Applicants challenged the forfeiture of 25% bid amount by a bank auction purchaser due to the bank's failure to disclose pending stay proceedings before the auction.
Bank to refund Rs. 65,92,750/ along with interest at 18% p.a. from date of deposit within one month.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE DEBTS RECOVERYTRIBUNAL - IAT HYDERABAD
DATED THIS THE 1 6T DAY OF OCTOBER. 2023
PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER
SA.No.2B7 /2022
Male, aged: 72 years,
S/o. Ali Bhai Samnani, Occ: Business,
H. No. 5-8-49-58, Bhagawati Enclave,
Flat No.202, Opp. Sangeeta Apartment,
Fateh Sultan Lane, Nampally, Hyderabad- I .
Male, aged major,
S/o. Ameen Jiwani, Occ: Business,
FI. No. 5-8-49-58, Bhagawati Enclave,
Flat No.202, Opp. Sangeeta Apartment, Fateh Sultan Lane, Nampally, Hyderabad- 1.
Applicants.
Versus
Union Bank of India, (Erstwhile Andhra Bank)
Specialized Asset Recovery Management Branch, 3'd Floor, Andhra Bank Building, Sultan Bazar, Hyderabad - 500 095. Rep. by its Authorized Officer.
Respondent.
Courusel for the Applicants
Counsel for the Respondent
Sri G.K. Deshpande. Sri V. Raghu.
.: .Q E-D EJE:-
This application is filed by the Applicants u/s.17 of the SARFAESI Act, for declaring the letter dt.25.06.2o2o, issued by the Respondent ing tlre Applicants about the forfeiture of 25o/o of the bid thc Applicants and also the auction conducted by ths nk on 18.03.2020 and Sale Confirmation letter illegal and consequently direct the Respondent Bank of bid amount deposited by the Applicants with p.a., from the date of deposit of the said amount.
SA.No.237/2022
i) 'l'he Rcspondcnt Bank has notilicd thc c-auction of the property bearing H.No.2-38121A, plot Nos.33 & 34, Sy.No.61, admeasuring 200 sq. yds., Srirama Colony, Guttalabegumpet, Ranga Reddy District, Telangana State (hereinafter referred to as 'subject property), vide e-Auction Notification dt.ll.O2.2O2O, proposing to sell the subject property on 1g.03.2020. The Applicants participated in the said auction and became the successful bidders for Rs.2,63,50,000/_. On 19.03.2020, the Respondent Bank gave a letter to the Applicants informing that they became the successful bidders for Rs.2,63,50,000/ - and that they already paid 2\ok of the bid amount and called upon the Applicants to pay balance 7S%o of the bid amount within 15 days. For the first time, the Respondent Bank informed the Applicants that sale of the subject property shall be subject to outcome of SA.No.S9/ 2O2O. Tlne Applicants also came to know that the Respondent Bank has not taken physical possession of the subject property prior to auction. Due to lockdown imposed by virtue of COVID- 19 pandemic, the Applicants addressed a letter dt.26.03.2O2O, seeking time lor depositing of balance 7 So/o of the bid amount and the Respondent Bank vide letter dt.O3.O4.2O2O, extended time till 06.06.2020. On 26.05.2020, another representation to the Respondent Bank was submitted by the Applicants seeking time and also about physical ssion of the subject property and also the details of SA. But, were lurnished by the Respondent Bank. After the 26"-ffi[kaowB-[[ftedin June, 2020, the Applicants verified the .4F r&rds i" [g.itr.,al and came to know rhat, two days prior to * 1 Btgl,MJ t.. dit16.03.2020, this rribunal passedorder in .€?.^ Sn.rVo.SOl@$f filed by the borrower, permitting the Respondent
'ce of the Counsel for the Respondent Bank.
