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Judgment
T. Vinod Kumar, J
This writ petition under Article 226 of the Constitution of India is filed with the following prayer:
“This Hon’ble Court may be pleased to issue a writ of Mandamus declaring the notice dated 11.03.2019 in forfeiting the amount
received from the petitioner by not finalizing the e-auction dated 17.08.2018 having received a sum of Rs.63,00,000/ by not receiving the
balance amount of Rs.47,00,000/ out of total bid amount of Rs.1,10,00,000/ and issuing the Sale Certificate for the property being non-
agricultural land admeasuring Ac.0.11 gts in Sy.No.124 situated at Athvelly Village, Medchal Mandal, Medchal-Malkajgiri, Ranga Reddy
District, as illegal and arbitrary and alternatively direct the respondent to pay the amount deposited by the petitioner with interest on
Rs.63,00,000/ (Sixty Three Lakhs Only).â€
Heard learned counsel for the petitioner and learned counsel appearing for the respondent â€" bank. Perused the record.
The fulcrum of the petitioner’s case is that, the petitioner had taken part in the e-auction conducted by the respondent bank on
17.08.2018, in respect of non-agricultural land admeasuring Ac.0.11 gts in Sy.No.124, situated at Athvelly Village, Medchal Mandal, Medchal-
Malkajgiri, Ranga Reddy District, and was declared as a successful bidder. Though, the petitioner had made substantial payment towards the
bid amount, and is willing to perform his part of obligation by making balance payment, the respondent bank is not willing to accept the same
and execute the sale certificate in his favour. On the contrary the respondent bank is now seeking to forfeit the amounts remitted by the
petitioner, under the pretext of not making the balance payment.
The brief facts of the case of the petitioner is that the respondent bank had brought to auction the subject property mortgaged in its favour
for extending financial facilities to one M/s. B.S. Ltd., and the borrower having committed default in repayment of the financial facilities
extended to it. It is the case of the petitioner that in the e-auction held on 17.08.2018, though the reserve price of the subject property was
fixed at Rs. 26,00,000/-, the petitioner bid for the same in a sum of Rs.1,10,00,000/- was the highest and was thus declared as successful
bidder. It is also submitted that, in order to participate in the said e-auction, the petitioner had initially on 14.08.2018 paid an amount of
Rs.2,60,000/- being 10% of the reserve price as earnest money deposit (EMD). As the petitioner became the successful bidder in respect of
the above property, the petitioner made further payment of Rs. 24,90,000/-on the following day viz., 18.08.2018, in all totaling to Rs.
27,50,000/-being the 25% of the bid amount as per the terms and conditions and in compliance of Rule 9(3) of the Security Interest
(Enforcement) Rules, 2002 (in short “Enforcement Rulesâ€). The main grievance of the petitioner is that though the petitioner paid 25% of
the bid amount and is ready and willing to perform his part of the obligation, the respondent bank is not ready to issue sale certificate and
deliver physical possession of the subject property by accepting the remaining 75% of the bid amount.
It is also submitted further remittances of Rs.15,50,000/- on 24.09.2018 and a sum of Rs.20,00,000/- on 18.01.2019 by way of RTGS and
under a cheque, respectively were made by the petitioner towards the bid amount. Thus, it is claimed that, in all, the petitioner paid a sum of
Rs.63,00,000/-in respect of the e-auction conducted and the respondent bank is only required to receive the balance sum of Rs.47,00,000/-,
only, from out of the bid amount of the petitioner. Learned counsel would further submit that though the petitioner is willing to remit the
balance amount of Rs.47,00,000/- to the respondent bank in respect of the auction of the scheduled property, even today, the respondent bank
is not willing to come forward to accept the said payment by confirming the sale and issuing a sale certificate and delivering possession of the
schedule property to the petitioner.
