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.

ORDER :

Heard Sri Anil Kumar, learned Senior Counsel appearing for Sri Mohammed Aameruddin, learned counsel for the petitioner and Sri B.S.Prasad, learned Senior Counsel appearing for M/s.Pearl Law Associates for the respondent-bank and perused the record.

2. This writ petition is filed under Article 226 of the Constitution of India, with the following prayer:-

“……….to issue an appropriate writ, order or direction, more particularly a writ in the nature of mandamus declaring Sub- Rule (4) and (5) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 to the extent of automatic forfeiture of the 25% amount paid towards EMD by the Auction Purchaser as illegal, arbitrary, against the principle of nature justice and violative of the fundamental rights of the petitioner under Article 14, 19(1)(g) and 300 (A) of the Constitution of India and pass such other order or orders as this Hon'ble court may deem fit and proper in the interest of Justice.

Or

On the alternative read down the forfeiture fault attributable to the Auction purchaser and consequentially set-aside notice/email correspondence dated 21.02.2023 forfeiting the 25% EMD paid by the Petitioner for the schedule property i.e. Residential House Building Property with built up area of 3356.50 Sq.Ft in H.No.8-1-SV, Plot No. 16, Sy No. 80 to 86 correlated to T.S.No.6-12, admeasuring 325.31 Sq Yards located at Aparna Senor Valley, Shaikpet Village and Mandal, Hyderabad District bounded by North: H.No. 8-1- SV/Plot No.15, South: H.No.8-1-SV/Plot No.17, East: 12M Wide Road, West: Neighbors land, not only on ground of its illegality, but also vitiated by fraud and pass such other order or orders as this Hon'ble Court may deem fit and proper in the interest of Justice.

3. Be it noted here that the learned Senior Counsel for the petitioner has submitted that challenge to Rule 9 of Security Interest (Enforcement) Rules, 2002 (for short ‘SARFAESI Rules’) is not being pressed.

4. This Writ Petition is filed questioning the action of the respondent–bank in forfeiting a sum of Rs.2,06,19,270/-, being 25% of the sale consideration deposited by the petitioner pursuant to an e-auction conducted under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the SARFAESI Rules.

5. The petitioner was declared the highest bidder in respect of the auction of the subject immovable property and deposited the initial amount under Rule 9(3) of the SARFAESI Rules. The forfeiture has been effected by the respondent–bank by invoking Rule 9(5) of the SARFAESI Rules on the ground that the petitioner failed to deposit the balance sale consideration within the stipulated time.

6. The grievance of the petitioner is that the said forfeiture is unsustainable in law inasmuch as, on the very date of confirmation of sale, the Debt Recovery Tribunal (for short ‘DRT, Hyderabad’) passed an interim order dated 21.11.2022 staying further proceedings in respect of the auctioned property, which order was binding on the respondent–bank. According to the petitioner, the subsisting judicial restraint rendered completion of the sale impermissible and disentitled the bank from insisting upon strict compliance with the payment schedule or invoking the consequence of forfeiture.

Factual Matrix (in brief)

7. The respondent–bank issued an e-auction sale notice dated 27.10.2022 proposing to sell certain immovable properties belonging to the personal guarantors of M/s. Sri Parameswara Poultry Farms Pvt. Ltd (Item No.1 in the sale notice), wh