SA.No.237/2022
ltP the of communication or else the amount already paid
'l .^would be f Since the Applicants submitted letter time for deposit of balance 7 5o/o of the bid
:,;Id ff6dU6zo, extended till 06.06.2020. As per the provisions of
Security Interest (Enforcement) Rules, 2OO2, if the r is unable to pay the total bid amount, 25o/o of the
SA No.237/2022
bid amount paid by the auction purchaser will be forfeited. The Applicants are aware of the order dt. 16.03.2020, passed by the Tribunal in SA.No.59/ 2o2o and also about the non-compliance of the said orders by the parties in the said SA. Lodging of SA.No.59/2020 two days prior to the auction is not within the knowledge of the Respondent Bank and there was no scope to change the auction website, except for indicating to the auction purchasers prior to auction, so also at the time of payment of 25o/o of the bid amount. Forfeiture of the amount is guided by Rule 9(s) of the security Interest (Enforcement) Rules, 2OO2, and 2So/o of the bid amount cannot be refunded to the Applicants. Subsequently, the borrower paid amount under OTS and closed the loan account and thereupon the SA.No.59/2020 was closed as withdrawn.
Point No.li)t
SA.No.237/2022
Respondent Bank before conducting of auction of the subject property and subsequently, the Respondent Bank and the borrower compromised the matter and said SA was withdrawn and so there is clear collusion between the borrower and the Respondent Bank and so the Respondent Bank is not entitled to forfeit 2|o/o ol the bid amount deposited by the Applicants. He lurther argued that, before conducting of auction, the Respondent Bank is expected to take physical possession of the subject property but no such measures were taken. He further argued that, the order dt. |6.03.2020, was passed by the Tribunal in SA.No.59/ 2O2O in the presence of the Counsel for the Respondent Bank and so the Respondent Bank is quite aware about the said order but, same 'ffas not informed to the Applicants and so the Applicants are entitled for refund of 2S%o of the bid amount deposited by them along with interest O l8o/o p.a. In support of his contentions, Ld. Counsel for the Applicants placed his reliance on a judgment of the Hon'ble High Court of Andhra pradesh in WP.No.39O84 ol 2Ol7 - "Mandaua Krishna Chaitanya Vs. UCO Bank, Asset Management Branch", decided on 21.O2.2018, whereunder, it is held as under:-
"Further, the concept o/ 'as is where is' and,as is u.that is' basis has /osf i/s significance in the current commercial milieu and the pinciple of caueat uenditor is more on the rise as compared to the outdated pincipte of caueat emptor. The Transfer of Property Act, 1982, requires the seller to own up to certain duties and it is not open to a responsible bank to take an innocent auction purchaser for a ide bg selling to hlm a tainted property tfterli, claim protection under the principles of beware'. The counter-affidauit filed by the bank demonstrates that the bank undertook no exercise to uerify and ascertain as to uthat attached to the subject propertA at anA I -r, staoe. details are forthcoming of anA efforts hauing by the bank, be it before the registration i,;1rE mmm.; or any other authoitg at anA stage. Nou, it has ht that the property in question is tainted on more than one. It falls within the full tank leuet of and, surprisinglg, it is a/so treated as a ceilinq s land. That aparl, fhe possession of the propertA cannot euen be handed ouer by the bank to the petitioner
SA.No.237/2022
as the sale was effected without the bank securing actual physical possession thereof and. the bank d.oes iot d.eny the factum of lease hauing been created. by the borrower in relation thereto, 'lhe bank therefore cainot complg uith the statutory mandate of deliuering actual prrr""il on of the property sold und.er the sare cirtificate.-The d_ecisions of uarious courts refened. to supra would. come to the aid. of the petitioner in this regard.. That apart, the registration authorities already indicated. to the petitioner that the subject land is noted as a ceiling surp[us land. Therefore, guen if they do entertain the sale certificate issued" bg the bank for registration, it taould. be subj-ect to this cloud. and tuould not amount to clear conueuance of title. It is therefore manifest that the bank made in innocent petitioner a uictim by failing to exercise due diligence, not only in terms of the statutory scheme of the saRra.osract and the Ru/es of 2002, but also in its own commercial interest, let alone public interest, when it accepted this propertg as security for the loan sanctionea ag it. This utter carelessne_ss on the part of the bank in sinctioning loans, bg use of public moruies, on the strength of seanreld. assefs uhich are not euen worthy of being mortgaged., requires to be deprecated in the strongest terms. Bank necessarily haue to exercise more care and. caution while using public monies auailable utith them, be it through deposits by customers or otherwise, when sanctioniltg loans without caution or worse and cannot be permitted. to claim protection under outclated. regar principies so as /o uictimize innocent auction purchasers, iuch as the petitioner. This court therefore has no hesitation in hotding that the auction sale held" by the bank, without euen exercising minimum care to ascerlain the encumbrances attaching to the subiect property and. without informing the petitioner or other bidders of the same) uitiates the sale proceedings, culminating in issuance of the sale certificate whiclt is get to be registered_.
