Allowed

A.O.,State Bank of India v. Mskg Engineering Consultancy Services

DRAT15 May 2024REGULAR APPEAL/98/2019

Case brief

AI extract

What is this about?

This appeal challenged an order directing the bank to refund Rs. 59 Lakhs forfeited as overpayment in an auction. The bench held that Rule 9(5) mandates forfeiture of only the 25% deposit, not the 75% payment, and set aside the lower tribunal's direction to refund the deposit.

What did the court decide?

The impugned order directing the Bank to refund Rs. 59 Lakhs is set aside, and the Securitisation Application stands dismissed.

A.O.,State Bank of India versus Mskg Engineering… — Execution and Attachment | DRAT (2024)

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RA (SA) 98/2019

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 15^th day of May, 2024

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PRESENT: HON'BLE MR. JUSTICE S.RAVI KUMAR CHAIRPERSON

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RA (SA) 98/2019

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( S.A.47/2018 on the file of DRT-I, Chennai)

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Between

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The Authorised Officer, State Bank of India, Stressed Assets Management Branch, Red Cross Buildings, No.32, Red Cross Road, Egmore, Chennai-8.

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…… Appellant

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And

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M/s. MSKG Engineering Consultancy Services, A Partnership Firm represented by its Partner Mr. T. Mahendran, No.32, Krishna Flats, No.59, 1^st Avenue, 100 Feet Road, Ashok Nagar, Chennai- 600 083.

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… Respondent

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Counsel for Appellant : Mr. K. Mohandas Counsel for Respondent : Mr. A. Arokia Satheesh

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RA (SA) 98/2019

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ORDER

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This Appeal is against Order dated 09.01.2019 of DRT-I, Chennai, in SA 47/2018.

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Brief facts that are relevant for the purpose of this Appeal are as follows:-

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Respondent herein had participated in auction held on 29.11.2017 conducted by Appellant Bank and became a successful bidder for a bid amount of Rs.2.36 Crores. On declaring as successful bidder, Respondent deposited Rs.35.60 Lakhs, being the 15% of bid amount apart from Rs.23.40 Lakhs, being the amount already deposited, as caution deposit. Respondent was asked to pay balance amount of Rs.1.77 Crores, on or before 13.12.2017. Respondent requested for extension of time through Letter dated 12.12.2017 and Bank extended time till 29.12.2017.

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Respondent again requested for extension of time through Letter dated 03.01.2018 and Bank granted extension till

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RA (SA) 98/2019

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29.01.2018. Respondent paid a sum of Rs.1 Crore and sought extension of time for paying balance, till 28.02.2018. Appellant, through Letter dated 31.01.2018, informed Respondent about accepting Rs.1 Crore and granting extension upto 26.02.2018. In the very same Letter, it is clarified that, if balance amount is not paid before 26.02.2018, amount already paid would be forfeited. Respondent failed to pay the balance amount of Rs.77 Lakhs before extended time of 26.02.2018, but paid the amount, on 15.03.2018 through a Demand Draft, and Appellant refused to accept the same on the ground that time granted already, is expired. Aggrieved by refusal of Bank, Respondent approached Hon’ble High Court by way of Writ Petition and Hon’ble High Court dismissed the same by Order dated 22.03.2018. After dismissal of Writ Petition, Respondent submitted a Letter requesting Bank to refund Rs.1.59 Crores. Appellant informed Respondent through Letter dated 03.04.2018 that it can only refund Rs.1 Crore and remaining Rs.59 Lakhs, has to be forfeited. Challenging that Letter, Respondent preferred Writ Petition

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RA (SA) 98/2019

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before Hon’ble High Court and Hon’ble High Court directed Respondent to approach DRT, basing on which, Respondent filed SA 47/2019 before DRT-I, Chennai.

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Said SA is resisted by Appellant herein.

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On a consideration of contentions and rival

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contentions of both parties, Tribunal below directed Bank to refund Rs.59 Lakhs, within 7 days from the date of receipt of copy of Order. Aggrieved by which, present Appeal is preferred.

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Both Appellant and Respondent filed Written

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Arguments. Advocate for Appellant reiterated the same at the time of oral submissions and no oral arguments are advanced on behalf of Respondent.

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Advocate for Appellant mainly contended that as per

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Rule 9 (5) of Security Interest (Enforcement) Rules, 2002, (hereinafter referred to as Enforcement Rules), in default of

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RA (SA) 98/2019

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payment of 75%, the deposit shall be forfeited and property shall be resold, and by exercising said power, Authorised Officer forfeited the deposit of Rs.59 Lakhs, which represents 25% of bid amount. It is submitted, Tribunal below wrongly interpreted the term ‘deposit’ and observed that, if Appellant Bank has agreed to refund Rs.1 Crore, it cannot forfeit remaining amount of Rs.59 Lakhs. He further submitted that Tribunal below observed that Bank violated the terms and conditions, therefore, forfeiting the amount, cannot sustain. He submitted, Hon’ble Supreme Court, in a similar set of facts, held that, forfeiture of deposit does not amount to unjust enrichment, therefore, reliance placed by Tribunal below on the Judgements of Hon’ble High Court of Madras, cannot be accepted.

