Searching Case Laws & Precedent on Legal Query..!
Scanned Judgements…!
Searching Case Laws & Precedent on Legal Query..!
Scanned Judgements…!
Forfeiture of Earnest Money - Typically occurs when the bidder fails to comply with auction terms, such as non-payment of the remaining amount or breach of conditions. It can be justified if the auction conditions explicitly provide for forfeiture upon default, as outlined in various legal rulings ["PR. Thangamshiri VS Chief Manager, Punjab National Bank, Trichy - Madras"]["Hornbill Consultants VS State Of Punjab - Supreme Court"]["Dharavath Ravi vs State of Telangana - Telangana"]["Canara Bank, ARM-1 Branch, Represented by Its Senior Manager, Mr. B. Raviprasad VS Subramanya Rao K. , S/o. Late K. Narayana Rao - Karnataka"].
Legal Framework & Conditions - The law recognizes earnest money as a security for performance of the contract, which may be forfeited if the bidder defaults. However, for forfeiture to be valid, the terms must be explicit and clear in the auction or contractual agreement. Section 74 of the Indian Contract Act applies to cases where a contract is established, but not to forfeitures under public auction terms prior to agreement ["Dharavath Ravi vs State of Telangana - Telangana"]["THE AUTHORISED OFFICER CENTRAL BANK OF INDIA vs SHANMUGAVELU - Supreme Court"].
Forfeiture in Public Auctions - Generally, if a successful bidder defaults on payment or other conditions, the earnest money can be forfeited as per auction rules. The forfeiture is statutory and not penal, provided the terms are clear. In some cases, courts have ordered refunds if the forfeiture was not justified or if the conditions were not explicitly met ["Hornbill Consultants VS State Of Punjab - Supreme Court"]["THE AUTHORISED OFFICER CENTRAL BANK OF INDIA vs SHANMUGAVELU - Supreme Court"]["THE AUTHORISED OFFICER CENTRAL BANK OF INDIA vs SHANMUGAVELU - Supreme Court"].
Judicial Precedents - Courts have upheld forfeiture when auction conditions explicitly state so, especially in cases of non-payment or breach. Conversely, if the forfeiture is disputed, courts may order refunds if the forfeiture was not in accordance with the contractual terms or if the forfeiture was arbitrary ["Hornbill Consultants VS State Of Punjab - Supreme Court"]["S. L. Ispat Private Limited VS Punjab National Bank - Calcutta"].
Conclusion - Banks can legally forfeit earnest money in public auctions if the bidder defaults on payment or breaches auction conditions, provided these conditions are clear and explicitly state the forfeiture clause. However, the forfeiture must align with the terms agreed upon at auction; otherwise, courts may order refunds ["PR. Thangamshiri VS Chief Manager, Punjab National Bank, Trichy - Madras"]["Dharavath Ravi vs State of Telangana - Telangana"].
References:- PR. Thangamshiri VS Chief Manager, Punjab National Bank, Trichy - Madras- Hornbill Consultants VS State Of Punjab - Supreme Court- Dharavath Ravi vs State of Telangana - Telangana- Canara Bank, ARM-1 Branch, Represented by Its Senior Manager, Mr. B. Raviprasad VS Subramanya Rao K. , S/o. Late K. Narayana Rao - Karnataka- THE AUTHORISED OFFICER CENTRAL BANK OF INDIA vs SHANMUGAVELU - Supreme Court- S. L. Ispat Private Limited VS Punjab National Bank - Calcutta- THE AUTHORISED OFFICER CENTRAL BANK OF INDIA vs SHANMUGAVELU - Supreme Court
Participating in public auctions, whether for properties under bank recovery or government schemes, often requires depositing earnest money as a show of commitment. But what happens when that earnest money is forfeited due to alleged non-compliance? The question arises: Suit for Recovery for the Forfeited of Earnest Money – can bidders successfully challenge and recover such deposits? This is a common concern for bidders in auctions governed by laws like the SARFAESI Act, 2002, and regulations from authorities like the Delhi Development Authority (DDA).
In this post, we break down the legal framework, pivotal court rulings, and practical steps for recovery. Note that this is general information based on case law and should not be taken as specific legal advice. Consult a qualified lawyer for your situation.
