Partly allowed

Durgapur Corporation Private Limited v. Punjab National Bank

DRAT10 Apr 2024REGULAR APPEAL/93/2023

Case brief

AI extract

What is this about?

This appeal challenged a lower court order directing a bank to calculate interest and expenses from a forfeited earnest money deposit before refunding. The court held that while forfeiture is valid, the directive to adjust interest against the forfeited amount was unsustainable, leading to the asideing of that specific direction.

What did the court decide?

The direction issued by the lower court directing the bank to calculate interest and expenses from the forfeited deposit and refund the balance was set aside. The forfeiture of the deposit was upheld.

Durgapur Corporation Private Limited versus… — Contract and Commercial Disputes | DRAT (2024)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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Appeal No. 93 of 2023 (Arising out of S.A. 42 of 2023 DRT-2 Kolkata)

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10.04.2024

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Drugapur Corporation Pvt. Ltd. having registered office at 14, Netaji Subhas Road, 2ndfloor, Kolkata – 700001 and 3, Pretoria Street, 4^th floor, Chandra Kunj, Kolkata – 700071. … Appellant -Vs1. Punjab National Bank having Zonal office at Sastra Centre, Durgapur City Center, Red Cross Road, Durgapur – 313216. 2. The Authorised Officer, Punjab National Bank having Zonal office at Sastra Centre, Durgapur City Center, Red Cross Road, Durgapur – 313216. 3. M/s. Sova Ispat Alloys (Mega Projects) Ltd. having office at 1, R.N.Mukherjee Road, P.S. Hare Street, Kolkata – 700001. 4. Navneel Engineering Works Pvt Ltd. having office at Flat 707C, 7^th floor, Poddar Court, 18, Rabindra Sarani, PS Jorabagan, Kolkata – 700001. … Respondents For the appellants : Mr. Souritra Ganguly, ld. Advocate Mr. Sandip Agarwal, ld. adv. Ms. Sanchali Bhowmik, ld. adv. For the respondents: Mr. Debasish Chakraborty, ld. Adv. Ms. Sharmistha Pal,, ld. Adv.

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THE APPELLATE TRIBUNAL :

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Instant appeal has arisen against the judgement and order dated 01.05.2023 passed by learned DRT -2, Kolkata in S.A. No. 42 of 2023 whereby S.A. was partly allowed. Feeling aggrieved the appellant preferred the appeal.

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Facts in brief are that auction sale notice was published in the newspapers on 28.01.2020 wherein the SARFAESI applicant, who is appellant herein, participated in the bid conducted on 12.02.2020 and appellant was declared the highest bidder for an amount of Rs.2,59,20,000/-, out of which appellant deposited 10% of the reserve price i.e. Rs.25,92,000/- and after confirmation of sale further deposited Rs.38,23,200/-, totaling Rs.64,15,200/- which is 25% of the bid amount as per terms and conditions. Thereafter, 75% of the bid amount was not deposited by the appellant. Certain queries were raised by the appellant regarding clearance of title of the secured asset. Vide letter dated 05.03.2020 respondent bank informed the appellant to deposit remaining 75% of the bid amount within stipulated period of three months failing which amount already deposited by the appellant would be forfeited. However, remaining 75% of the bid amount was not deposited. Subsequent auction sale was conducted on 30.10.2021 and property was sold in favour of respondent no.4 at a highest

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bid amount of Rs.3.47 crore. S.A. was filed by the appellant before the learned DRT seeking relief for a direction upon the respondent bank to disclose the pending encumbrances attached with the scheduled property. Further, direction upon the bank to accept the balance consideration price of Rs.1,94,40,000/- and execute necessary sale certificate and title transfer papers and set aside the auction sale conducted on 30.10.2021 in favour of respondent no.4, Navneel Engineering Works Pvt. Ltd. In the alternative bank be directed to refund the 25% of the bid amount i.e. Rs.64,15,200/- along with TDS of Rs.64,800/-

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After hearing the learned counsel for the parties and perusing the records, learned DRT recorded finding to the effect that it was the responsibility of the bidder to satisfy themselves about the asset before offering bid. Further, in para-8 of the judgement learned DRT has recorded that there is no requirement for issuing notice or intimation to the auction purchaser before forfeiting the earnest money. Further, it is recorded that bare perusal of the letter dated 05.03.2020 reveals that bank had intimated that in case of default in payment of remaining 75% of the bid, amount already deposited shall be liable to be forfeited and property shall be put to re-auction. Ultimately, learned DRT has passed an order which is as under :

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“In view of the matter, the respondent bank is directed to calculate the interest from 12.02.2020 till 30.10.2021 on the outstanding dues on relevant date and also expenses incurred on conducting fresh sale and after deducting both these amounts from the deposit amount of the applicant i.e. Rs.64,15,200/bank is directed to refund rest of the amount to the applicant within four weeks from today and applicant will not be entitled for any interest on the deposited amount. Accordingly, S.A. of the applicant is partly allowed in view of the observation made hereinabove.”