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On the other hand, it is the contention of Respondent

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that Authorised Officer has no power to forfeit 25% of bid amount when Respondent tendered the balance amount in part. According to Written Arguments, forfeiture of 25% is

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only to prevent unscrupulous participation in auction,

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RA (SA) 98/2019

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since Bank has conducted a fresh Sale and realized the sale amount, it has not sustained any loss and no prejudice will be caused by refunding the deposited amount and Tribunal below rightly ordered for refund and there are no grounds to interfere with Order of Tribunal below.

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I have perused the material papers including the impugned Order dated 09.01.2019.

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Simple point involved in this Appeal is with regard to power of Authorised Officer to forfeit the deposited amount under Enforcement Rules, 2002. Before going into the controversy, it may be necessary to examine the relevant Rules concerning forfeiture, which are Rules 9(3), 9(4) and 9(5) of Enforcement Rules, 2002. They read as follows:-

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9. Time of sale, issue of sale certificate and delivery of possession, etc.

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[(1) ………

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RA (SA) 98/2019

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2)………

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(3)[ On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent. of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;]

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(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 sub-rule (4), the deposit shall be forfeited [to the secured creditor] and the property shall be resold and the defaulting 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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(6)……………..

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RA (SA) 98/2019

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(7)………………. ……………. ……………. (10)………”

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One of the arguments raised in the Written Submissions on behalf of Respondent is that discretionary power is vested with Authorised Officer. But, a reading of the above Rules, such an argument cannot be accepted, because it is mandatory for Authorised Officer to forfeit in case of nonpayment of balance bid amount. In Rules, the word used is ‘shall’; therefore, Authorised Officer has no discretionary power in that regard.

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Tribunal below held that Bank ought to have forfeited the whole amount, but instead, it agreed to refund Rs.1 Crore and forfeited Rs.59 Lakhs, therefore, it amounts to violation of conditions. It is not in dispute that the terms and conditions cannot override the Enforcement Rules, 2002. Terms and conditions can only supplement statutory Rules. From a reading of above referred

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RA (SA) 98/2019

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Enforcement Rules, 2002, payment of bid amount is categorized into two steps; first step is, to deposit 15% of bid amount to which the 10% of caution deposit is to be added thereby meaning 25% of bid amount. Second step is, payment of balance purchase price to Authorised Officer on or before 15 days or such extended period, not exceeding three months. Here, there is no dispute that Respondent herein sought for extension which the Authorised Officer considered and extended within his powers and finally intimated that he cannot extend the period beyond 26.02.2018. Admittedly, Respondent paid part of balance amount on 15.03.2018, which was not accepted by Bank.

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9. Rule 9(5) of Enforcement Rules, 2002, contemplates

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forfeiture of deposit. Now, the question is what is ‘deposit’? Admittedly, ‘deposit’ is not defined by the Act or Rules made therein. But, on a plain reading of Sub-rule (3) of Rule 9 of Enforcement Rules, 2002, ‘deposit’ refers to 25%

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RA (SA) 98/2019

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of bid amount, which includes earnest money deposited. Remaining 75%, is not termed as ‘deposit’, it is termed as ‘payment’. So, a combined reading of Sub-rules (3) and (4) of Rule 9 of Enforcement Rules, 2002, makes it very clear that, forfeiture is contemplated only in respect of ‘deposit’, but, not in respect of ‘payment’. Here admittedly, ‘deposit’ is Rs.59 Lakhs, whereas, ‘payment’ is Rs.1 Crore. Authorised Officer was absolutely right in informing Respondent that it cannot refund Rs.59 Lakhs, which represents ‘deposit’. But, unfortunately, Tribunal below treated ‘payment’ of Rs.1 Crore, also as ‘deposit’ and found wrong with Bank in offering refund of Rs.1 Crore, and for that reason, ordered for refund of forfeited amount.

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Learned Advocate for Appellant referred to the Judgements of Hon’ble Supreme Court in Authorised

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Officer, State Bank of India Vs. C. Natarajan and Anr., in Civil Appeal No. 2545/2023 , and The Authorised Officer, Central Bank of India Vs. Shanmugavelu in Civil

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RA (SA) 98/2019

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Appeal Nos. 235 and 236/2024 , for the proposition that, forfeiture do not fall under the category of ‘unjust enrichment’. Hon’ble Supreme Court, in a similar set of facts, held that, forfeiture would not amount to unjust enrichment, and observed that, the bidder, being aware of his financial capacity, and participated in the auction knowing the consequences of his failure to deposit the balance amount, cannot find fault with action of forfeiture. In view of the Judgements of Hon’ble Supreme Court referred to above, direction of Tribunal below, relying on the Judgements of Hon’ble High Court of Madras, cannot be sustained.

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In view of my foregoing observations and discussions, it is held that, Tribunal below committed error in directing Bank to refund of Rs.59 Lakhs, deposited under Rule 9(3) of Enforcement Rules, 2002, and said direction is liable to be set aside.

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RA (SA) 98/2019

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I n the result , t he Appeal in RA (SA) 98/2019 is allowed. Impugned Order dated 09.01.2019 is set aside. Consequentially, Securitisation Application SA 47/2018, on the file of DRT-I, Chennai, stands dismissed. Both parties shall bear their own costs. All pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS transcribed by her, corrected, signed and pronounced by me in open court, this 15^th of May, 2024]

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[Justice S. Ravi Kumar] CHAIRPERSON

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A.O.,State Bank of India v. Mskg Engineering Consultancy Services

Case brief

What is this about?

What did the court decide?

A.O.,State Bank of India v. Mskg Engineering Consultancy Services

Case brief

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What did the court decide?

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