Summary
A successful bidder who failed to pay the balance auction price within the permitted period was subject to forfeiture of the full 25% deposit under Rule 9(5) of the SARFAESI Rules. The provision could not be read down to limit forfeiture to the bank’s proved loss; the bidder’s financial difficulty was not exceptional on these facts.
Issues
- Whether forfeiture of the auction purchaser’s 25% deposit under Rule 9(5) was limited to the secured creditor’s actual loss under Sections 73 and 74 of the Contract Act.
- Whether subsequent resale at a higher price or the purchaser’s financial circumstances justified setting aside forfeiture.
Provisions considered
- Section 13(4), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The bank took possession and sold the secured asset through the statutory recovery process. (¶ 4-6)
- Rule 9(5), Security Interest (Enforcement) Rules, 2002On the purchaser’s failure to pay the balance sale price within the permitted period, the deposit is forfeited as prescribed; it is not reduced by measuring actual loss. (¶¶ 91-104, 110-123)
- Sections 73 and 74, Indian Contract Act, 1872The statutory forfeiture under Rule 9(5) is governed by the SARFAESI recovery scheme; the contractual reasonable-compensation limitation does not authorize rewriting the rule. (¶¶ 67-69, 91-104)
Held
- Rule 9(5) deliberately provides for forfeiture of the 25% deposit when the successful bidder does not pay the balance within the stipulated period. The court cannot read the rule down merely because its consequence is harsh. (¶ 91-104)
- A later resale at a higher price does not by itself make the statutory forfeiture unjust enrichment or justify judicial interference. Courts should intervene only in a very exceptional case and for cogent reasons. (¶¶ 105-113, 116-117)
- Demonetisation had preceded the auction, the bidder received an extension and clear notice of the consequences, and the requested documents were supplied within a month. These circumstances did not justify setting aside forfeiture. (¶ 118-123)
Result
The bank’s appeals were allowed. The High Court judgment was set aside and the auction purchaser’s application before the DRT was dismissed.