Learned counsel for the petitioner would submit that when the petitioner intended to cause inspection of the subject property as detailed in
the e-auction notice, there were encumbrances on the said property and the same was not physically available with the respondent bank for
being put to auction. It is further submitted that if the respondent bank delivers physical possession of the property to the petitioner, the
petitioner is willing to perform his part of obligation as per the terms and conditions of the e-auction notice. Learned counsel would thus,
submit that as the respondent bank had failed disclose the encumbrance in the e-auction notice, the respondent bank cannot seek to forfeit the
amount deposited by the petitioner towards the bid amount.
Per contra, learned counsel appearing for the respondent bank has vehemently opposed the above said submission. Learned counsel for the
respondent bank would submit that the present writ petition has been filed nearly after lapse of one year, after issuance of notice dated
11.03.2019 forfeiting the amount deposited by the petitioner, due to failure on the part of the petitioner in making the payment of the balance
amount within the time specified in the Sale Confirmation Advice dated
08.2018 and the action of petitioner in not remitting the balance amount within the time prescribed, also not being in consonance with the
provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short, ‘the
Act’ ) and the Enforcement Rules. Learned counsel for respondent bank would further submit that the inordinate delay on the part of the
petitioner in approaching this Court seeking to question the notice issued by the respondent bank on 11.03.2019 by filing the present writ
petition in February, 2020, is only a chance litigation. Learned counsel for the respondent bank would also submit that even otherwise the
petitioner is not entitled for being granted any relief by this Court inasmuch as the petitioner had failed to comply with the terms and conditions
of e-auction held on 17.08.2018. Learned Counsel would further contend that in so far as the claim of the petitioner of existence of
encumbrance over the property and the same being not disclosed in the e-auction notice, no such plea is taken by the petitioner in the affidavit
filed into this court and is an after thought to cause prejudice against the respondent bank.
Learned counsel for the respondent bank would submit that the petitioner, having taken part in the e-auction held on 17.08.2018 in respect
of the subject property, had made a bid for the same in a sum of Rs.1,10,00,000/- and had remitted 25% of the Earnest Money Deposit
amount, including the amount of Rs.2,60,000/- paid on 14.08.2018. Learned counsel for the respondent bank would further submit that, upon
receiving 25% of the bid amount, the respondent bank had issued Sale Confirmation Advice dated 18.08.2018, directing the petitioner to make
the balance payment of Rs.82,50,00,000/- within 15 days, i.e. on or before 01.09.2018, to enable the respondent bank to transfer the subject
property in favour of the petitioner. It is also submitted that going by the admission of the petitioner himself, the balance payment was not
made on or before 01.09.2018.
Learned counsel would further submit that, having regard to the terms and conditions of sale, scheme of the Act and the Rules made
thereunder, and in particular, Rule 9(4) of the Enforcement Rules, requires the auction purchaser to make the balance payment within 15 days
from the date of issue of Sale Confirmation Advice. However, the said period of 15 days for making the balance payment can be extended up
to three months under a written agreement entered into between the purchaser and the secured creditor. It is also submitted that the
respondent bank by issuing Sale Confirmation Advice dated 18.08.2018, acknowledging the receipt of 25% of the bid amount, directed the
petitioner to make the balance payment of 75% of the bid amount in a sum of Rs. 82,50,000/- on or before 01.09.2018. It is further contended
that the petitioner, being in receipt of the said communication, neither made the balance payment of Rs.82,50,000/-, on or before the said date,
nor approached the respondent bank seeking for any extension, or there has been any agreement in writing for extending the period for
making the balance payment.
Learned counsel for the respondent bank would also submit that, the petitioner having failed to make the balance payment and also having
failed to approach the respondent authorities in time seeking extension of time, as stipulated under Rule 9(4) of the Enforcement Rules, by his
own actions had caused the amount of 25% deposited, liable for forfeiture by
09.2018. Learned counsel would further submit that the petitioner, realizing the fact of default committed by him in making the balance
payment within time, had made a further payment of Rs.15,50,000/- on 24. 09.2018 by transferring the said amount through RTGS to Earnest
Money Deposit General Pool Account of the respondent bank on his own accord. The said General Pool Account maintained by the
respondent bank is no lien account, and as such, the proceeds transferred by the petitioner into the said account are not earmarked for any
specific property in respect of which e-auction had been held. Learned counsel would further submit that the petitioner, after five months of
the date of auction, had made a further transfer of Rs.20,00,000/- by cheque into no lien Earnest Money Deposit General Pool Account on his
own accord, which also cannot be taken as due payments in respect of e-auction held on 17.08.2018.