,dT S.fy"ryetition is accordinglyallowed settingaside .'l'he bank shall refund the sale consid.eration 'w:H /-.6\ d" ELo/Rs.4,5Os44,000/- paid by the petitioner, with interest lf f fi iP w77"r"on 2!:d?ere9n at .l?la % per annum Jrfr o m^ the date of th e e deposit deposit till li : i6 t#-wT:,Zfr:;1,:i;;?, #i,!1" i! iny Z#^ii:T::; ::;Z:{, \B forthiq,,e;ii'tifbimbroglio and. the petitioner was made to !;,,$i.,r1.,' ".'r^li, ^ l?:.,t+iii,tfi:s ualua.ble.monies with. no consequential tr.i " .rbr1@rt|t4ii"n,and the bank enjoyed the custodu of these --.:::.,.:'i,, mq,ryiei.all throuqh, the rate of interest as applied" by the ''""',..- : sipre-me court in the circumstances in ruerrunw VARGHESE V/ s. M. AMRII.HA KUMAR is ad.opted.,,
SA.No.237/2022
"12. In our considered opinion, the respondent-institution cannot deng its responsibitity to take physicatpossession of the property, if anot und.er section 151+1 of'the Act, at least bg inuoking section 14 of the Act,-after taking assistance of the Chief Metropoliian Magistrat6 or District Magistrate, when if is empoutered" to do so und.er the prouisions of the Act. It canruot force the innocent auction purchasers like petitioner to take s/eps to getpossession of the propertg, which they haue puicha""a yio* after the respondent coolly pockets the amount paid. by auction purchaser. It cannol compel the petitioner to continue with sale transaction in liqht of its conduct in not futfilling its obligation to d.eriuei th; physicar possession of the propertg though almost four months haue elapsed. since receipt of fuu sale consid.eration by the'respondent institution from the petitioner.
SA.No.237/2022
Applicants to seek refund of the amount. He further argued that, as per Rule 9(4) of the Rules, 2002, the auction purchaser is expected to deposit balance of the bid amount within 15 days from the date of confirmation of sale. As the Applicants were not having funds, they addressed a letter seeking time and time was extended by the Respondent Bank but, the Applicants have failed to pay the balance amount and so they are not entitled to claim refund of 25o/o of the bid amount and the Respondent Bank is justified in forfeiting the said amount as per Rule 9(5) of the llules, 2OO2. Ld. Counsel lor the Respondent Bank in support of his contentions has relied upon a decision of the Hon'ble Supreme Court in "lTC Limited Vs. Blue Coast Hotels Ltd.", reported in AIR 2018 Supreme Court 3063, whereunder in paragraph 50, it is held as under:-
"50. In this case, the creditor did not haue actual possession of the sea-tred asset but onlg a constntctiue or sgmbolic possession. The transfer of the seanred asset bg the creditor therefore cannot be constructed to be a complete transfer as contemplated by Sec.8 of the Transfer of Property Act. The creditor neuertheless had a ight to take actual possession of the secured assers and must therefore be held to be a secured creditor euen after the limited transkr to the auction purchaser under the agreement. Thus, the entire interest in the propeltA not hauing been passed on to the creditor in the first place, the creditor in tum could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act."
