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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
R.Mahadevan, J.Sathya Narayana Prasad, JJ.
PR.Thangamshiri - Petitioner
Versus
The Chief Manager, Punjab National Bank, Trichy – Respondent
W.P.(MD)No.20689 of 2022
Decided On : 15-12-2022
Constitution of India, 1950 - Article 226 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - Power of high court to issue certain writs - Petition filed under Article 226 of Constitution of India, to issue a Writ of Certiorarified Mandamus, to call for records pertaining to rejection letter passed by respondent and quash same as illegal and consequently directing respondent to return deposited bid amount petitioner - Held, Court is of opinion that purpose of forfeiture is in interest of secured creditor to protect it from adverse loss - When there is no alleged loss to respondent bank, forfeited money may be refunded - In any case, respondent-bank will be able to recoup and not suffer a loss in event of return of Earnest Money Deposit, as they could recoup amount from subsequent re-auction. Recently, Apex court, in Alisha Khan v Indian Bank (Allahabad Bank) and Ors, allowed an appeal against forfeiture of 25% of auction sale consideration and directed bank/financial institution to refund same on ground that there was no loss caused to respondents on account of subsequent re-auction - Writ petition allowed.
ORDER :
R. MAHADEVAN, J.
PRAYER: Petition filed under Article 226 of the Constitution of India, to issue a Writ of Certiorarified Mandamus, to call for the records pertaining to the rejection letter passed by the respondent dated 20.08.2022 and quash the same as illegal and consequently directing the respondent to return the deposited bid amount Rs. 29,31,568/- to the petitioner.
The prayer made in this writ petition is to quash the order dated 20.08.2022 passed by the respondent and to direct the respondent to return the bid amount of Rs.29,31,568/- to the petitioner.
2. The facts, in brief, are as under:
(ii) Subsequently, the petitioner was asked to pay the remaining 75% of the sale amount, on or before 03.03.2022. Since there was a delay to mobilize the funds, vide letter dated 22.02.2022, the petitioner sought an extension of time till 25.04.2022 to make payment, which was accepted by the respondent, by letter dated 04.03.2022. Subsequently, he was granted further extension to pay the balance amount by letter dated 04.05.2022.
(iii) While so, the petitioner through encumbrance certificate dated 21.04.2022, came to aware that the subject property had already been hypothecated to Shriram Transport Finance Company Limited, Madurai, by the borrowers viz., Nagarajan and Gomathi, by an order of attachment dated 17.02.2020 for a sum of Rs.32,26,777/-. Immediately, he approached the respondent and requested to clear the encumbrance reflected in the subject property. Finding no fruitful action, he sent a notice dated 16.05.2022 to execute the sale deed in his favour without any encumbrance, to which, the respondent sent a reply dated 01.06.2022, denying the petitioner's claim. Narrating the above facts, the petitioner made further representation to the respondent on 12.08.2022, however, his claim was rejected by the respondent, by order dated 20.08.2022, which is impugned herein.
3. The respondent filed a detailed counter affidavit, wherein, it is inter alia stated that the petitioner was the successful bidder in the auction held on 15.02.2022 and he paid 25% of the bid amount i.e., Rs.29,31,568/- and his sale was confirmed by sale confirmation letter dated 16.02.2022, by directing him to pay the balance 75% of the bid amount on or before 03.03.2022. The counter affidavit further proceeds to state that the extension of time sought by the petitioner was granted on two occasions for making the balance 75% of the sale amount. However, the petitioner failed to pay the balance amount, but issued a lawyer notice dated 16.05.2022 stating that there is an attachment on the subject property by Shriram Transport Finance Company Limited and the same is reflected in the encumbrance certificate and requested the bank to take steps to remove the said attachment. In response, the respondent bank sent a reply dated 01.06.2022, stating that the mortgage in favour of the bank was created on 22.05.2019 and the demand notice under Section 13(2) of the SARFAESI Act, was issued on 04.02.2020, and the attachment made was only on 17.02.2020, which is subsequent to the bank's mortgage and demand notice. However, the petitioner did not pay the remaining 75% of the bid amount, despite the grant of extension of time till 13.05.2022. Therefore, the bank concluded that it had no other option, except to re-auction the subject property and to forfeit the EMD
Suppression of pending litigation in the e-auction notice by a secured creditor is improper and violates the duty to disclose encumbrances and pending litigation as per the Securitization and Reconst....
A secured creditor, who got registration of security interest, has priority in the matter of payment of the dues over all other debts and all revenues, taxes, cesses and other rates payable to the Ce....
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 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 court established that a bank conducting a public auction must disclose all material facts and respond to inquiries from bidders. Failure to do so can lead to a finding of arbitrary and illegal f....
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