Learned counsel would submit that, having regard to the statutory frame work, the respondent bank cannot extend the period for making
the balance payment by a purchaser beyond a period exceeding three months, as per Rule 9(4) of the Enforcement Rules, with effect from
04.11.2016. Learned counsel for the respondent bank would also submit that the remittance of Rs.20,00,000/- made by the petitioner after a
period of five months of the e-auction will be in clear contradiction of Rule 9(4) of the Enforcement Rules, and thus, the petitioner cannot be
permitted to take advantage of the same, much less, in the absence of any agreement in writing to the above effect being entered into
between the petitioner and the respondent bank as purchaser and secured creditor.
Learned counsel for the respondent bank in support of the above said contention placed reliance on the decision of this Court in
MOHD.ABDUL RAZAK V/s. STATE BANK OF INDIA 2019 (5) ALD 218.
Learned counsel for the respondent bank would further contend that the claim of the petitioner, that the respondent bank had failed to
deliver unencumbered property to the petitioner is also without basis, as the petitioner never approached the respondent bank at any time
before filing of the present writ petition with regard to the alleged claim being made and no material whatsoever has been placed before this
Court to substantiate the above said submission. Learned counsel for the respondent bank would also submit that though the petitioner claims
to have approached the revenue authorities seeking for identification of the property and also having got it privately surveyed, no proof of
payment of the petitioner making application through mee-seva has been filed into this Court nor the alleged private surveyor report has ever
been given to the bank nor filed before this court and as such, the claim being made by the petitioner of having approaching the revenue
authorities for identifying the boundaries of the said property sold by the respondent bank is uncorroborated and is only a self-serving
statement.
Learned counsel would submit that the property that has been sold by the respondent bank is a clearly identified property having specific
boundaries on all the sides, and as such, the question that the respondent bank had failed to deliver unencumbered property to the petitioner,
would not arise. Learned counsel would submit that the respondent bank failing to deliver unencumbered property to the petitioner would arise,
if only the petitioner had made the entire payment of the bid amount of Rs.1,10,00,000/- before the due date, and having failed to do so, the
petitioner has invented the said plea only to ensure that the amount deposited by the petitioner is not forfeited. Learned counsel for the
respondent bank would further submit that even before the e-auction is held on 17.08.2018, the details of the property were disclosed and the
intending participants, like the petitioner, ought to have caused verification by themselves, since the property put up for auction is on ‘as is
where is basis’, and as a matter of fact the petitioner had himself obtained encumbrance certificate on 14.08.2018 as per the documents
filed by himself.
Learned counsel would also submit that it is for the petitioner to cause due diligence before taking part in the auction and cannot now turn
back and claim that the respondent bank has failed to deliver unencumbered property, which, in any situation, has not arisen in the present
facts of the case, as the petitioner has failed to make the remittance of the balance bid amount before the due date specified, thereby making
the payment of 25% of the bid amount liable for forfeiture under the Enforcement Rules. Learned counsel for the respondent bank would
however fairly submit that since, the petitioner had remitted further amounts into the no lien account, the respondent bank would refund the
same to the petitioner without forfeiting the same.
Having regard to the submissions made as above, the issues that fall for consideration of this Court are under:
(i) Whether the petitioner has complied with the terms and conditions of e-auction held on 17.08.2018;
(ii) Whether the adhoc payments made by the petitioner beyond the time specified in sale confirmation advice can be considered as valid
payment and is in accordance with Rule 9(4) of the Enforcement Rules ; and
(iii) Whether the action of respondent bank in forfeiting the payment made by the petitioner due to failure to make the balance payment within
the period stipulated is valid ?
