Case Note & Summary
The appellant, Canara Bank, conducted an e-auction on 29 November 2021 of a property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The respondents, Mr. Subramanya Rao K and Mrs. H.N. Nagarathna, participated and were declared successful bidders, paying Rs.3.25 crores as 25% of the bid amount. The balance 75% of Rs.9.75 crores was to be paid within 15 days as per the auction conditions. The sale was confirmed in their favour, and they were intimated on 14 December 2021 to pay the remainder. However, the respondents failed to pay the balance amount. Consequently, the Bank forfeited the 25% deposit. The respondents filed a writ petition before the learned Single Judge, who partly allowed the petition and directed the Bank to refund the Rs.3.25 crores, with interest if the Bank failed to provide details of the second auction. The Bank appealed. The Division Bench held that the Bank was entitled to forfeit the deposit under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, and the terms of the auction. The writ court ought not to have interfered in a contractual matter where the purchaser defaulted. The appeal was allowed, and the order of the learned Single Judge was set aside.
Headnote
A) SARFAESI Act - Auction Sale - Forfeiture of Deposit - Rule 9(5) of Security Interest (Enforcement) Rules, 2002 - The Bank conducted e-auction under SARFAESI Act; respondent-purchaser paid 25% deposit but failed to pay balance 75% within 15 days. The Bank forfeited the deposit. The learned Single Judge directed refund. On appeal, held that the Bank is entitled to forfeit the deposit as per Rule 9(5) and the terms of the auction. The direction to refund was set aside. (Paras 2-10)
B) Writ Jurisdiction - Contractual Matters - Interference - The dispute arose from a contractual obligation under the auction terms. The writ court ought not to have interfered with the Bank's decision to forfeit the deposit, as the purchaser defaulted and the forfeiture was in accordance with law. (Paras 8-10)
Issue of Consideration
Whether the Bank is entitled to forfeit the 25% deposit paid by the auction purchaser when the purchaser fails to pay the balance 75% bid amount within the stipulated time, and whether the learned Single Judge erred in directing refund of the deposit.
Final Decision
The appeal is allowed. The judgment and order dated 12.01.2024 passed by the learned Single Judge in Writ Petition No.3677/2022 is set aside. The writ petition filed by the respondents stands dismissed.
Law Points
- SARFAESI Act
- 2002
- Rule 9(5) of Security Interest (Enforcement) Rules
- forfeiture of deposit
- auction sale
- default by purchaser
- writ jurisdiction
- contractual obligation
Case Details
2024 LawText (KAR) (10) 3
WRIT APPEAL NO.349 OF 2024 (GM-RES)
N.V. Anjaria, Chief Justice, K V Aravind, J.
Shetty Vignesh Shivaram for appellant, Aditya Sondhi (Senior Advocate) with A.S. Ravi Kumar for respondents
Mr. Subramanya Rao K and Mrs. H.N. Nagarathna
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Nature of Litigation
Writ appeal against order of learned Single Judge directing refund of deposit paid by auction purchaser under SARFAESI Act.
Remedy Sought
Appellant Bank sought to set aside the order dated 12.01.2024 passed by learned Single Judge in Writ Petition No.3677/2022 directing refund of Rs.3.25 crores to the respondents.
Filing Reason
The Bank conducted e-auction; respondents paid 25% deposit but failed to pay balance 75% within 15 days; Bank forfeited deposit; respondents challenged forfeiture in writ petition; Single Judge directed refund; Bank appealed.
Previous Decisions
Learned Single Judge allowed writ petition in part, directed Bank to refund Rs.3.25 crores with interest if Bank fails to provide details of second auction.
Issues
Whether the Bank is entitled to forfeit the 25% deposit when the auction purchaser fails to pay the balance amount within the stipulated time.
Whether the learned Single Judge erred in directing refund of the deposit in exercise of writ jurisdiction.
Submissions/Arguments
Appellant Bank argued that forfeiture was in accordance with Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 and terms of auction.
Respondents argued that the Bank ought to refund the deposit as the sale was not completed.
Ratio Decidendi
Under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, if the auction purchaser fails to pay the balance amount within the stipulated period, the deposit shall be forfeited. The Bank's action of forfeiting the 25% deposit was lawful. The writ court ought not to interfere in contractual matters where the purchaser has defaulted.
Judgment Excerpts
The appellant-Bank has challenged the judgment and order dated 12th January 2024 passed by learned Single Judge.
Allowing the petition in part, a mandamus came to be issued to the respondent-appellant Bank to refund the amount of Rs.3.25 crores to the petitioner.
The auction was conducted by the appellant Bank under the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, seeking to recover the amount due.
Procedural History
The respondents filed Writ Petition No.3677/2022 before the High Court of Karnataka. The learned Single Judge partly allowed the petition on 12.01.2024, directing the Bank to refund Rs.3.25 crores. The Bank filed the present Writ Appeal No.349/2024 under Section 4 of the Karnataka High Court Act, 1961. The appeal was heard and reserved for judgment, and pronounced on 16.10.2024.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:
- Security Interest (Enforcement) Rules, 2002: Rule 9(5)
- Karnataka High Court Act, 1961: Section 4
