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2024 DIGILAW 852 (ALL)

Nishant Kumar v. State Of U. P.

2024-03-19

KSHITIJ SHAILENDRA, MANOJ KUMAR GUPTA

body2024
JUDGMENT : 1. The instant petition is directed against a communication dated 13.02.2024 issued by the Chief Manager, Punjab National Bank to the petitioner stating that 25% of the sale price i.e., Rs.30.03 lakh deposited by him, has been forfeited, as he had failed to deposit the remaining 75% of the sale price within fifteen days i.e., by 11. 01.2024 from the date of confirmation of sale. 2. The facts necessary for disposal of the instant petition are as follows: M/s Laxmi Food Products, a proprietorship concern of father of the petitioner had taken loan from the respondent-Bank. As there was default in re-payment of the loan, the respondent-Bank had proceeded to auction the mortgaged property. E-auction was held on 27.12.2023 in which the petitioner was the highest bidder for an amount of Rs.120.10 lakh. As per terms and conditions of e-auction, the petitioner deposited 25% of the bid amount (inclusive of earnest-money) on the next date i.e., 28.12.2023 whereupon the sale was confirmed by order dated 28.12.2023. The order confirming the sale specifically mentioned that the petitioner would be required to pay the remaining 75% of the sale price within fifteen days. The petitioner filed an application before the respondent-Bank on 11.01.2024 seeking seventy five days' further time to deposit the remaining 75% of the sale price. He stated in his application that he had applied to a Bank for a home loan. Since there was no approved building plan of the land, which was subject matter of auction nor any declaration under Section 143 of U.P. ZA and LR Act, therefore, delay had occurred in approval of the loan. He should, therefore, be granted further time so that he gets the loan sanctioned and would then be in position to deposit the remaining amount. 3. The aforesaid prayer of the petitioner was turned down by the Bank by sending him an e-mail. A copy of the said communication has been placed before us by learned counsel for the respondent-Bank and with regard to which, there is no dispute between the parties. The said communication is reproduced below: “From: Circle Sastra Bijnore Sent: 11 January 2024 07:14 PM To: NISHANT KUMAR; nks01180@gmail.com Cc: Circle Sastra Bijnore Subject: RE: Your letter dt. 10.01.2024 for extension of time to deposit remaining sale amount Attachments: Nishant_0001.pdf 4. The said communication is reproduced below: “From: Circle Sastra Bijnore Sent: 11 January 2024 07:14 PM To: NISHANT KUMAR; nks01180@gmail.com Cc: Circle Sastra Bijnore Subject: RE: Your letter dt. 10.01.2024 for extension of time to deposit remaining sale amount Attachments: Nishant_0001.pdf 4. Learned counsel for the petitioner submits that the Bank had the power to extend the time up to ninety days. The petitioner had applied for a loan and since it was not sanctioned, therefore, delay had occurred. It is submitted that in such circumstances, the decision of the Bank to forfeit 25% of the amount deposited by the petitioner is wholly illegal. He places reliance on Rule 9 of the Security Interest (Enforcement) Rules, 2002 framed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the Act’) in support of his contention. 5. On the other hand, learned counsel for the respondent-Bank submits that the time permissible for depositing the remaining amount was fifteen days from the date of confirmation of the sale. The said period was extendable at the discretion of the Bank provided there was justifiable ground and material to the said effect. It is urged that in the facts of the instant case, the Bank did not find any justifiable ground to extend the time limit. 6. Sub-rule (3), (4) and (5) of Rule 9, which are relevant, are extracted below: “(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. (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.” 7. It is clear on a plain reading of the aforesaid provisions that twenty five percent of the amount of sale price inclusive of earnest money is to be deposited by the auction purchaser as soon as his bid is declared to be successful. The balance amount of purchase price has to be deposited within fifteen days of confirmation of sale of the immovable property. The said period could be extended as may be agreed upon in writing between the purchaser and the secured creditor but it could not exceed three months. 8. The extension beyond fifteen days is based upon agreement between the purchaser and the secured creditor. In the instant case, the Bank has refused to extend the period meaning thereby that there was no agreement between the parties for extension of time limit prescribed under the statute. 9. The loan was taken by the proprietorship concern of the father of the petitioner. The petitioner knew that it was an agricultural land and there was no approved building plan. He purchased it on “as is where is” and “as is what is” basis. He was well aware of the fact that under the terms and conditions of auction, he was required to deposit 25% of the purchase price within fifteen days and also the consequences of its failure. 10. In the Authorised Officer, Central Bank of India vs. Shanmugavelu reported in 2024 SCC OnLine SC 92, the Supreme Court held that Rule 9(5) was consciously incorporated by the legislature to subserve the larger object of the Act i.e. timely resolution of the bad debts of the country. 