In order to appreciate the contentions urged, it is necessary to make a reference to the scheme of the Act and Rules framed thereunder,
with particular reference to Rule 9 of the Enforcement Rules dealing with the time of sale, delivery of possession etc. The relevant sub-rules
in Rule 9 as applicable to the facts of the present case are Rule 9(3), 9(4), 9(5) and 9(6) of the Enforcement Rules, which read as under:
‘Rule 9 â€" Time of sale, issues of sale certificate and delivery of possession, etc.-
(1) …..
(2) …..
(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;]
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised 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].
(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.
(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the
power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these
rules.
A reading of Rule 9(3) of the Enforcement Rules as above, indicates that upon sale of the immovable property, the auction purchaser is
required to deposit 25% of the amount of sale price, inclusive of Earnest Money Deposit with the authorized officer on the same day or not
later than next working day, as the case may be and upon failure to do so, the property is to be sold again. Sub-rule (4) thereof specifies that
upon making the payment specified in Sub-rule (3), the balance amount of purchase price shall be paid by the purchaser to the authorized
officer on or before expiry of the fifteenth day of confirmation of sale of immovable property, or such extended period, as may be agreed
upon in writing between the parties, but, in any case, not exceeding three (3) months. Thus, the outer period which the secured creditor upon
putting the property to auction can grant to auction purchaser is only of three (3) months. Thus, the Enforcement Rules contemplate that even
by agreement in writing between the purchaser and the secured creditor, the period for making the balance payment cannot be extended
beyond the period of three (3) months. The said amendment to the provision prescribing the time frame under sub-rule (3) and (4) with an
outer limit of three (3) months for making payment under Sub-rule (4) has been brought into force to the statue by way of Notification
No.1046(E), dated 03.11.2016, with effect from 04.11.2016.
Sub-rule (5) of Rule 9 of the Enforcement Rules specifies that in the event of the purchaser failing to make the payment either under Sub-
rule(4), the property shall be re-sold and the purchaser, who has failed to make the balance payment as per the bid auction held, shall forfeit
all claims to the property or to any part of the sum which he has paid for taking part in the auction earlier. Sub-rule (6) thereof specifies that
the secured creditor, i.e., the bank, upon the purchaser complying with the terms of payment, shall issue a certificate of sale of the immovable
property as per the form given in Appendix V, the sale certificate, which specifies the following:
1) the name of the secured creditor/institution selling the property;
2) name of the purchaser of the immovable property;
3) name of the borrower who mortgaged the property in favour of the secured creditor;
4) the receipt of the sale price in the auction in full;
5) delivery and possession of the schedule property being handed over to the purchaser free from all encumbrances and with the boundaries
being specified and also noting encumbrances, if any.
In the facts of the present case, as noted hereinabove, the petitioner took part in e-auction held on 17.08.2018 and offered the bid amount
of Rs.1,10,00,000/- for the subject property. Out of the total amount of Rs.1,10,00,000/-, the petitioner had deposited Rs.27,50,000/-, which is
equivalent to 25% of the bid amount for the property within the time stipulated under Rule 9(3) of the Enforcement Rules. Upon such deposit
of 25% of the amount, the respondent bank has issued Sale Confirmation Advice dated 18.08.2018 to the petitioner directing the petitioner to
make the balance payment of Rs.82,50,000/- within 15 days as stipulated in Rule 9(4) of the Enforcement Rules. Thus, the petitioner is
required to make the balance payment on or before 01.09.2018 to enable the respondent bank to proceed further by issuing confirmation of
sale by registering sale certificate in favour of the purchaser as per the form given in Appendix V by detailing the boundaries and also
encumbrances, if any.
