Allowed¶54

Sri. Basavaraj Hiremath v. Canara Bank

Karnataka HC6 Apr 2026WP/3673/2026

Case brief

AI extract

What is this about?

SARFAESI auction refund; EMD forfeiture; third-party rights accrued before auction; borrower sold secured property prior to auction date; successful bidder withdrawal and refund; Supreme Court guidelines on EMD refund held fact-specific; Canara Bank Bangalore Specialized Arm Branch-II; writ of certiorari against forfeiture/demand notice dated 09.01.2026; mandamus for refund of 25% bid deposit; interest on retained deposit as per banking norms; Karnataka High Court GM-DRT; Lalitha Kanneganti J.; WP No. 3673 of 2026.

What did the court decide?

Writ petition allowed: respondent Bank directed to return the amount paid by the petitioner (Rs.42,08,250/-) within four weeks from receipt of the copy of the order, and to pay interest for the period the amount was retained by the Bank as per banking norms; all pending I.As. closed. ¶54

Sri. Basavaraj Hiremath Vs Canara Bank — Banking and Recovery | Karnataka HC (2026)

What the court decided

AI extract

Outcome

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Issue for consideration

Whether the petitioner, declared successful bidder at the respondent Bank's auction held on 05.12.2025, is entitled to refund of the 25% deposit of Rs.42,08,250/- (comprising EMD of Rs.10,33,300/- and advance sale consideration of Rs.31,74,950/-) after the secured property was sold by the borrower to a third party by sale deed dated 02.12.2025, before the auction. +2 more

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Court's answer

In this case, the auction purchaser (petitioner) is clearly entitled to refund of the amount deposited.

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Ratio / Principle

Where third-party rights have accrued in the property before it is put to auction — whether after the auction notification or before the auction — the Bank cannot compel the intending purchaser to buy the property; if the prior sale had been known, nobody would come forward to participate in the auction.

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Key takeaways

The Bank's submission about returning or forfeiting the EMD is contrary to the law laid down by the Hon'ble Supreme Court.ratio¶47
Whether the EMD is to be refunded or forfeited depends upon the facts and circumstances of each case; the Court was unable to appreciate the Bank's blanket reliance on the alleged Supreme Court guidelines.ratio¶52
It is not open to the Bank to contend that the petitioner's amount stands forfeited or that he is not entitled to refund; the Bank cannot compel the petitioner to conclude a transaction where third-party rights accrued after the auction notification was issued, particularly as the Bank went ahead, auctioned the property, and had the auction confirmed in favour of the borrower's transferee.

Detailed headnote1 paragraphs

Writ petition under Articles 226 and 227 of the Constitution of India (GM-DRT) by a successful bidder in the respondent Canara Bank's auction held on 05.12.2025, seeking refund of his 25% deposit of Rs.42,08,250/- (EMD Rs.10,33,300/- plus advance sale consideration Rs.31,74,950/-) out of a total bid of Rs.1,68,33,000/-. Before the auction, the borrower had sold the secured property to one K.M.Shivakumar by sale deed dated 02.12.2025; an FIR was registered on the petitioner's information. The Bank refused refund citing Supreme Court guidelines barring refund of EMD and issued a notice dated 09.01.2026 demanding the balance Rs.1,26,24,750/- by 16.01.2026, failing which the deposit would be forfeited. The Court held that where third-party rights have accrued before the auction, the Bank cannot compel the purchaser to buy the property; that the submission on returning/forfeiting EMD is contrary to the law laid down by the Hon'ble Supreme Court, refund depending on the facts and circumstances of each case; and that the auction purchaser was entitled to refund. Petition allowed: Bank to return the amount within four weeks and pay interest for the retention period as per banking norms; pending I.As. closed.

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NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 6^TH DAY OF APRIL, 2026

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BEFORE

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THE HON'BLE SMT. JUSTICE LALITHA KANNEGANTI WRIT PETITION NO. 3673 OF 2026 (GM-DRT)

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BETWEEN:

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SRI. BASAVARAJ HIREMATH S/O SRI.R.SHIVALINGASWAMY, AGED ABOUT 70 YEARS, RESIDING AT 6^TH CROSS, VALMIKI NAGAR, BEHIND UCO BANK, TUMKUR-572 103

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…PETITIONER

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(BY SRI. HONNAPPA S., ADVOCATE)

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AND:

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Digitally signed by SUVARNA T Location: HIGH COURT OF KARNATAKA

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CANARA BANK, BANGALORE SPECIALIZED ARM BRANCH-II, NO. 86, 3^RD FLOOR, SPENCER TOWERS, M.G.ROAD, BANGALORE - 560 001. REPRESENTED BY ITS AUTHORIZED OFFICER/MANAGER

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…RESPONDENT

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(BY SRI. RANJAN KELKAR, ADVOCATE)

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THIS WP IS FILED UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO ISSUE A WRIT OF CERTIORARI AND QUASH, SET-ASIDE THE IMPUGNED NOTICE DATED 09/01/2026, BEARING REF. 6298/ARM/AUCSALEFOR/2, ISSUED BY THE RESPONDENT.

