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2025 Supreme(Online)(KER) 11927
HIGH COURT OF KERALA
GOPINATH P, J
ABDUL OFFUR – Appellant
Versus
AUTHORIZED OFFICER – Respondent
WP(C) 7595/2025
ADV RASMI NAIR T., ADV S.LAKSHMY (SC)
The SARFAESI Act permits forfeiture of earnest money deposits for non-payment of balance amounts, overriding general contract law provisions.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Rule 9(4) and Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 - Forfeiture of earnest money deposit - Petitioner, a successful bidder, failed to remit the balance amount within the specified time and sought extension, which was granted but not complied with - The bank's action to forfeit the deposit was upheld as per the provisions of the SARFAESI Act and the 2002 Rules. (Paras 1-3)
(B) Special Legislation - SARFAESI Act as a special enactment has overriding effect on general law, including provisions of the Indian Contract Act, 1872 - Forfeiture of earnest money deposit is valid under Rule 9(5) of the SARFAESI Rules. (Paras 67-68)
Facts of the case:
The petitioner was the successful bidder in an auction conducted by the respondent bank under the SARFAESI Act, remitting 25% of the bid amount but failing to pay the balance within the stipulated time, leading to forfeiture of the deposit.
Findings of Court:
The court found that the bank's forfeiture of the deposit was in accordance with the provisions of the SARFAESI Act and the 2002 Rules, and the petitioner had no grounds to challenge the bank's actions.
Issues: The main issues were whether the bank's forfeiture of the deposit was justified under the SARFAESI Act and whether the petitioner had valid grounds to challenge the bank's decision.
Ratio Decidendi: The court ruled that the SARFAESI Act and its rules provide for forfeiture of deposits in case of non-compliance with payment terms, and such provisions are valid and enforceable.
Result: Writ petition dismissed.
JUDGMENT
The petitioner was the successful bidder in an auction held by the respondent bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The sale was held on 22-08-2023. According to the petitioner, the petitioner remitted a sum equivalent to 25% of the bid by 23-08-2023 (a total sum of Rs.17,50,000/-) and the petitioner was required to pay the balance amount of Rs.52,50,000/- within 15 days. However, the petitioner could not remit the said amount within the time specified and approached the bank for extension of time. The bank vide communications issued on 04-09-2023 and 25-09-2023 extended the time for payment of the balance amount by the petitioner by 15 days each. The petitioner did not remit the amounts within the extended time also. The petitioner is now before this Court seeking to quash Ext.P6 communication and seeking a direction to the respondent bank not to forfeit the amount already remitted by the petitioner.
2. The learned counsel appearing for the respondent bank submits that in respect of a sale under the provisions of the SARFAESI Act, the time for payment of the balance amount is specified in terms of the provisions contained in Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the ‘2002 Rules’). It is submitted that the right of the bank to grant extension of time is also controlled by the provisions of Rule 9(4) of the 2002 Rules. It is submitted that the terms of the sale and the provisions of the 2002 Rules contemplate forfeiture of the amount already remitted by the petitioner, if the balance amount is not paid. It is submitted that the petitioner also withdrew from the sale. The learned counsel appearing for the respondent bank also placed reliance on the judgments of the Supreme Court in Authorised Officer, Central Bank of India v. Shanmugavelu ; 2024 KLT OnLine 1060 (SC) and Authorised Officer, State Bank of India v. Natarajan ; 2023 KLT OnLine 1792 (SC) to contend that forfeiture is permissible and authorised by the statute (SARFAESI Act).
3. Having heard the learned counsel appearing for the petitioner and the learned counsel appearing for the respondent bank, I am of the view that the relief sought for in the writ petition cannot be granted. Ext.P6 communication issued by the respondent bank is strictly in terms of the provisions contained in Rule 9(4) and Rule 9(5) of the 2002 Rules. It is clear that the conditions of the sale and the provisions of the 2002 Rules contemplate that where the successful bidder fails to deposit the amount within the time specified or within the extended time permitted by the bank, any amount deposited by the successful bidder will be forfeited by the bank. There is no challenge to the provisions of the 2002 Rules, and in such circumstances, it is not possible for this Court to direct that the bank must act contrary to the provisions contained in the 2002 Rules. In Shanmugavelu (supra) it was held :-
“66. At this stage, we may also answer the submission of the respondent that the authorised officer under Rule 9(5) of the SARFAESI Rules has been conferred with unguided and unfettered power of forfeiture and as such the said rule is liable to be struck down. However, we are not impressed with such submission. First, there was no challenge to the constitutional validity of Rule 9 sub-rule (5) of the SARFAESI Rules. Secondly, even as per Agarwal Tracom (supra) it is always open for a person aggrieved by an order of forfeiture under the SARFAESI Rules to challenge the same before the DRT under Section 17 of the SARFAESI Act.
67. As regards the contention that the SARFAESI Rules being a delegated legislation cannot override the substantive provisions of a statutory enactment more particularly Section(s) 73 & 74 of the 1872 Act, the same was negatived by this Court in C. Natarajan (supra) with the following observations: -
“22. .... We have