However, it is to be seen that as the petitioner failed to make the balance payment of Rs.82,50,000/- before the due date as specified in
the Sale Confirmation Advice dated 18.08.2018, the respondent bank could not have proceeded with the steps prescribed under Rule 9(6) of
the Enforcement Rules. It is also admitted fact that the petitioner did not approach the respondent bank and obtain extension of time for
making the payment as stipulated under Rule 9(4) of the Enforcement Rules, which in any case, cannot be extended beyond a period of three
months from the date of auction, which even if extended would only be up to 16.11.2018, before which time, the petitioner ought to have made
the remittance of balance payment of the bid amount of Rs.1,10,00,000/- I.e. in a sum of Rs.82,50,00,000/-. Though it is claimed that the
petitioner had made a further remittance of Rs.15,50,00,000/- on 24.09.2018 that would not by any stretch of imagination extend the period
any further for making the balance payment. Thus, even assuming that by implied act of receiving the above said payment, on 24.09.2018, the
respondent bank had agreed to receive the consideration in respect of the e-auction held on 17.08.2018, beyond the period of 15 days, the
petitioner is still required to remit the balance amount of Rs.57,00,000/- on or before 16.11.2018. Admittedly, no further payment had been
made by the petitioner before expiry of the three months period, specified under Rule 9(4) of the Enforcement Rules. As a result of failure on
the part of the petitioner in making the payment, the petitioner cannot claim any privilege being accrued to him under the Rules.
Further, it is to be seen that though the petitioner claims to have raised objection regarding the extent of encumbrance over the property
sold by the respondent bank in the auction held on 17.08.2018, orally, it is un comprehendible that, while, on one hand, the petitioner claims to
have raised objection regarding the encumbrance of property, which has not been disclosed by the respondent bank while conducting auction,
on the other hand, the petitioner was making further remittances on 24.09.2018 and again after a lapse of three months on 18.01.2019, without
having a resolution to the said issue alleged to have been raised orally. The petitioner would otherwise be entitled to raise the issue of
encumbrance and claim equities and right to question the inaction on the part of the respondent bank in delivering possession by registering the
sale certificate in favour of the petitioner, if only the petitioner had made the full remittance of the amount as per the auction held before the
due date specified in sale confirmation advice. As the petitioner had failed to make the payment beyond 25% of the bid amount within a period
of 15 days stipulated under Rule 9(4) of the Enforcement Rules and in the absence of any agreement in writing extending such period up to a
period of three months, the claim of the petitioner that the respondent bank had accepted further payments into their account, cannot be
accepted as a valid submission.
As, it has also been brought to the notice of this Court that the petitioner had made remittances on his own accord on 24.09.2018 and on
01.2019 by transferring the amounts into Earnest Money Deposit General Pool Account and not to the credit of any particular auction
account. It is also unnatural to accept that if a person making payment towards the auction held, to keep quiet without approaching the
respondent bank and calling upon to execute the sale certificate and deliver possession of unencumbered property. It is also to be seen that
the petitioner maintained static silence, before the respondent bank issued notice on 11.03.2019 forfeiting the amount deposited by the
petitioner and even thereafter for a period of nearly one year in approaching this court. Thus, the conduct of the petitioner only go to show
that the petitioner is fully aware of the consequences of his default and the present writ petition filed is an after thought and a chance litigation,
as rightly contended by the learned counsel for the respondent bank.
A Division Bench of this Court in the judgment rendered in MOHD. ABDUL RAZAK’s case (1 supra), while dealing with the issue
relating to the extension of period for making the payment of the bid amount by the auction purchaser had held as under:
“At the outset, it should be pointed out that the grant of the prayer made by the petitioner in this writ petition would directly infringe upon
the statutory prescription. Under the Enforcement Rules, a period of 15 days is prescribed for payment of the balance sale consideration. Rule
9(4) of the Enforcement Rules after its amendment with effect from 04.11.2016 mandated that any extension of time beyond 15 days can be
granted only upon the agreement in writing between the parties. After amendment with effect from 04.11.2016, the maximum time for making
payment of 75% of the balance bid amount can be extended only up to three (3) months, provided there is an agreement between the
purchaser and the secured creditor.