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I have heard learned counsel for the parties and perused the records.

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At the very outset it is to be observed that no appeal is preferred by the respondent bank against the judgement and order dated 01.05.2023. Further, learned counsel for the appellant would submit that he is challenging the impugned order to the extent the appellant is aggrieved with the recording in the order that adjustment against the accrued interest was to be made from the amount deposited by the auction purchaser.

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As far as impugned order is concerned facts are admitted between the parties. Admittedly, appellant is the highest bidder in the auction held on 12.02.2020 for bid amount of Rs.2.95 crore. Appellant deposited Rs.64,15,200/- after deduction of TDS amount. It is also not in dispute that appellant has not challenged the forfeiture made by the respondent bank.

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Learned counsel for the appellant would submit that no forfeiture was made by the bank and no finding was recorded by the learned DRT regarding forfeiture. Learned counsel submits that in Para 8 of the order there is no finding regarding forfeiture rather learned DRT has reiterated the contents of the letter dated 05.03.2020 written by the bank to the auction purchaser. Accordingly, there is no finding that forfeiture, if any, made by the bank was not legal. Further, learned counsel would submit that appellant is only aggrieved by the direction of learned DRT for payment of interest portion accrued from 12.02.2020 till 30.10.2021.

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Learned counsel for the respondent would submit that appellant has not challenged the forfeiture. Respondent bank has already forfeited the 25% of the bid amount deposited by the appellant. Learned DRT has rightly ordered interest amount, if any, for the period of first auction to subsequent auction should be adjusted from the forfeiture amount.

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Sub-rule (4) and (5) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 reads as under :

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9.(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.

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(5) In default of payment within the period mentioned in subrule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting

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purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.

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Hon’ble Apex Court in The Authorised Officer, Central Bank of India Vs. Shanmugacelu [Civil Appeal No.235-236 of 2024] has held in Para 103, 112 and 117 as under:

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Any dilution of the forfeiture provided under Rule 9(5) of the SARFAESI Rules would result in the entire auction process under the SARFAESI Act being set at naught by mischievous auction purchaser(s) through sham bids, thereby undermining the overall object of the SARFAESI Act of promoting financial stability, reducing NPAs and fostering a more efficient and streamlined mechanism for recovery of bad debts.

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The consequence of forfeiture of 25% of the deposit under Rule 9(5) of the SARFAESI Rules 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 a higher price or not, and this forfeiture is not subject to any recovery already made or 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% of deposit under Rule 9(5) of the SARFAESI Rules.

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In Authorised Officer, State Bank of India Vs. C. Natarajan & Anr. [(2024 2 SCC 637] this Court while affirming the decision of Alisha Khan v. Indian Bank [2021 SCC OnLine SC 3340] observed that after the earnest-money deposit is forfeited, the courts should ordinarily refrain from interfering unless the existence of very rare and exceptional circumstances are shown. The relevant observations read as under: -

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"13. If, however, circumstances are shown to exist where a bidder is faced with such a grave disability that he has no other option but to seek extension of time on genuine grounds so as not to exceed the stipulated period of ninety days and the prayer is rejected without due consideration of all facts and circumstances, refusal of the prayer for extension could afford a ground for a judicial review of the decision-making process on valid ground(s). One such exceptional circumstance led to the decision in Alisha Khan v. Indian Bank (Allahabad Bank) [2021 SCC OnLine SC 3340], where this Court intervened and granted relief because, due to COVID complications, the appellant had failed to pay the balance amount.

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The up-shot of the aforesaid discussion is that whenever a challenge is laid to an order of forfeiture made by an authorized officer under sub-rule (5) of rule 9 of the Rules by a bidder, who has failed to deposit the entire sale price within ninety days, the tribunals/courts ought to be extremely reluctant to interfere unless, of course, a very exceptional case for interference is set

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up. What would constitute a very exceptional case, however, must be determined by the tribunals/courts on the facts of each case and by recording cogent reasons for the conclusion reached.

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Insofar as challenge to an order of forfeiture that is made upon rejection of an application for extension of time prior to expiry of ninety days and within the stipulated period is concerned, the scrutiny could be a bit more intrusive for ascertaining whether any patent arbitrariness or unreasonableness in the decisionmaking process has had the effect of vitiating the order under challenge.

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However, in course of such scrutiny, the tribunals/courts must be careful and cautious and direct their attention to examine each case in some depth to locate whether there is likelihood of any hidden interest of the bidder to stall the sale to benefit the defaulting borrower and must, as of necessity, weed out claims of bidders who instead of genuine interest to participate in the auctions do so to rig prices with an agenda to withdraw from the fray post conclusion of the bidding process.

