticed in a nutshell. The appellant Bank conducted e-auction on 29th November 2021 of the property described as No.19, 11th Cross, Wilson Garden, Bengaluru. The auction was conducted by the appellant Bank under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, seeking to recover the amount due. The petitioners participated and purchased the property as successful bidder paying Rs.3.25 crores which was 25% of the bid amount. The balance 75% amount to the extent of Rs.9.75 crores was to be paid within 15 days as per the condition of the bid towards final bid amount.

3.1 As the sale was confirmed in favour of the petitioners, they were intimated on 14th December 2021 to pay the said remainder amount. On 13th January 2022, a communication was sent by the petitioners seeking extension of 30 days to pay the amount. The Bank replied asking the petitionera to remit the balance amount on or before 28th January 2022. On the said date, the petitioners again sent a communication asking for further extension for 30 days. It was stated by the petitioners that they were in the process of securing the amount and the loan process was underway with the HDFC Bank. By way of reply of even date, the Bank intimated that if the amount is not paid by 10th February 2022, the sale in favour of the petitioners will be cancelled and the amount paid will be forfeited without further notice.

3.2 By filing writ petition on 10th February 2022, the petitioners prayed to direct the Bank to consider the aforementioned communication/ representation dated 28th January 2022 whereby further extension of time was prayed for. A further prayer was made to set aside the reply of the Bank dated 28th January 2022 aforementioned. The prayer was made to direct the respondent Bank to refund the amount of Rs.3.25 crores.

3.3 The case of the petitioners was inter alia that the respondent Bank was statutorily obliged under sub-rule (4) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “Rules of 2002”) to extend the time upto three months, which was not considered by the Bank. It was the further case that as per the communication received by them from the Bank dated 14th December 2021, they were intimated that they had to pay an amount of Rs.3.10 crores within fifteen days. The petitioners when visited the Bank, it is the case, the Bank did not respond properly nor did they disclosed anything about the proceedings under which the property in question was sold to SVC Credit Cooperative Bank.

3.4 By filing affidavit-in-reply, the case and the claim of the petitioners was contested by the bank to submit that the petitioners were supposed to pay the remaining auction price as per the terms of the sale. However, the petitioners went on to pray for extension of time which was even extended to the benefit of the petitioners. It was stated that in extending time, special consideration was bestowed upon the petitioners. Yet the petitioners failed to deposit the balance amount. It was stated that the respondent-bank proceeded with fresh sale