Partly allowed

Mrs C Jyothi v. Phoenix Arc Private Limited

DRT1 Aug 2025SA/470/2023

Case brief

AI extract

What is this about?

This Securitization Application under S. 17 of the SARFAESI Act challenged the forfeiture of 25% of the bid amount paid by successful bidders in an auction. The First Respondent had refunded the amount voluntarily. The Tribunal directed the Respondent to pay simple interest at 9% per annum on the refunded sum from the date of deposit until the date of refund.

What did the court decide?

Respondent to pay interest @ 9% p.a. simple on Rs. 22,33,750/- from 11.08.2023 till 20.02.2024 within one month.

Mrs C Jyothi versus Phoenix Arc Private Limited — Contract and Commercial Disputes | DRT (2025)

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IN THE^{DEBTS RECOVERYTRIBUNAL- IAT HYDERABAD}

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DATED^{THISTHE1 ST DAY OF AUGUST'2025}

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PRESENT:^{GUMMADIGOPICHAND,PRESIDINGOFFICER}

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sA.No.470/2023

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l.Mrs.Chandragiri^JYothi' W/o Chandragiri^Sreenivas' "H.No'2-3-o45 I 4 I A*;i"40 r;;", ^^{I 1 t r'} Piem^{Nagar, AmberPet,} Hyderabad-SOO^013' 2. Mr.Vadlamani^{GoPalaKrishna'} S/o late^{V. SatYanaraYana} ' olr.a i2v.".",^{R7 o H'No'29-21-24'} Coo"araiu^{RamachandraRao Street'} . . . APPlicants S".V, PL,,^{VijaYawada-52O OO2'}

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Versus

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1 .The^{Authorized officer} Phoenix^{ARC Pvt'Ltd''} Resd. Office^{at 5e floor'} Dalni CorPorate^Park' 158. CST^{Road, Kalina'} Sh;"t"^{Cruz E, Mumbai-4OO 098'}

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American^{InfoservPvt' Ltd} ' Reo. bv^{its Managing Director'} Pf"t Nos.ZSS^{& 789,3'd floor'} 100 feett.road,^MadhaPur' Hyderabad.

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TalatamRavi Shankar',.:::{::a:E5
Rio H.No.1 12l to1,.liaxT.inag+r' -
M;;;;; N.;i lr-J* coLi'Y, "tr'
.$I
SeiilineamPallY(M)' .. . ResPondents
:
R.R. District-5O0 O4E'
, .i.
81IUElffi
SiAbhaY Singh
Counsel for the A$Plicants
S-/- Shabber Ahmed
coun"el'for 1'tPe'foafiden' oi.1?.
R e s p o n de nt s N
", ? & .,-.,!;:.?J.'Y4*3, .*o, t i. n; f. N?;.)

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SA.No.470/2i

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.,ORDER..

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This Securitization application is filed by the Applicants u/s. 17 of the SARFAESI Act, 2OO2ch'allenging theletter dt. 15.1I.2023 issued by the lst Respondent intimating the forfeiture of 25Vo of the bid amount paid by the Applicants being successful bidders in the auction conducted by the 1st Respondent on 10.08.2023 in respect of the schedule^property and to declare the same as bad in law and consequently for direction to the 1st Respondent to refund the same with interest.

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The averments made in the application, in brief, are as under,-

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a) The Applicants participated in the e auction conducted by the^1st Respondent on 10.08.2023 in pursuance of the e Auction Sale Notice d1.20.07.2023 and became successful bidders for a sum of Rs.89,35,000/ - in respect of the schedule^{property which} belonged to the Respondent No.3 herein. The Applicants^paid Rs.8,91,000/- towards EMD on 07.O8.2023 and later^paid Rs.13,42,750 I - on 11.OA.2023 vide RTGS towards^{25%o of the bid} amount and sale was confirmed by the l"t Respondent in^favour of the Appiicants. Thereafter, the Applicants^were asked^to deposit balance 7 5V. of the bid amount. Subsequently,^the Applicants addressed emails dt.29.08.2023,30.08.2023 to the^1st Respondent to identify and fix the boundaries of the schedule property. On 29.08.2023, the authorized representative of the^1"t Respondent visited the location of the schedule^{propertybut he} could not locate and identify the schedule^{property. The} Applicants came to know through one neighbour that^one G.Srinivas Red occupied the application schedule^property and the rmed by the Applicants to the^1"t Respo and for payment of balance 7 5o/o of bid The extended time for^payment of J. {uia^{d}a,4ptll62$lro,}