Earnest money acts as a pledge to ensure contract performance. Its forfeiture is not automatic but must align with auction terms and statutory provisions. Courts typically uphold forfeiture only when justified, scrutinizing both contract terms and regulatory compliance.
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act empowers banks to forfeit earnest money if bidders fail to meet obligations. Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, statutorily mandates forfeiture of the earnest money deposit (typically 25% of the bid) if the balance is not paid within the stipulated time. This is a deliberate departure from general contract law, prioritizing swift debt recovery.
As held in a key ruling, Legislature through Rule 9(5) of SARFAESI Rules, has made conscious departure from general law by statutorily providing for forfeiture of earnest-money deposit of successful auction purchaser for its failure in depositing balance consideration within statutory period. Authorised Officer, Central Bank Of India VS Shanmugavelu - 2024 2 Supreme 92 Forfeiture here is not a penalty under Section 74 of the Indian Contract Act, 1872, but a statutory consequence. However, banks must adhere strictly to notice terms; failure to inform bidders adequately can lead to refunds. In one case, the Supreme Court directed the return of deposits because the bidder was never informed on the date when auction was held, ordering repayment with 12% interest. Mohd. Shariq VS Punjab National Bank - 2023 3 Supreme 243
Another instance confirms: under SARFAESI, if a bidder fails to deposit 25% post-sale confirmation, forfeiture is valid per auction notice. Sujit Dasgupta VS State Bank of India - Calcutta (2015)
DDA auctions are bound by specific bylaws. Full forfeiture clauses may be deemed ultra vires (beyond legal power). Courts limit forfeiture to 20% of the disposal price, protecting bidders from excessive penalties. In a notable case, the DDA could only forfeit 20% of the disposal price of the property, not the entire earnest money, as the terms allowing for full forfeiture were found to be ultra vires to the applicable regulations. DELHI DEVELOPMENT AUTHORITY VS ATUL GUPTA - Delhi (1996)
The Supreme Court emphasizes that forfeiture requires clear contractual justification. Earnest money serves as a pledge for the performance of the contract, and its forfeiture is permissible only in cases of non-performance by the depositor. Rama Associates Pvt. Ltd. VS D. D. A. /M. C. D. (Slum Wing) - Delhi (2013) Distinguishing earnest from advance payments, courts note: Earnest is something given by Promisee to Promisor to mark conclusiveness of contract... If Promisee defaults to carry out contract, he loses earnest. Authorised Officer, Central Bank Of India VS Shanmugavelu - 2024 2 Supreme 92
Justification for Forfeiture: Banks and authorities can forfeit if terms are breached, like delayed payments. In the event of default in payment of the balance amount, the sale shall be liable to be cancelled and the earnest money would be forfeited. Authorised Officer, Central Bank Of India VS Shanmugavelu - 2024 2 Supreme 92 This was upheld where bidders ignored timelines. Sujit Dasgupta VS State Bank of India - Calcutta (2015)DELHI DEVELOPMENT AUTHORITY VS ATUL GUPTA - Delhi (1996)
Limitations and Challenges: Forfeiture isn't absolute. If no loss occurs – e.g., resale at higher price – it may be arbitrary. The respondent had sold the plot for a price three and half times more than the price at which it had sold to the appellant and thus it was held... Respondent therefore had arbitrarily forfeited the earnest money. Ultratech Cement Ltd. VS Sunfield Resources Pvt. Ltd. - 2016 Supreme(Bom) 1794Ultratech Cement Ltd. (formerly Known as Larsen And Toubro Ltd. ) VS Sunfield Resources Pty. Ltd. - 2016 Supreme(Bom) 1797
Courts also intervene on procedural lapses. In tender disputes, invoking guarantees without notice was quashed as arbitrary, despite valid grounds for forfeiture. R. P. P. Infra Projects Limited VS Tamil Nadu Generation and Distribution Corporation Ltd. , (TANGEDCO), Represented by its Chief Engineer, Materials Management - 2015 Supreme(Mad) 228
