✦ High Court of India · 03 Apr 2025

The High Court · 2025

Case Details High Court of India · 03 Apr 2025

Court

High Court of India

Decided

03 Apr 2025

Bench

GOPINATH P

Length

1,156 words

Acts & Sections

Contract Act The petitioner was the successful bidder in an auction held by the respondent bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002

2. The learned counsel appearing for the respondent bank submits that in respect of a sale under the provisions of the SARFAESI Act, the time for payment of the balance amount is WP(C) 7595/2025 3 specified in terms of the provisions contained in Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the ‘2002 Rules’). It is submitted that the right of the bank to grant extension of time is also controlled by the provisions of Rule 9(4) of the 2002 Rules. It is submitted that the terms of the sale and the provisions of the 2002 Rules contemplate forfeiture of the amount already remitted by the petitioner, if the balance amount is not paid. It is submitted that the petitioner also withdrew from the sale. The learned counsel appearing for the respondent bank also placed reliance on the judgments of the Supreme Court in Authorised Officer, Central Bank of India v. Shanmugavelu; 2024 KLT OnLine 1060 (SC) and Authorised Officer, State Bank of India v. Natarajan; 2023 KLT OnLine 1792 (SC) to contend that forfeiture is permissible and authorised by the statute (SARFAESI Act).

3. Having heard the learned counsel appearing for the petitioner and the learned counsel appearing for the respondent bank, I am of the view that the relief sought for in the writ petition cannot be granted. Ext.P6 communication issued by the respondent bank is strictly in terms of the provisions contained in Rule 9(4) and Rule 9(5) of the 2002 Rules. It is clear that the WP(C) 7595/2025 4 conditions of the sale and the provisions of the 2002 Rules contemplate that where the successful bidder fails to deposit the amount within the time specified or within the extended time permitted by the bank, any amount deposited by the successful bidder will be forfeited by the bank. There is no challenge to the provisions of the 2002 Rules, and in such circumstances, it is not possible for this Court to direct that the bank must act contrary to the provisions contained in the 2002 Rules. In Shanmugavelu (supra) it was held :- “66. At this stage, we may also answer the submission of the respondent that the authorised officer under Rule 9(5) of the SARFAESI Rules has been conferred with unguided and unfettered power of forfeiture and as such the said rule is liable to be struck down. However, we are not impressed with such submission. First, there was no challenge to the constitutional validity of Rule 9 sub-rule (5) of the SARFAESI Rules. Secondly, even as per Agarwal Tracom (supra) it is always open for a person aggrieved by an order of forfeiture under the SARFAESI Rules to challenge the same before the DRT under Section 17 of the SARFAESI Act.

67. As regards the contention that the SARFAESI Rules being a delegated legislation cannot override the substantive provisions of a statutory enactment more particularly Section(s) 73 & 74 of WP(C) 7595/2025 5 the 1872 Act, the same was negatived by this Court in C. Natarajan (supra) with the following observations: - “22. .... We have considered it necessary to advert to this question as it is one of general importance and are of the considered opinion that the answer must be in the negative. While the Contract Act embodies the general law of contract, the SARFAESI Act is a special enactment, inter alia, for enforcement of security interest without intervention of court. Rule 9(5) providing for forfeiture is part of the Rules, which have validly been framed in exercise of statutory power conferred by section 38 of the SARFAESI Act. Law is well settled that rules, when validly framed, become part of the statute. …”

68. What can be discerned from the above is that the SARFAESI Act is a special legislation with an overriding effect on the general law, and only those legislations which are either specifically mentioned in Section 37 or deal with securitization will apply in addition to the SARFAESI Act. Being so, the underlying principle envisaged under Section(s) 73 & 74 of the 1872 Act which is a general law will have no application, when it comes to the SARFAESI Act WP(C) 7595/2025 6 more particularly the forfeiture of earnest-money deposit which has been statutorily provided under Rule 9(5) of the SARFAESI Rules as a consequence of the auction purchaser’s failure to deposit the balance amount. Therefore, the act of the bank in forfeiting the amount deposited by the petitioner cannot be found fault with. Writ petition fails and it is accordingly dismissed. However, this will not prevent the petitioner from participating in any fresh auction that may be conducted in respect of the property. Sd/- GOPINATH P. JUDGE WP(C) 7595/2025 7 APPENDIX OF WP(C) 7595/2025 PETITIONER’S EXHIBITS Exhibit P1 Exhibit P2 Exhibit P3 Exhibit P4 Exhibit P5 Exhibit P6 THE TRUE COPY OF THE LETTER DATED 23.08.2023 SENT BY THE RESPONDENT BANK THE TRUE COPY OF THE RECEIPT OF REMITTANCE OF RS. 10,50,000/- ON 22.08.2023 THE TRUE COPY OF THE LETTER GIVEN BY THE PETITIONER TO THE RESPONDENT BANK THE TRUE COPY OF THE LETTER DATED 11.01.2024 SENT BY THE RESPONDENT BANK THE TRUE COPY OF THE REPRESENTATION DATED 08.01.2025 TRUE COPY OF THE LETTER RECEIVED FROM THE BANK 16/01/2025

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