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NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE SMT. JUSTICE LALITHA KANNEGANTI

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ORAL ORDER

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The present writ petition is filed seeking the following prayer:

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“WHEREFORE, the petitioner humbly prays that this Hon’ble court may be pleased to;

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1. Issue a writ of certiorari and quash, set aside the impugned notice dated 09.01.2026, bearing Ref:6298/ARM/AUCSALFOR/2, issued by the respondent, vide Annexure-A.

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2. Issue a writ of Mandamus and direct the respondent to refund the petitioner amount of Rs.42,08,250/- (Rupees Forty Two Lakhs Eight Thousand Two Hundred and Fifty Only) i.e., 25% of bid amount deposited by the petitioner, which includes EMD of Rs.10,33,300/- (Rupees Ten Lakhs Thirty Three Thousand Three Hundred Only) and advance sale consideration of Rs.31,74,950/(Rupees Thirty One Lakhs Seventy Four Thousand Nine Hundred and Fifty) and

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3. Pass such other order or orders as this Hon’ble Court deems fit in the ends of justice of equity.”

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Petitioner had participated in the auction conducted

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by the respondent-Bank on 05.12.2025, he was declared as successful bidder and accordingly, the intimation letter was

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3 - NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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sent to the petitioner on 05.12.2025 at about 04.00 p.m. The total bid was Rs.1,68,33,000/- and the petitioner was directed to deposit 25% of the bid amount within one working day and balance of amount of Rs.31,74,950/and EMD of Rs.10,33,300/-. Accordingly, as per the mandate, 25% of the bid amount was deposited by the petitioner on 06.12.2025 and in all the petitioner had deposited a sum of Rs.42,08,250/-. Further, the balance of Rs.1,26,24,750/- was to be paid by the petitioner within 15 days i.e. on or before 20.12.2025 at the concerned branch of the Bank. When things stood thus, the petitioner has got an unanimous call informing that the property in question has been transacted by the owner on 02.12.2025 itself. Upon verification, the petitioner found that the property was in-fact sold by the borrower in favour of one K.M.Shivakumar by-way of a sale deed dated 02.12.2025. The petitioner has also applied for the encumbrance of the property and found the transaction of the said date. Immediately petitioner has approached the Bank and informed the Bank about the sale transaction. Though the bank showed the ignorance of the said transaction at that point, it was learnt by the petitioner that in pursuance of the said information, the

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4 - NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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bank has initiated the criminal proceedings against the borrower and an FIR was also registered in the jurisdictional police station. The petitioner has sought the refund of the amount, but the respondent bank expressed inability to refund the money intimating that there exist Supreme Court guidelines barring refund of EMD amount. The petitioner has addressed a letter dated 19.12.2025 expressing his intention of withdrawing from the bid since the bank is no more in a position to transact or sell the property in his favour due to the transaction that took place on 02.12.2025 and sought for refund of the amount. Petitioner has made detailed representation on 8.02.2026, but instead of considering his representation, the respondent-Bank issued another notice dated 09.01.2026 which was received by the petitioner on 15.01.2026 calling upon the petitioner to deposit the balance bid amount by 16.01.2026 and in failure of which, the amount already deposited by the petitioner will be forfeited without any notice. Aggrieved by the same, the petitioner has come before this Court.

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The learned counsel appearing for the petitioner submits that the auction was scheduled to be held on

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5 - NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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05.12.2025 and the property was already sold on 02.12.2025

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by the borrower. It is submitted that as on the date of auction itself, third-party rights are accrued. In those circumstances, the petitioner was no more interested to go ahead with the auction process and wanted the amount to be refunded, but the respondent Bank without considering all this, had issued notice that they will forfeit the deposit amount. Learned counsel further submits that when the Bank is conducting the auction and when the property itself is sold even before the date of auction, the petitioner cannot be compelled to complete the auction process and the Supreme Court guidelines with regard to refund of the amount will not come in the way of the Bank in refunding the amount to the petitioner, in peculiar facts and circumstances of this nature. It is submitted that the action of the respondent bank in not returning the amount and also threatening to forfeit the amount is arbitrary and illegal.