Therefore, the extension of time nearly five (5) years cannot be ordered either under pre-amended provision of Rule 9(4) of the Enforcement
Rules or post amended provision of the Enforcement Rules. In fact, the very offer made by the petitioner by letter dated 25.07.2018 to
proceed with the balance 75%, is completely contrary to the statutory prescription.â€
Having regard to the decision of this Court and in the absence of the respondent bank agreeing to extend the period for making the
payment of 75% of the bid amount up to three months in writing as stipulated in Rule 9(4) of the enforcement rules, the payment made by the
petitioner on 24.09.2018, in a sum of Rs.15,50,000/- itself cannot be considered as payment towards the bid amount, being made after
1.09.2018, i.e. upon expiry of 15 days period specified in sale conformation advice dated 18.08.2018. Further, upon such default by the
petitioner in making the balance payment within the time prescribed, the respondent bank is free to bring the subject property for resale again
under Rule 9(5) of the Enforcement Rules and even the amount of 25% paid by the petitioner had become liable for forfeiture at the hands of
the respondent bank. If only the petitioner had made the payment in full, it would have been open for the petitioner to question the acts of the
respondent bank in not disclosing the alleged encumbrance being claimed over the subject property. Further, no material whatso ever has been
placed on record, of the petitioner approaching the respondent bank and bringing to the notice of the bank of existence of any such
encumbrance on the property sold at any time before. Thus, the claim of the petitioner that the petitioner was precluded/prevented from
making further payment because of the encumbrances over the property and due to the respondent bank not fixing the boundaries before the
property is brought to sale cannot be accepted as a valid claim, meriting consideration by this Court. The judgments of a Division Bench of this
Court, relied upon by the learned counsel for the petitioner in the case of MANDAVA KRISHNA CHAITANYA V/s. UCO BANK 2018
(3) ALD 266 and in W.P.No.450 of 2020, are clearly distinguishable, more so, on account of the failure on the part of the petitioner in the
present case in failing to make the payment of the balance bid amount within the time stipulated.
Though on account of failure on the part of the petitioner in making balance amount within the time stipulated in the Sale Confirmation
Advice dated 18.08.2018, the respondent bank would entitled to forfeit the amount so deposited by the petitioner, but, the same would not
confer any right on the respondent bank to forfeit the balance payment made by the petitioner on his own accord into no lien Earnest Money
Deposit General Pool Account as the payments are made only into General Pool Account and not specified to the account relating to the
auction of the property. Thus, the respondent bank ought not to have accepted the payment made by the petitioner, credited to the General
Pool Account and ought to have refunded the same, which the respondent bank failed to do so, unnecessarily giving a chance of hope for the
petitioner, to file the present petition.
Having regard to the above, this Court is of the view that the action of the respondent bank in issuing notice dated 11.03.2019 forfeiting
the amount deposited by the petitioner cannot be found fault with. Accordingly, the challenge in the present writ petition to the notice dated
11.03.2019, is without merit and is hereby rejected. However, since, said notice does not specify the amount being forfeited, it is clarified that
the same has to be restricted only to the extent of 25% of the bid amount deposited by the petitioner and not that of the subsequent payments
made into no lien EMD general pool account.
In so far as the further payments made by the petitioner in a sum of Rs.15,50,000/- and a sum of Rs.20,00,000/- on 24.09.2018 and
18.01.2019 respectively, are concerned, the respondent bank is liable to refund the same to the petitioner. Since, the petitioner had remitted the
same into respondent bank EMD general pool account on his own accord and the respondent bank had retained such amounts with out
remitting back the same to petitioner immediately, thereby depriving the petitioner of making use of the said funds, the respondent bank is
liable to refund the same to the petitioner along with interest at the rate of 8% per annum from the date of respective payment, till the amount
is refunded to the petitioner by way of credit to his account or by issuing a demand draft/ banker’s cheque to the petitioner.
Subject to the above direction, the writ petition is disposed of. Pending miscellaneous petitions, if any, shall stand closed in the light of this
final order. No order as to costs.