In private sales, clear clauses allow forfeiture: Clause 4 of the agreement to sell... is clear and specific. The earnest money can be forfeited in case the intended purchaser fails to perform his part of the contract. Ran Singh And Others VS M/s Capex Projects Pvt. Ltd. - 2019 Supreme(P&H) 2506
E-auctions follow suit: failure to deposit within 7 days leads to forfeiture, binding bidders to terms. Kartar Mineral & Steel Private Ltd. VS CCL through its CMD, Ranchi - 2014 Supreme(Jhk) 1112
Recovery suits succeed typically in these scenarios:
Non-Compliance by Authority: Lack of notice or ultra vires terms. E.g., undisclosed borrower proceedings led to refunds. Mohd. Shariq VS Punjab National Bank - 2023 3 Supreme 243
No Actual Loss: Resale at profit negates forfeiture justification. Ultratech Cement Ltd. VS Sunfield Resources Pvt. Ltd. - 2016 Supreme(Bom) 1794
Regulatory Caps: Limited to percentages like DDA's 20%. DELHI DEVELOPMENT AUTHORITY VS ATUL GUPTA - Delhi (1996)
Arbitrary Action: No inquiry before forfeiture. R. P. P. Infra Projects Limited VS Tamil Nadu Generation and Distribution Corporation Ltd. , (TANGEDCO), Represented by its Chief Engineer, Materials Management - 2015 Supreme(Mad) 228
However, if you knowingly bid aware of risks and default, recovery is unlikely. Respondent being aware of his financial capacity, willingly participated... and offered his bid fully knowing... consequences. Authorised Officer, Central Bank Of India VS Shanmugavelu - 2024 2 Supreme 92
To safeguard your interests:
Review Auction Terms Thoroughly: Confirm forfeiture conditions and timelines. A bidder is bound by the terms of the auction notice. Sujit Dasgupta VS State Bank of India - Calcutta (2015)
Ensure Regulatory Compliance: Verify terms against SARFAESI Rules or DDA bylaws.
Document Everything: Keep proof of attempts to comply, like payment efforts.
Seek Legal Recourse Promptly: Approach Debt Recovery Tribunals (DRT), High Courts via writs, or arbitration. Delays may bar interest claims. Mohd. Shariq VS Punjab National Bank - 2023 3 Supreme 243M. K. Agencies VS East Central Railway having its Headquarter at Hajipur - Patna (2012)
In e-auctions or tenders, avoid misrepresentation, as it leads to dismissal. Kartar Mineral & Steel Private Ltd. VS CCL through its CMD, Ranchi - 2014 Supreme(Jhk) 1112R. P. P. Infra Projects Limited VS Tamil Nadu Generation and Distribution Corporation Ltd. , (TANGEDCO), Represented by its Chief Engineer, Materials Management - 2015 Supreme(Mad) 228
Forfeiture of earnest money in public auctions is generally enforceable under SARFAESI for timely non-compliance, but DDA and general principles impose checks. Courts balance authority powers with bidder fairness, often refunding on procedural or regulatory breaches.
Key Takeaways:- Forfeiture must be term-specific and statutory-compliant.- Challenge via suits if arbitrary or loss-free.- Always bid prudently, knowing risks.
References: Sujit Dasgupta VS State Bank of India - Calcutta (2015)DELHI DEVELOPMENT AUTHORITY VS ATUL GUPTA - Delhi (1996)Rama Associates Pvt. Ltd. VS D. D. A. /M. C. D. (Slum Wing) - Delhi (2013)M. K. Agencies VS East Central Railway having its Headquarter at Hajipur - Patna (2012)Mohd. Shariq VS Punjab National Bank - 2023 3 Supreme 243Authorised Officer, Central Bank Of India VS Shanmugavelu - 2024 2 Supreme 92Ran Singh And Others VS M/s Capex Projects Pvt. Ltd. - 2019 Supreme(P&H) 2506Ultratech Cement Ltd. VS Sunfield Resources Pvt. Ltd. - 2016 Supreme(Bom) 1794Ultratech Cement Ltd. (formerly Known as Larsen And Toubro Ltd. ) VS Sunfield Resources Pty. Ltd. - 2016 Supreme(Bom) 1797R. P. P. Infra Projects Limited VS Tamil Nadu Generation and Distribution Corporation Ltd. , (TANGEDCO), Represented by its Chief Engineer, Materials Management - 2015 Supreme(Mad) 228Kartar Mineral & Steel Private Ltd. VS CCL through its CMD, Ranchi - 2014 Supreme(Jhk) 1112
For personalized guidance, consult legal experts. Stay informed to bid confidently!