i
in (2003) 7 Supreme Court Cases 410, whereunder
,l* is held as under:-
16 ltT :/WJ .9. In uieu, the High Court fell in enor in so holding. the Bank Guarantee and/ or enforcing the bid is no stotutory right, exercise of which uas There k no term in the contract ulhich is
to the prouisions of the Indian Contract Act. The
Indian Contract Act merelll prouides that a person can
SA.No.237/2022
tDithdralu his offer before its acceptance. But, withd"rawal of an offer, before it is accepted, is a completetg different aspect from forfeiture of Earnest/ Security moneg uhich has been giuen for a partianlar purpose. A person may haue a ight to withdratu his offer but, if he ho's made his offer on a condition that some Eamest moneg will be forfeited fornot entering into contract or if some act is not performed, then euen though he mag haue a ight to uithdrau.t his offer, he has no ight to claim that the Barnest/ Security be retumed to him. Forfeiture of such Earnest/ Securitg, in no waA, affects ang statutory ight under the Indian Contract Act. Such Eamest/ Secuitg is giuen and taken to ensure that a contract comes into existence. It tuould be an anomalous situation that a person who, bg his outn conduct, precludes the coming into existence of the contract is then giuen aduantage or benefit of his oun urong bg not allowing forfeiture. It must be remembered that, particulorlg in gouemment contracts, such a term is aluaA s included in order to ensure that onlA a genuine part!/ makes a bid. If such a term was not there, euen a person who does not haue the capacitg or a person uho has no intention of enteing into the contract taill make a bid. The whole purpose of such a clause i.e., to see that only genuine bids are receiued uould be lost if forfeitureuasnot permitted."
.34. Yet again, in Indian Council for Enuiro-Legal Action Vs. Union of India, this Court held that a person is eniched if he has receiued a benefit, and he is unjustly eniched if retention of the benefit uould be unjust.
SA.No.237/2022
p,o""::Yf W::;T"::ril:"?,"n;i:':k',?,'?Ji,#n"lr statutory prouisions contained" in the Rules, particularlg, Rule 9(3) that, monell changed" hands foi a definite purpo.se, Receipt of 25% of the sare price doei nto constitute a benefit, a fortiori, retention thereof bg forfeiturecanot be termed. unjust or inequitable, so ts to attract the doctrine of unjust enrichment. The bank, as a secured creditor, is entitled in law to enforce the security interest and in the process ro initiate air such steps and take all such measures for protection of public intirest by recouering the public monea, lent to a bbrrower and. who has squandered it, in a menrler authorized by raw.
.The contesting respond.entparticipated. in the auction well and truly _aware of the ristc of nauing 2s% of the s.ale price forfeited in a case of ang default ir failuie oru his p.art to make pagment of the barance o*ouni of the sale price. euestion of the bank beirug enriched. Ly a forfeiture,uthich ls in the nature of a statutory p"nitty, does not and cannot therefore aise in the circuistances.,,
SA, No,237/2022
'
within 15 days from the date of said letter. In the said letter, it is specifically mentioned that the said sale shall be subject to outcome of the SA.No.S9 l2o2o. Thereafter, there was correspondence between the Applicants and Respondent Bank regarding payment of balance amount in view of COVID Pandemic, which was prevailing in the year 2020.
12' The Respondent Bank is not clear and consistent about its stand whether pendency of the SA is informed to the Applicants prior to conducting of auction of thc subject property on rg.o3.2o2o. In the reply statement, at one stage it is averred that the Applicants were informed about the pendency of SA prior to auction but, in paragraph 16 of the reply statement it is clearly stated that lodging of the SA'No.59 l2O2O two days prior to auction is not within the knowledge of the Respondent Bank. When Counsel for the Respondent Bank made his appearance at the time of hearing of stay petition on 16.03.2020, by no stretch of imagination can it be said that Respondent Bank is not aware about the SA, which was filed by the concerned borrower. No material is placecl by the Respondent Bank to show that it has informed thc Applicants before conducting auction of the subject property about the pendency of SA.No.59 l2o2o. As per the correspondence made between parties it is very clear that it is only on 19.O3.2O20, the Respondent Bank has informed the Applicants that the sale shall be subject to outcome of sA.No.59 l2o2o.