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In course of such determination, the tribunals/courts ought not to be swayed only by supervening events like a subsequent sale at a higher price or at the same price offered by the defaulting bidder or that the secured creditor has not in the bargain suffered any loss or by sentiments and should stay at a distance since extending sympathy, grace or compassion are outside the scope of the relevant legislation.

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In any event, the underlying principle of least intervention by tribunals/courts and the overarching objective of the SARFAESI Act duly complimented by the Rules, which are geared towards efficient and speedy recovery of debts, together with the interpretation of the relevant laws by this Court should not be lost sight of. Losing sight thereof may not be in the larger interest of the nation and susceptible to interference."

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Further, in Authorised Officer, State Bank of India Vs. C. Natarajan & Anr. [2023 SCC Online SC 510] Hon’ble Apex Court has held that Banks can forfeit entire earnest money and not just extent of loss suffered by it due to auction purchaser’s default.

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Although in the present appeal no challenge is made by the appellant on forfeiture of the earnest money, but I am inclined to record that remaining 75% of the bid amount was not deposited by the appellant within the stipulated time as

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required as per provision of Rule 9(4) of the Rule. Letter dated 05.03.2020 was issued by the respondent bank to the appellant wherein it is specifically mentioned that 75% of the bid amount should be deposited within the stipulated time i.e. 11.05.2020 and in case of default 25% of the amount already deposited shall be liable to forfeited and property shall be put to re-auction. Admittedly, amount of 75% of the bid amount was not deposited by the appellant within the stipulated period. It is submitted that appellant raised certain queries regarding clearance of title of the property and payment to be deposited to Labour Commissioner, which is rebutted by the learned counsel for the bank indicating the clause in the auction sale notice wherein it is specifically mentioned that there is no incumbrance on any property, however, the intending bidder should make their own independent inquiries regarding the encumbrances prior to submit their bid. A declaration was also made by the appellant on 07.02.2020 wherein it is stated that in the eventuality of forfeiture of the amount by the Authorised Officer, the defaulting bidder shall neither have claim on the property nor on any part of the sum for which it may be subsequently sold. In view of this fact, time was granted by the bank upto 11.05.2020 vide letter dated 05.03.2020, appellant did not deposit the remaining 75% of the bid amount. Accordingly, 25% of the bid amount already

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deposited by the appellant stands forfeited in favour of the bank.

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Now the question arises about the finding recorded by the learned DRT. Learned DRT in Para 8 of the order recorded categorical finding after perusing letter dated 05.03.2020 that there is no illegality in forfeiting the 25% bid amount of the applicant. This finding as per the submission made by the appellant is not challenged. Appellant has not challenged or pressed this finding in the course of argument. As far as direction issued by learned DRT regarding calculation of interest from 12.02.2020 to 30.10.2021 is concerned, a directory order was passed by learned DRT on the amount which was already forfeited by the bank. There is no question of saddling any liability on the auction purchaser for payment of interest. Compliance of Rule 9(4) of the Rule was not made by the appellant. Accordingly, forfeiture was made as per provision of Rule 9(5) of the Rule. Hence, no liability can be imposed upon the auction purchaser for payment of any interest from the date of submitting bid to the date of next auction sale. This portion of the finding in the impugned order is liable to be set aside.

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On the basis of the discussion made above, I am of the considered opinion that 25% bid amount i.e. Rs.64,15,200/was rightly forfeited by the appellant bank. Accordingly,

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there is no necessity to issue any further direction to the respondent bank to calculate interest from 12.02.2020 to 30.10.2021 on the outstanding dues and also expenses incurred on conducting fresh sale and after deducting both these amounts from deposit of the appellant and refund the rest. Accordingly, appeal is partly allowed with the observation made above.

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O R D E R

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Appeal is partly allowed. Finding regarding forfeiture of Rs.64,15,200/- by the respondent bank is upheld. However, direction issued by the learned DRT to the effect that “in view of the matter, the respondent bank is directed to calculate the interest from 12.02.2020 till 30.10.2021 on the outstanding dues on relevant date and also expenses incurred on conducting fresh sale and after deducting both these amounts from the deposit amount of the applicant i.e. Rs.64,15,200/- bank is directed to refund rest of the amount to the applicant within four weeks from today and applicant will not be entitled for any interest on the deposited amount” is set aside. No order as to costs.

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File be consigned to record room.

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Copy of the order be supplied to the appellant and the respondent and a copy be also forwarded to the concerned DRT.

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Copy of the judgement/Final Order be uploaded in the

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Tribunal’s website.

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Order dictated, signed and pronounced by me in the

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