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SA.No.470/23

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b) But the l"t Respondent was not in a position to identi$u the schedule property and hand over the possession of the same to the Applicants. So,the Applicants got issued legal notice dt.28.1o .2023 calling upon the 1"t Respondent to resolve the issue and complete the process of registration. To the said notice, the 1"t Respondent issued reply stating that the schedule property was sold 'as is where is basis and whateuer tLrcre is and tDithout recourse basis' and calling upon the Applicants to remit the balance amount by 10.1 1.2023. So, thi Applicants issued another legal notice dt. 18.1 I.2O23 to the lst Respondent to resolve the issue, receive the balance sale consideration and register the sale deed in favour of the Applicants or to refund the amount paid by them with interest. The 1"t Respondent issued letter dt. 15.11.2023 informing that as the balance sale consideration is not paid by the Applicants by 30.10.2O23, 22,33,750 I - was forfeited. It is the duty of the Respondent No. 1 to disclose the known encumbrances over the property. In the instant case, the l"t Respondent is not in a position to identify and fix the boundaries of the schedule property and deliver the same to the Applicants. So, the impugned letter dt. 15. 1 1.2023 issued by the 1"t Respondent forfeiting 25o/o of the bid amount paid by the Applicants is illegal, arbitrary and liable to be set aside. Hence the SA.

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The lst Respondent filed their Reply and the contentions of the lst Respondent Bank, in brief, are as under-

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The l"t Respondent conducted auction iri respect of the schedule property on 'as isrryfr.{€i$'p-aEisl and the Applicants stood as highest i.. _/,,'-..i.jit^{\Y .'} bidders i n" th e-,f$q loiflqrya.,r.,& i id$Ff:f u aear',ihftedi"ft 10.08.2023 and the Applicants deposited 2sfl # the the bid i lmou "f ",' ui f ri il t.oa.21.oa.2 o23. The lst Respondent deposit of balance 75o/o of the extended *^T,11,"- E.{tffi,,r iff o"{ f?. sale consideratlon but the Applicari'tbi failed to deposit the balance "'.)^ '' '^{) Nil} , - i';-. ": ',1 . "' 3

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SA.No.470/23

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amount so, the lst Respondent decided to forfeit the EMD and after repeated requests from the Applicants for inability to make the balance payment on the pretext that Respondent is not able to identify the boundaries of the secured asset, the l"t Respondent has refunded the entire EMD amount to the Applicants in a good faith without any deduction vide RTGS dt.2o.o2.2o24. The l"tRespondent never agreed to refund the EMD along with interest. The 1"t Respondent is not entitled to pay any interest to the Applicants and so, the SA becomes infructuous in view of the refund of the entire EMD to the Applicants.

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Heard Ld. counsel for the Applicants andld. counsel for the 1st Respondent whereas the claim against Respondents No.2&3 is dismissed as the Applicants not pressed the SA against them.

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Now, the points that arise for consideration are-

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il whether the Applicants are entitled to claim interest on 25o/o of the bid amount paid by them from the date of deposit till tle date of refund made by the l"t Respondent on 2O.02.2024?

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it) To uhat relieJ?

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Point No.(l):-

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During the course of arguments, Ld. Counsel for the Applicants andLd. Counsel for the l"t Respondent reiterated their respective versions as stated supra.

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are thatthe, the lst Respondent of SARFAESI Act, 2OO2

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conducted auction of the participated in the

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for a sale consideration of

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SA. No.470/23

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Rs.89,35,O0O/- and they paid21o/o of the bid amount i.e.Rs. 13,42,750/Admittedly, the application schedule property was not in the possession of the 1 "t Respondent. So, the Applicants addressed mails to the lst Respondent to locate the schedule property and hand over the same to the Applicants. The l"t Respondent could not locate the schedule property but addressed a letter dt. 15. 1 1.2023 stating that in view of the non-payment of balance 7 SYo of the bid amount by the Applicants, the 1st Respondent forfeited 25oh of the bid amount i.e.Rs.22,33,750/- paid by the Applicants. After filing of the SA, the 1st Respondent voluntarily refunded the 25vo of the bid amount + EMD i.e.Rs.22,33,750/_ paid by the Applicants through RTGS on 2O.O2.2O24.