#EarnestMoney #SARFAESI #AuctionLaw
When there is no alleged loss to the respondent bank, the forfeited money may be refunded. In any case, the respondent-bank will be able to recoup and not suffer a loss in the event of the return of the Earnest Money Deposit, as they could recoup the amount from the subsequent re-auction. ... In that case, the earnest money was forfeited due to non-pay....
The appellant had deposited Rs.31,40,634/- as earnest money at the time of participating in the auction on 05.07.2017. ... As per condition nos. 24 and 25 of the E-auction Notice dated 13.06.2017, the appellant was required to deposit security at the rate of 25% of the annual contract amount within two days of the acceptance of the bid, failing which the earnest money was to be #HL_START....
Earnest money is paid or given at the time when the contract is entered into and, as a pledge for its due performance by the depositor to be forfeited in case of non-performance, by the depositor. ... On the other hand, the word “earnest” stands for a sum of money given for the purpose of binding a contract, which is forfeited if the contract does not go off and adjusted in price if the ....
The Rule 9(5) has the compulsory consequence of forfeiture of the earnest money in the event of commission of default by the auction purchaser in paying the balance amount. ... effect over general law and that forfeiture of earnest money deposit is statutorily provided as a consequence of failure of the auction purchaser to deposit the balance amount. ... Respondent Shanmugavelu having f....
towards earnest money and the first instalment of 25% in terms of the auction notice dated 18th June, 2013 is the accepted fact by either party. ... first respondent is justified in taking a decision of forfeiture of the earnest money. ... In total, the appellant deposited an amount of Rs.50,25,000/- which included earnest money and 25% of the bid amount. ... The #HL_ST....
in the event of default in payment of the balance amount, the sale shall be liable to be cancelled and the earnest money would be forfeited. ... Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no app....
We are not satisfied with the manner in which the bank had ultimately forfeited the earnest money paid by the appellant. ... Thereafter by a letter dated 22nd September, 2017 Ispat was asked to pay the remaining 75% within 15 days but it failed and as such the earnest money was forfeited by a notice/email dated 7th October, 2017. ... Thus the learned Single Judge rightly refused the appe....
in the event of default in payment of the balance amount, the sale shall be liable to be cancelled and the earnest money would be forfeited. ... Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no app....
in the event of default in payment of the balance amount, the sale shall be liable to be cancelled and the earnest money would be forfeited. ... Section 74 will apply to cases of forfeiture of earnest money under a contract. Where, however, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would have no app....
money deposited was forfeited on 23.05.2020. ... It must, however, be pointed out that in cases where a public auction is held, forfeiture of earnest Respondents.
Clause 4 of the agreement to sell in the present case is clear and specific. The earnest money can be forfeited in case the intended purchaser fails to perform his part of the contract. Earnest money is a payment made towards part of the price of the property and it represents a guarantee that the contract will be fulfilled. There is no distinction in the agreement to sell and there is no stipulation that out of Rs. 60,00,000/- how much is the earnest money and how much is th....
The respondent had sold the plot for a price three and half times more than the price at which it had sold to the appellant and thus it was held that in the facts of the case, the Respondent was not put to any damage but profited in their auction. Hence, it was held that there was no breach of the terms and conditions of the auction and the Respondent therefore had arbitrarily forfeited the earnest money. It was held that having extended the time twice by setting up High Power Committee and al....
Hence, it was held that there was no breach of the terms and conditions of the auction and the Respondent therefore had arbitrarily forfeited the earnest money. The respondent had sold the plot for a price three and half times more than the price at which it had sold to the appellant and thus it was held that in the facts of the case, the Respondent was not put to any damage but profited in their auction. It was held that having extended the time twice by setting up High Power Committee and al....
The Earnest Money Deposit made by the Tenderer will be forfeited if, b. He withdraws his tender before the expiry of validity period stipulated in the specification or fails to remit the Security Deposit; a. He withdraws his tender or backs out after acceptance;
3. A counter-affidavit has been filed on behalf of the respondent-CCL stating that in the e-auction conducted through M Junction on 30.01.2013, the petitioner booked 500 MT coal for which the successful bidder was required to deposit the value of coal in the account of CCL within 7 days from the date of e-auction. After having accepting the terms and conditions of e-auction by participating in the e-auction, a bidder is bound by the condition of e-auction scheme. The e-auction condit....
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