The forfeiture of an auction purchaser's deposit constitutes a measure under Section 13(4) of the SARFAESI Act, necessitating challenges to be filed with the Debts Recovery Tribunal.

ORDER

Dated this the 18th day of December, 2023 The revision petitioners are the defendants in O.S.No.2 of 2019 pending on the files of the Sub Court, Pala. The suit is filed by the respondents, seeking to realise an amount Rs.52,98,750/- at the rate of 12% interest on the principal amount of Rs.33,75,000/-, from the defendants and their assets. The averments in the plaint are to the following effect;

A Company by name Kuttiyanickal Rubbers Private Limited, availed a loan from the Federal Bank Limited/first defendant. The Company having defaulted repayment of the loan amount, the Bank initiated recovery measures under the SARFAESI Act and brought the secured asset to sale. In the sale so conducted, the plaintiffs made the highest offer and the bank agreed to sell the property to the plaintiffs for Rs.135 lakhs. Thereupon, the plaintiffs remitted Rs.33,75,000/-, being 25% of the total sale consideration. Later, the plaintiffs came to know that there are several other liabilities over the property. While so, the bank issued notice to the plaintiffs demanding balance sale consideration and also informing that, in the event of failure, the amount deposited by the plaintiffs will be forfeited. The plaintiffs did not pay the balance sale consideration on the premise that the bank should first clear all liabilities attached to the property. Rejecting the plaintiffs' demand, the bank forfeited the amount already remitted towards sale consideration. Contending that the forfeiture being illegal, the suit was filed seeking realisation of the forfeited amount with interest. The revision petitioners filed written statement in the suit contending, among other things, that the suit is not maintainable in view of the bar under Section 34 of the SARFAESI Act . By the impugned order, the court below rejected the contention and held the suit to be maintainable. Hence, this revision petition.

2. Adv.Mohan Jacob George, learned Counsel for the revision petitioners contended that the trial court had grossly erred in holding the suit to be maintainable. It is submitted that, in Agarwal Tracom Private Limited v Punjab National Bank and Others [ (2018) 1 SCC 626 ], the Apex Court has held the Debts Recovery Tribunal to be the proper forum for challenging the forfeiture of auction purchaser's deposit money by the secured creditor. Contrary to this legal position, the court below went on to hold that a suit challenging forfeiture of deposit money by the auction purchaser is maintainable, since sale of the secured asset is not a measure falling under Section 13(4) and cannot therefore be the subject matter of challenge in an application under Section 17 . While holding so, the court below omitted to note Rule 9(5) of the Security Interest Rules which provides for such forfeiture and the power vested with the Debts Recovery Tribunal under Section 17 (2), to consider whether any of the measures in sub-section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of the Act and the Rules made thereunder.

3. Adv.C.Murali Krishnan, learned Counsel for the respondents contended that, even if it is accepted for the sake of argument that sale of the secured asset would amount to a measure under Section 13(4) and forfeiture of security deposit can be challenged before the Debts Recovery Tribunal, the suit is maintainable since the plaintiffs have alleged fraud on the part of the bank and its officials, in having suppressed the liabilities over the property brought to sale. In support of this contention, reference is made to paragraph 51 ofMardia Chemicals v. Union of India [ (2004) 4 SCC 311 ], wherein the Apex Court has opined that even in cases falling under Section 13(4), the jurisdiction of the civil court can be invoked to a limited extent, if the action of the secured creditor is alleged to be fraudulent.

4. In reply, learned Counsel for the revision petitioners contended that mere allegation of fraud