Case Note & Summary
The Supreme Court allowed the appeal filed by the State Bank of India (the Bank) against the judgment of the Madras High Court. The dispute arose from an e-auction conducted under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Bank had taken possession of the plant and machinery of M/s Stallion Knitwear India Private Limited (Stallion) after it defaulted on its debts. An e-auction notice was issued on 22nd August 2017, and the contesting respondent participated, depositing earnest money. He was declared the highest bidder with a bid of Rs. 1,23,00,000, exceeding the reserve price by Rs. 1,00,000. He paid 25% of the sale price (Rs. 30,75,000) on 15th September 2017, and was required to pay the balance 75% (Rs. 92,25,000) by 29th September 2017. He failed to arrange the funds and sought an extension of 25 days, which the Bank granted. However, he still did not pay within the extended period. The Bank then forfeited the earnest money and cancelled the sale. The respondent filed a writ petition in the Madras High Court, which allowed the petition and directed the Bank to refund the earnest money. The Bank appealed to the Supreme Court. The Supreme Court held that the extension of time was not binding on the Bank as no confirmation letter was issued, and the forfeiture was valid under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002. The Court also noted that the writ petition was not maintainable as the respondent had an alternative remedy under Section 17 of the SARFAESI Act. The Supreme Court set aside the High Court's judgment and dismissed the writ petition.
Headnote
A) SARFAESI Act - E-Auction - Extension of Time - Forfeiture of Earnest Money - The bank extended time for payment of balance sale price but did not issue a confirmation letter; the auction purchaser failed to pay within the extended period - The bank forfeited the earnest money under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 - Held that the extension of time was not binding on the bank without a confirmation letter, and forfeiture was valid (Paras 1-10). B) SARFAESI Act - Alternative Remedy - Maintainability of Writ Petition - The auction purchaser filed a writ petition challenging the forfeiture instead of availing the remedy under Section 17 of the SARFAESI Act - Held that the High Court ought not to have entertained the writ petition in view of the alternative remedy (Paras 1-10).
Issue of Consideration
Whether the High Court was justified in interfering with the forfeiture of earnest money by the bank under the SARFAESI Act when the auction purchaser failed to pay the balance amount within the extended time, and whether the writ petition was maintainable in view of the alternative remedy under Section 17 of the SARFAESI Act.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court judgment, and dismissed the writ petition. The forfeiture of earnest money was upheld.
Law Points
- Extension of time for payment in e-auction under SARFAESI Act is not binding on the bank unless a confirmation letter is issued
- Forfeiture of earnest money for default in payment is valid under Rule 9(5) of Security Interest (Enforcement) Rules
- 2002
- Writ petition against SARFAESI action is not maintainable when alternative remedy under Section 17 of SARFAESI Act is available
