The Karnataka High Court in the case Kalyanamurthy K AND State Bank of India observed and has made it clear that a bank cannot forfeit over 25% of the deposit amount made by an auction purchaser who in the case fails to deposit the remaining purchase amount within the stipulated period for completion of the sale.
The single bench headed by Justice K V Aravind in the case observed and has directed the State Bank of India to refund a sum of Rs.10,00,000, along with applicable interest from the date of payment till refund, within eight weeks to one Kalyanamurthy K.
In the present case, the petitioner has made the payment for an amount of Rs.31,73,750/-. 25% of the total bid amount is Rs.21,73,750/-. Payment of Rs.10,00,000/- is in excess of 25% of the bid amount referred to in Rule 9 of the Rules and the sum for an amount of Rs.10,00,000/- cannot be considered as deposit under sub-rule (3) and (4) enabling the respondent to forfeit under sub-rule (5).
The petitioner in the case is entitled to a refund of payment made in excess of 25 % of the total bid amount and any retention of the amount by the respondent without authority of law would amount to unjust enrichment.
Furtehr, it has been held by the said court that the forfeiture is a statutory action, given non-compliance with Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 (Rules), it leaves no discretion with the secured creditor.
The petitieoner had approached the court wherein seeking the direction on the respondent to refund a sum of Rs.31,73,750/- forfeited due to non-compliance with the conditions of a Sale Notice dated 16.12.2021. It was also submitted before the court that the petitioner had participated in the auction and was declared a successful bidder with the highest quoted amount of Rs.86,95,000.
The petitioner in the plea claimed that the remaining amount was not deposited within the extended period as agreed by the respondent given financial difficulties due to the Covid-19 pandemic. It was argued before the court that the petitioner was suffering from kidney disease and was undergoing treatment and that the property had been re-auctioned and sold for a sum of Rs.87,79,000.
Therefore, the bank opposed the plea stating that the petitioner had been provided with extensions to the outer limit provided under Rule 9 of the Rules and due to the failure to comply with the terms and conditions of the auction, an order of forfeiture had been rightly made in conformity with Rule 9(5) of the Rules.
The court while considering the facts and circumstances of the case observed and has held that the amount paid under Rule 9(3) of the Rules to the extent of 25% can be characterised as a deposit and payment over and above 25% is only a balance consideration and cannot be considered as a deposit. Accordingloy, the court allowed the plea.
The counsel, Advocate D.V. Venkatesh appeared for the Petitioner.
The counsel, Advocate Chithra Nirmala P represented the Respondent.