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Ld. counsel for the Applicants argued that there was no fault on the part of the Applicants in not depositing balance 75Vo ol the bid amount and as the 1"t Respondent is unable to locate the schedule property in order to hand over the same to the Applicants who are auction purchasers, the 1st Respondent rightly refunded 25o/o of the bid amount paid by the Applicants. But however, the lstRespondent has not paid any interest on the 257o of the bid amount paid by the Applicants. Ld. Counsel further argued that the Applicants are entitled to claim interest on the 25o/o of the bid amount from the date of deposit till the l"t Respondent refunded the said amount on 20.O2.2O24. In this connection, Ld. Counsel for the Applicants relied on the judgement of Hon'ble High Court of And.hra Pradesh ln Mandaaa Krlshna Chaltanga Vs.UCO Bank, Asset Management Branch in Wrlt Petltlon No.39884/2OI7 wherein it is held as follows:

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"In terms of the statutory scheme of the SARFAESI Act and the and giuen the uteightg preponderance of judicial out supra, a seanred creditor uho is empouered Act to enforce ang secured interest created in interuention of a Court or a Tibunal, but in

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rocedure prescibed therefor, cannot take tlrc upon it lightly. Such a secured creditor not the interest of the borrou-ter bg raising

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u.thile selling his mortgaged properties, but

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SA.No.470/23

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also otDes a dutA to the^{auction purchasertoueifg the} enanmbrances that attach^{to the mortgaged property proposedto} be sold, so @s to inform^{all intending bidders of the same. Clauses} (a) and (fl in tlrc prouiso to Rule 8(6)^{of the Rulesof 2OO2 bear out,} this responsibilitg explicittg,^{as the seanred creditor is mandated} tkereunder to include the^{details of the enanmbrancesknounto it} and olso ang other thing^{which mag be considered material} for^a purchaser to know in order to^{judge the nature and ualue of tlrc} -propertA. These clauses therefore uisit a dutg upon the secured -creditoi to undertake due diligence at least at the stage of putting the seanred asset to sale, if^{not at tLLe time of taking the said} property as secuity tahile^{granting loans, so that the bidders in} ihe auction can rest assured^{that tLe bank has takennecessary} measures in this^{regardand.proceed to participatein the auction} sale. Ignorance of the^{seanred creditor as to the encumbranceson} ttrc propertg sotd bg it^{is no longeran acceptableargument in tLe} tighi of the decisiont^{of uaious Courts rejecting the plea that a sale} on as is tthere is basis^{constitutes a shieldof protection'}

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FurTher, the concept^{o/ as is where is and as is uhat is basishas} Iost its significaice in the^{anrrent commercial milieu and ttrc} pinciple oj caueat uenditor is^{more on the rise as compared to tle} -outdated principle of caueat emptor. The Transfer of Property Act, 1882, re[uires the seller^{to oun up to certainduties and it is not} open to a responsible bank^{to take an innocent auctionpurchaser} fir^{a nde bg selling to him a tainted propertgand thereafterclaim} protection under the pinciples^{of bugerbeware' TLe counter-} 'affidauit filed bg the bank clearly demonstrates that the bank iia"rto"k no exercise^{uthatsoeuer to ueifg and ascertain as to} tuhat enanmbrances^{attached to the subject propertA at ang stage'} No details are forthcoming^{of ong effortshauing been made bg the} bank, be it before^{the registration authoritiesor any otlrcr authoitg} at any stage.-Notu, it^{has come to tight that the propertyin question} is tulnted^{-on grounds more than one. lt} falls^{within tlrc} full^tank leuel of a laie and, surpisingly,^{it is also treated as a ceiling} surplus land. That apart,^{the possessionof the property cannot} evin be handed ouer^{by the bank to the petitioner as the sale uas} effected. tttithout the bank^{seanring actual phgsicalpossession} tiereof and. the^{bonk doesnot deny the} factum^{of a lease hauing} been created by the^{borrotuerinrelation tlrcreto' The bank} therefore cannot^{complyuith the statutory mandateof deliueing} acfital^possession of^{the propertysold under the salecertificate'} cou , '!'ine'.d;Asions ,:^{':fhe'.debtsions}^{of uaiousCou}^{rts rekrredto supra utould come to} 7)''^{,'g1.s;q;d.of .the pZtitioner in this regard.Thatapart,the registration} ,/;/ 'S'^ ,i.ibbati<)s otieadu indicated to the^{petitioner that the subject land} i] ,'i * fF nriirtoin ishtbted rhe:o "j&iq;ilinc certiftcate surplus^{issued land. bg Therefore. the bank} for^{euen registration, if they doit} fl lrflffiJ1lffi ."ry.;E^{to ihis cloud and} :uould^{not amountto clear} ,. ; il r^". conueuance oilit1".^{n is thereforemanikstthat the bank madethe} '. r ...:r innocent

