Allowed

Bank of Baroda v. Mohammedarif Mohammedumar Qureshi

DRAT7 Aug 2024REGULAR APPEAL/37/2023

Case brief

AI extract

What is this about?

The Appellate Tribunal allowed the bank's appeal, quashing the DRT order that refunded the deposit. The court held that strict compliance with Rule 9(5) is mandatory and forfeiture is a statutory consequence regardless of subsequent higher sales prices or reasons for delay.

What did the court decide?

Quash and set aside the impugned order of the DRT allowing the Securitisation Application. Order refund of the deposited amount to the bank.

Bank of Baroda versus Mohammedarif Mohammedumar Qureshi — Company and Corporate | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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Appeal No. 37/2023

Between

Bank of Baroda

… Appellant/s

V/s.

Mohammedarif Mohammedumar Qureshi & Anr. …Respondent/s Mrs Rathina Maravarman, Advocate for Appellant Bank. Ms Mable Soans, i/b M/s Mable & Associates, Advocate for Respondents.

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-: Order dated: 07/08/2024:-

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Bank of Baroda is in appeal challenging the order dated 09.03.2023 allowing Securitisation Application (S.A.) No. 398 of 2023 by the Debts Recovery Tribunal-I, Ahmedabad (D.R.T.) in favour of the applicant seeking a refund of the part sale consideration deposited by him and forfeited by the bank.

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The facts in brief are thus:

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The second respondent herein had borrowed money from the appellant bank and defaulted on repayment. The bank took measures for recovery under the provisions of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) and the secured asset which is the subject property was sold in auction on 16.11.2021. The first Respondent bid for the auction and came out successful as the highest bidder. He could not deposit 25% of the bid amount immediately i.e. on the same day or the next working day. He

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deposited that amount only on 18.11.2021. The deposit violated Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 (“Rules” for short), and the authorised officer directed forfeiture of the amount. The first respondent was aggrieved by the forfeiture and challenged it before the D.R.T. by filing S.A. No. 27 of 2022. That was allowed by the D.R.T. and the bank refunded the amount.

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Thereafter, the subject property was put up for sale again on 28.07.2022 and the first respondent once again bid for the property and came out successful as the highest bidder for a sale consideration of ₹3.21 crores. EMD of Rs.32,10,000/- being 10% of the bid amount was deposited before the auction and he was declared as the successful bidder on 28.07.2022. He deposited the balance of 15% of the bid amount of ₹48,15,000/- on 29.07.2022. Thereafter the first respondent deposited ₹1.00 lakh and ₹5 lakhs on 27.09.2022 and 29.09.2022 respectively. He further deposited a sum of ₹3 lakhs on 30.09.2022 and a further amount of ₹2 lakhs on the same day. The said amount was reverted to his account on the same day. On 10.10.2022 the first respondent deposited ₹10 lakhs. Thus, the first respondent deposited a total sum of ₹1,01,25,000/- but out of that ₹5 lakhs paid by him on 30.09.2022 reverted into his account and thereby the total payment was only ₹96,25,000/-. The first respondent alleges that the bank had promised to extend the period to deposit the balance by 21 days. The first respondent thereafter again requested for a further extension of time till 15.11.2022 vide letter dated 23.10.2022 stating that there was some delay on the part of Bombay Mercantile Co-operative Bank in disbursing the amount of loan of ₹2.50 crores

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availed by him. The appellant bank did not concede to that request and forfeited the amount paid by the first respondent and issued a fresh auction notice on 19.11.2022 for the sale of the property. The first respondent was aggrieved and hence, filed the present S.A. No. 398 of 2022. The averments raised by the first respondent in the S.A. were that he could not pay the entire auction amount within time because his wife was unwell and had to be hospitalised frequently and the Bombay Mercantile Co-operative Bank had not paid him the amount on time. The first respondent also expressed his desire and readiness to pay the entire balance amount inclusive of interest. He sought a stay of the proposed auction on 19.11.2022.

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Per contra, the appellant bank contended that the appellant has no locus to apply and that he had defaulted in depositing the entire sale consideration within 90 days as stipulated in Rule 9(4) and therefore, the bank was justified in cancelling the sale and ordering forfeiture of the amount already deposited. 5. During the pendency of the S.A., a fresh auction of the property was conducted and the property was sold for ₹3.30 crores. The Ld. Presiding order has in the impugned order observed that the property was ultimately sold for a higher price than the amount for which the first respondent had bid and therefore, the bank did not suffer any loss and that the act of the bank would result in illegal enrichment. The D.R.T. also opined that the respondent had good reason for delaying payment as his wife was unwell and the Bombay Mercantile bank had not disbursed the amount on time. The forfeiture of ₹96,25,000/deposited by the first respondent was, therefore, not justified and

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hence allowed the S.A. and ordered a refund of the deposited amount within 15 days. The appellant is aggrieved and hence, in appeal.

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Heard the Ld. Counsel Mrs Rathina Maravarman, appearing for the Appellant and the Ld. Counsel Ms Mable Soans who appeared for the first respondent. Records perused.

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The important question that arises for consideration in this appeal is whether the D.R.T. was justified in ordering the refund of the amount deposited by the first respondent for the reason that he could not pay the amount in time and was justified in seeking an extension because his wife was frequently hospitalised and the Bombay Mercantile Co-operative Bank had not paid him the loan on time.

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The right of the auction purchaser to challenge the forfeiture of the amount deposited by him under Sec. 17 of the SARFAESI Act has been settled by the Hon’ble Supreme Court in the decision of Agarwal Tracom Pvt. Ltd. vs. Punjab National Bank (2018) 1 SCC 626 for the reason that Rule 9(5) confers the express power on the secured creditor to forfeit the deposit made by the auction purchaser in case the auction purchaser commits any default in paying instalment or sale money to the secured creditor. Such action taken by the secured creditor being a part of measures specified in Sec. 13(4) read with Rule 9(5) could be challenged under Sec. 17 of the SARFAESI Act by a person who is aggrieved by it. Hence, the auction purchaser is competent to apply under Sec. 17 of the SARFAESI Act challenging the forfeiture of the amount deposited by him.

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The forfeiture of the amount deposited by the auction purchaser is not

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unjust enrichment as is opined by the D.R.T. in the impugned order. The forfeiture of the amount deposited under Rules 9(4) and 9(5) is a legal consequence that has been statutorily provided in the event of default in payment of the balance amount. The consequence envisaged under Rule 9(5) follows irrespective of whether a subsequent sale takes place at the higher price or not, and this forfeiture is not subject to any recovery already made to the extent of the debt owed. In such cases, no extent of equity can either substitute or dilute the statutory consequence of forfeiture of 25% deposited under Rule 9(5) of the Rules. ( Authorised Officer, Central Bank of India vs. Shanmugavelu 2024 SCC OnLine SC 92 relied upon). The reasons supplied for the delay in the deposit cannot be entertained as the time fixed for payment is a statutory mandate which needs strict compliance.

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Under the circumstances, the impugned order appears to be erroneous and therefore, is ordered to be quashed and set aside. The appeal is allowed.

Sd/-
Chairperson

Chairperson

mks-01

Bank of Baroda v. Mohammedarif Mohammedumar Qureshi

Case brief

What is this about?

What did the court decide?

Bank of Baroda v. Mohammedarif Mohammedumar Qureshi

Case brief

What is this about?

What did the court decide?

What the court decided

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