The Supreme Court bench comprising Justices Ajay Rastogi and Bela M. Trivedi was recently hearing an interesting appeal in an auction proceeding under SARFAESI Act, 2002 and held that bank cannot forfeit earnest money deposited by the successful bidder if some facts are hidden by the bank to the successful bidder.
In the present case, the auction notice in the first instance was published on 18th June 2013 with a reserve price of Rs.1.19 crores and the appellant’s bid of Rs.2.01 crores was the highest. The earnest money of Rs.11.19 lakhs was deposited on 22nd July 2013 and the bid was finalized on 26th July 2013 and 25% of the bid in terms of the auction notice of Rs.38.35 lakhs was deposited by the appellant on 27th July 2013.
This fact has not been disputed that DRT passed an interim order on 26th July 2013 and the fact that the proceedings had been initiated and pending on the date when the auction was held and the date on which 25% of the bid amount was deposited by the appellant, i.e., 27th July 2013, was never brought to the notice of the appellant which would give him the option to revisit as to whether he may proceed with the auction or withdraw at that stage.
This fact can be further corroborated which has come on record that even when the correspondence was made by the first respondent, the only request made by the appellant throughout was that he had no difficulty paying the balance amount provided the matter is finally decided by DRT. Obviously, as a man of ordinary prudence, one is always supposed to assess the value of the property on which the auction was held by the secured creditor (first respondent).
To test the bona fide of the appellant, when the subsequent auction proceedings at the later stage were initiated pursuant to the notice dated 5th March 2014 with the reserve price of Rs.1.70 crores and the highest bid was of Rs.1,70,50,000/, just Rs.50,000/above the reserve price and pending proceedings before the learned Single Judge, appellant was called upon to deposit the balance of Rs.1.77 crores(in terms of his bid of Rs.2.01 crores) without fail, it was deposited by him on 10th March 2015 and that was the reason which persuaded the learned Single Judge not only to set aside the subsequent auction held dated 5th March 2014 but further directed to the first respondent to execute the sale deed on the final bid of Rs.2.01 crores being deposited, in favour of the appellant.
The Division Bench of the High Court although has reversed the finding so far as the subsequent auction proceedings held pursuant to the notice dated 5th March 2014 is concerned, the appellant has no quarrel with the same. The only grievance of the appellant is relegating him to avail remedy which the law permits for recovery of the amount forfeited, there appears, in our view, no justification in the facts and circumstances particularly when the factual matrix is not in dispute and the money deposited by the appellant towards earnest money and the first instalment of 25% in terms of the auction notice dated 18th June 2013 is the accepted fact by either party.
The Supreme Court noted that once there is no dispute on the facts that came on record, there appears no reason for the appellant to be relegated to avail other remedial mechanisms for recovery of the undisputed amount and the Division Bench has committed a manifest error in the facts and circumstances in not exercising its power under Article 226 of the Constitution and instead of resolving the dispute, the Division Bench under the impugned judgment has kept the issue alive, permitting the parties to have second innings in reference to the dispute which stands crystalized/settled.
So far as the submission made by the first respondent in reference to Rule 9(5) of the Rules, 2002 is concerned, that may not be of any assistance for the reason that ordinarily if the highest bidder fails to deposit the balance amount of the purchase price, in terms of 9(4) within the stipulated period and commits a default, its consequence is stipulated under Rule 9(5) of the Rules, 2002. But the instant case was not a case of simple default. The appellant has come with the bona fide defence that he was never informed on the date when the auction was held or the day thereafter that the substantive proceedings are pending before the DRT instituted at the instance of the borrower. As a man of ordinary prudence, if someone has been called upon to participate in the bidding process, the facts must be made clear to the parties for the reason that there is always a high variance between market realizable value and the distress value of the mortgaged property when put to public auction under the provisions of the Act, 2002.
The Supreme Court bench further made it clear that since the appellant filed the present appeal after a long delay which we have condoned as such, he was not entitled to any interest on the amount forfeited by the first respondent. The Bench further directed the first respondent to return the money of Rs.50.25 lakhs to the appellant deposited in reference to the auction notice dated 18th June 2013 within a period of two months failing which it shall carry interest @ 12% per annum until the date it is made over to the appellant.
The appeal was allowed.
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