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SA.No.470/23

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onlA in terms of the statutory sclrcme of the^{SARFAESIAct and the} Rules of 2002, but also in its oun commercial^{interest, let alone} public interest, uhen it accepted this^propertg as^securitg for^the loan sanctioned bu it. This utter^{carelessness on tlrc part of tLre} bank in sanctioning loans, bg^{use of publicmonies,on the strength} of secured assets u-thich ore^{not euen utorthg of being mortgaged,} requires to be deprecated in the strongest^{terms.Banksnecessailg} haue to exercise more care and coution^{uhile using publicmonies} auailable uith them, be it through^{deposits bg customersor} othenaise, when sanctioning loans^{rllithout caution or tuorse and} cannot be^permitted to claim^{protection under outdatedlegal} pinciples so as to uictimize innocent auction^{purchasers, suchas} the petitioner. This Court therefore^{has no hesitation in holding that} the auction sale held bg the bank,^{uithout euen exercising} minimum care to ascertain the^{encumbrancesattaching to the} subject propertA and uithout informing^{the petitioner or other} bidders of the same, uitiates^{the saleproceedings, anlminating in} issuance of the sale certiJicate which^{is yet to be registered.}

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The tuit petition is accordinglg^{allowed setting aside the said sale.} The bonk shall refund the sale^{considerationof Rs.4,80'44,0O0/-} paid by the petitioner, uith interest thereon at^{18% per annum} from tLe date of the deposit till the^{date of realization,within two uteeks} from^{the date of receipt of a copyof this order.As the bank is itsel/} at fault for this entire imbroglio and^{the petitioner uas made to} part tuith his ualuable monies uith no^{consequentialbeneftt} therefor and the bank^{enjoyed the custodg of these moniesall} througlt" the rate of interest as^{applied by the SupremeCourt in} like circumstances in^{MATHEWVARGHESE V/s'M.AMRITHA} KUMARis adopted".

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Per contra, the l"t Respondent argued that^{there is no provision in the} SARAFAESI Act,2OO2^{for refundof the bid amount alongwith interest} in case of cancellation of the^{auction and so, the Applicantsare not} entitled to claim any interest^{on the amountrefundedby the lst} Respondent.

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In the 1st Respondent was unable to rty after conducting auction by^{them and so,}

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it was-not pos?jbfe for theU Respondent to hand over^{the possession of} the Echedlle oropertv to licants who are successful bidders.^So, rhe'i"t *U"J.[mnT6"" VQ tarily refunded 25yo of the^{bid amount} . 7

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5,A.No.470/2i

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paid by the Applicants on 2O.02.2024 though RTGS.^{The said amount} was deposited by the Applicants on 11.O8.2O23.^{So, in view of the ratio} laid down by the Hon'ble High Court of^{AndhraPradeshin the decision} cited above, the lst Respondent is^{liable to pay interest on the 25olo of} the bid amount refunded by them to^{the Applicants as there was no} fault on the part of the Applicants. However, in^{view of the above facts} and circumstances of the case,^{particularly, in view of the fact that the} lst Respondent has voluntarily refunded^{25o/o of the bid amount to the} Applicants on 2O.O2.2O24, I am of the opinion^{that interestcan be} awarded @ 9oh^p.a. on 25oh of the^bid amount^{paid by the Applicants} from the date of deposit till the^{date of refund by the 1st Respondent.} Accordingly, this point is answered in^{favourof the Applicants and} against the lst Respondent.

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Point No liil

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In the result, SA 47O 123 ispartly allowed^{directing the lst Respondent} to pay interest@ 9ok p.a. simpleon the^{25o/o of the bid amount} i.e.Rs.22,33,750/-paid by the Applicants^{from the date ofdeposit} i.e.11.08.2023 till the date of^{refund i.e. 2O.O2.2o24,which shallbe} made within one month from the^{date of receipt of this order.No order} as to costs.

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t2. Communicate a copy of this Order^{to the partiesconcerned'}

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(Dictated to the P.5., transcibed by her, conected,^{signed and pronouncedby} me in the open court on this the^{7"t daAof August, 2025).}

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sdl(G. GOPICHANDI PRESIDING OFFICER

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20a3 .!:

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A"'(69";:,

Mrs C Jyothi v. Phoenix Arc Private Limited

Case brief

What is this about?

What did the court decide?

Mrs C Jyothi v. Phoenix Arc Private Limited

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

Coram

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All orders in this case

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