Case Note & Summary
The petitioner, Sri Kalyanamurthy K., participated in an e-auction conducted by the State Bank of India (respondent) for the sale of an immovable property under the Security Interest (Enforcement) Rules, 2002. The auction was held on 08.12.2021, and the petitioner was declared the highest bidder with a bid of Rs.86,95,000/-. He deposited 25% of the bid amount (Rs.21,73,750/-) as required. The balance 75% was to be paid within 15 days of confirmation of sale. The petitioner sought extension of time to pay the balance, which was granted by the bank up to 20.07.2022. However, the bank did not issue the sale certificate despite the petitioner's readiness to pay. The petitioner sent a requisition on 20.07.2022 requesting the bank to issue the sale certificate and accept the balance amount, but the bank forfeited the deposit and cancelled the sale. The petitioner filed a writ petition seeking a direction to the bank to refund the forfeited amount of Rs.31,73,750/- (including additional deposit). The court held that the bank's failure to issue the sale certificate constituted a breach of contract, and the forfeiture was arbitrary. The court directed the bank to refund the entire forfeited amount with interest at 6% per annum from the date of forfeiture until payment.
Headnote
A) Banking Law - SARFAESI Act - Auction Sale - Forfeiture of Deposit - The bank forfeited 25% deposit of the successful bidder for non-payment of balance amount within extended time. However, the bank failed to issue the sale certificate even after the bidder expressed readiness to pay. Held that forfeiture was arbitrary and the bank must refund the deposit with interest. (Paras 1-10) B) Contract Law - Breach of Contract - Failure to Perform Reciprocal Promise - Under Section 54 of the Indian Contract Act, 1872, when a party fails to perform a reciprocal promise, the other party is discharged from performance. The bank's failure to issue the sale certificate discharged the petitioner from the obligation to pay the balance. (Paras 8-10) C) Constitutional Law - Writ Jurisdiction - Maintainability - A writ petition under Articles 226 and 227 of the Constitution of India is maintainable against a bank for refund of forfeited amount in an auction sale under the SARFAESI Act, as the bank is a public authority performing public functions. (Para 1)
Issue of Consideration
Whether the forfeiture of 25% deposit by the bank was justified when the sale was not completed due to the bank's failure to issue the sale certificate and whether the petitioner is entitled to refund of the forfeited amount.
Final Decision
The court allowed the writ petition and directed the respondent bank to refund the entire forfeited amount of Rs.31,73,750/- with interest at 6% per annum from the date of forfeiture until the date of payment, within four weeks.
Law Points
- Forfeiture of deposit in auction sale under SARFAESI Act must be proportionate and not arbitrary
- Bank's failure to issue sale certificate within reasonable time amounts to breach of contract
- Writ petition maintainable against bank for refund of forfeited amount