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The learned counsel appearing for the respondent Bank does not dispute the fact that the property is sold by the borrower. It is submitted that, in fact, they have initiated the criminal proceedings against the borrower for selling the

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NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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property. It is submitted that the SARFAESI proceedings were initiated much prior to the sale and after the auction notice is issued, the property is sold. At this stage they cannot return the EMD amount and the petitioner has failed to pay the entire amount, they have issued the notice that the amount will be forfeited. It is submitted that the petitioner is not entitled for refund of the amount.

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Having heard the learned counsels on either side, perused the material on record. Admittedly, the auction had taken place on 05.12.2025 and the property was sold on 02.12.2025. This Court is unable to accept the submission of the learned counsel for the respondent Bank for the reason that, when there is a dispute even before the property is put to auction, whether it is after the notification or before the auction, they cannot compel the purchaser to buy the property when the third-party rights have accrued. If it was known that the property was already sold and third-party rights had accrued, nobody would come forward to participate in the auction. The submission about returning of the EMD or forfeiting of the EMD is contrary to the law laid down by the

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NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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Hon’ble Supreme Court. This Court is not able to appreciate the

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same as it depends upon the facts and circumstances of each case. In this case, it is clear that the auction purchaser is entitled for the refund of the amount. Furthermore, in this case, the Bank had gone ahead and put the property to auction and the person in whose favour the borrower had sold the property had participated in the auction and the auction was confirmed in his favour. It is not open for the Bank to say that the petitioner's amount has been forfeited and that he is not entitled for refund of the amount. The Bank cannot compel the petitioner to conclude a transaction where after the auction notification is issued third-party rights are accrued. In the considered opinion of this Court, the concern of the petitioner is genuine and he is entitled for refund of the amount. Accordingly, this Court is passing the following:

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ORDER

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i. The writ petition is allowed directing the respondent Bank to return the amount paid by the petitioner within four weeks from the date of receipt of the copy of the order.

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NC: 2026:KHC:18577 WP No. 3673 of 2026

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HC-KAR

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ii. As per the banking norms, the respondent shall pay the interest for the period the amount was retained by the Bank.

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iii. Accordingly, the writ petition is disposed of.

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iv. All pending I.As., in the writ petitions shall stand closed.

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SD/(LALITHA KANNEGANTI) JUDGE

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PKN List No.: 1 Sl No.: 50

Procedural history

How this case reached the court

AI extract

Order under challenge
Notice dated 09.01.2026 bearing Ref. 6298/ARM/AUCSALEFOR/2 issued by the respondent Bank calling upon the petitioner to deposit the balance bid amount by 16.01.2026, failing which the amount already deposited by the petitioner would be forfeited without any notice.¶36
Respondent Bank (Canara Bank) · 09.01.2026
Prior proceeding
Petitioner participated in the auction conducted by the respondent Bank on 05.12.2025, was declared the successful bidder, and an intimation letter was sent to him on 05.12.2025 at about 04.00 p.m.¶30
Prior proceeding
Total bid was Rs.1,68,33,000/-; petitioner was directed to deposit 25% of the bid amount within one working day and the balance of Rs.1,26,24,750/- on or before 20.12.2025 at the concerned branch of the Bank.¶33
Prior proceeding
Petitioner deposited 25% of the bid amount on 06.12.2025, aggregating Rs.42,08,250/- (EMD Rs.10,33,300/- plus advance sale consideration Rs.31,74,950/-).¶33
Prior proceeding
Petitioner learnt through an anonymous call and verification (including encumbrance search) that the property had in fact been sold by the borrower in favour of one K.M.Shivakumar by a sale deed dated 02.12.2025, i.e., before the auction date; he immediately informed the Bank.¶33
Prior proceeding
On the petitioner's information, the Bank initiated criminal proceedings against the borrower and an FIR was registered at the jurisdictional police station.¶36
Prior proceeding
Petitioner sought refund of his deposit; the respondent Bank expressed inability to refund, intimating that Supreme Court guidelines bar refund of EMD amount.¶36
Prior proceeding
Petitioner addressed a letter dated 19.12.2025 expressing his intention to withdraw from the bid since the Bank could no longer transact or sell the property in his favour, and sought refund.¶36
Prior proceeding
Petitioner made a detailed representation on 8.02.2026; instead of considering it, the Bank issued the impugned notice dated 09.01.2026 (received 15.01.2026) demanding the balance by 16.01.2026 on pain of forfeiture.¶36
Prior proceeding
As recorded by the Court, the Bank went ahead and put the property to auction; the person in whose favour the borrower had sold the property participated in that auction and the auction was confirmed in his favour.¶52

Sri. Basavaraj Hiremath v. Canara Bank

Case brief

What is this about?

What did the court decide?

Sri. Basavaraj Hiremath v. Canara Bank

Case brief

What is this about?

What did the court decide?

Why is it important?

What the court decided

Issues for consideration

Statutes considered

Procedural history

Parties & counsel

Coram

Case details

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