12
sl.No.237/2022
"!!) ,, .On eufrA -.sale of immouable propertg, the purchaser snatt rmmedtately, i.e., on the same dag or notlater than next wo*ing day, as the case may be, pag a d.eposit of t,ue.nty ftle per cent of the amount oy tne'saie pAce, uthich ts rnclusiue of earnest money d.eposited, if any, to the authorized officer cond.ucting the-sale and" in iefautt of such deposit, the propertg shall be sold again.
SA.No.237/2022
SA.No.237/2022
indicate that, the Applicants wcre not interested to pay the balance 7Soh ctf the bid amount only due to pcndency of SA.No.59 l2O2O filed by the concerned borrower challenging the e-Auction Notification issued by the Respondent Bank but not for any other reasons. When the Respondent Bank has failed to establish that it has duly informed to the Applicants about the pendency of the SA before conducting of auction, it cannot contend that it is entitled to forfe it 2So/o of the bid amount deposited by the Applicants. If really the Respondent Bank had informed the Applicants about pendency of the sA, before conducting of auction, nothing prevented the Respondent Bank to take acknowledgement from the Applicants to the said effect. But, admittedly, no such acknowledgement was taken by the Respondent Bank from the Applicants. As per the documents filed by both the parties to the present SA, it is clear that only for the first time on 19.o3.2o2o i.e., after conducting of auction on ig.03.2020, the Respondent Bank informed the Applicants that the sale of the subject property shall be subject to the outcome of sA.No.sgl2o2o. so, non_ disclosure of pendency of SA filed by the borrower to the Applicants before conducting of auction is a valid ground for the Applicants to seek refund of 25oh of the bid amount with interest.
SA.No.237/2022
refund by the Respondent Bank. The judgments reried upon by the Ld. counsel for the Respondent Bank do not appry to the facts and circumstances of the case. So, this point is answered accordingly.
Point No.lti):-
?;;'r"f"or3^'!:#;3:;"Zz"l"lt?i,.,,"""cribedby him,corrected,sisned and pronouncedby me in the opert court on
&
ry
I
sd/-
(G. coPrcHAND) Presiding Officer
1RUE GOPY
I u-fi---a
' - #j'131;;':r /Ll' " lY "
3 issues framed by the court
Whether the bank is justified in forfeiting 25% of the bid amount when it failed to disclose the pendency of a stay application before the auction?
Whether the auction sale and sale confirmation letter are declaable illegal due to non-disclosure of legal impediments?
Whether the applicants are entitled to a refund of the forfeited amount along with interest?
Colour shows how this judgement treated each authority
Mandava Krishna Chaitanya Vs. UCO BankFollowed¶50
Mandava Krishna Chaitanya Vs. UCO Bank
D.E.C. Infrastructure & Projects (India) Private Limited vs. IFCI LimitedFollowed¶55
D.E.C. Infrastructure & Projects (India) Private Limited vs. IFCI Limited
ITC Limited Vs. Blue Coast Hotels Ltd.Distinguished¶61
ITC Limited Vs. Blue Coast Hotels Ltd.
National Housing Bank of India Vs. Ganga EntrepisesDistinguished¶63
National Housing Bank of India Vs. Ganga Entrepises
Authorized Officer, State Bank of India Vs. C. Natarajan and anotherDistinguished¶70
C. Natarajan and another
2 provisions across 2 enactments
Union Bank of India
GUMMADI GOPICHAND
As recorded by the court registry
2 orders share this CNR
Judgements on the same questions, provisions and authorities, from every court
GUMMADI GOPICHAND
Parties & counsel