10. In the Authorised Officer, Central Bank of India vs. Shanmugavelu reported in 2024 SCC OnLine SC 92, the Supreme Court held that Rule 9(5) was consciously incorporated by the legislature to subserve the larger object of the Act i.e. timely resolution of the bad debts of the country. It has been held that any dilution of the forfeiture provided under Rule 9(5) would result in the entire auction process under the Act being derailed by mischievous auction purchaser(s) through sham bids, thereby undermining the overall object of the Act of promoting financial stability, reducing NPAs and fostering a more efficient and streamlined mechanism for recovery of bad debts. 11. In the aforesaid judgement, the Supreme Court dis-approved the decision of the High Court to reduce the extent of amount forfeited in view of the fact that subsequent sale of the secured asset had fetched a higher price. It has been observed as follows: "However, we are not in agreement with the aforesaid observations of the High Court. When an auction fails and a fresh auction is required to be conducted in respect of the Secured Asset, there looms a degree of uncertainty as to the extent of bids that may be received in the future auction or whether the fresh auction would even be successful or not. More often than not, with the efflux of time, the value of the Secured Asset erodes. In such a case it would be preposterous to tie or limit the forfeiture under Rule 9(5) of the SARFAESI Rules on an eventuality or a contingency of a subsequent sale of the secured asset if any. The consequence of forfeiture of 25% of the deposit under Rule 9(5) of the SARFAESI Rules is a legal consequence that has been statutorily provided in the event of default in payment of the balance amount. The consequence envisaged under Rule 9(5) follows irrespective of whether a subsequent sale takes place at a higher price or not, and this forfeiture is not subject to any recovery already made or to the extent of the debt owed. In such cases, no extent of equity can either substitute or dilute the statutory consequence of forfeiture of 25% of deposit under Rule 9(5) of the SARFAESI Rules." 12. In such cases, no extent of equity can either substitute or dilute the statutory consequence of forfeiture of 25% of deposit under Rule 9(5) of the SARFAESI Rules." 12. The Supreme Court in the said judgement also considered the scope of judicial review in respect of a decision taken by a secured creditor not to extend the time limit and to forfeit the amount deposited at the time of confirmation of the auction. The Supreme Court approved the previous judgment in Authorized Officer, State Bank of India vs. C. Natarajan reported in 2023 SCC OnLine SC 510, and held that it is only in very rare and exceptional case where extraneous conditions beyond the control of the purchaser had led to default in deposit of the balance amount that the Court could intervene. It has also been observed that while carrying out the said scrutiny the Court must be careful and cautious and direct their attention to examine each case in some depth to locate whether there is likelihood of any hidden interest of the bidder to stall the sale to benefit the defaulting borrower. The court should not be swayed by sentiments as sympathy, grace or compassion are outside the scope of the legislation. The relevant extract from the judgment in C. Natarajan (supra) on which reliance was placed by the Supreme Court in arriving at the above conclusion is extracted below: "13.... If, however, circumstances are shown to exist where a bidder is faced with such a grave disability that he has no other option but to seek extension of time on genuine grounds so as not to exceed the stipulated period of ninety days and the prayer is rejected without due consideration of all facts and circumstances, refusal of the prayer for extension could afford a ground for a judicial review of the decision-making process on valid ground(s). One such exceptional circumstance led to the decision in Alisha Khan v. Indian Bank (Allahabad Bank) [2021 SCC OnLine SC 3340], where this Court intervened and granted relief because, due to COVID complications, the appellant had failed to pay the balance amount. xxx xxx xxx 24. One such exceptional circumstance led to the decision in Alisha Khan v. Indian Bank (Allahabad Bank) [2021 SCC OnLine SC 3340], where this Court intervened and granted relief because, due to COVID complications, the appellant had failed to pay the balance amount. xxx xxx xxx 24. The up-shot of the aforesaid discussion is that whenever a challenge is laid to an order of forfeiture made by an authorized officer under sub-rule (5) of rule 9 of the Rules by a bidder, who has failed to deposit the entire sale price within ninety days, the tribunals/courts ought to be extremely reluctant to interfere unless, of course, a very exceptional case for interference is set up. What would constitute a very exceptional case, however, must be determined by the tribunals/courts on the facts of each case and by recording cogent reasons for the conclusion reached. Insofar as challenge to an order of forfeiture that is made upon rejection of an application for extension of time prior to expiry of ninety days and within the stipulated period is concerned, the scrutiny could be a bit more intrusive for ascertaining whether any patent arbitrariness or unreasonableness in the decision-making process has had the effect of vitiating the order under challenge. However, in course of such scrutiny, the tribunals/courts must be careful and cautious and direct their attention to examine each case in some depth to locate whether there is likelihood of any hidden interest of the bidder to stall the sale to benefit the defaulting borrower and must, as of necessity, weed out claims of bidders who instead of genuine interest to participate in the auctions do so to rig prices with an agenda to withdraw from the fray post conclusion of the bidding process. In course of such determination, the tribunals/courts ought not to be swayed only by supervening events like a subsequent sale at a higher price or at the same price offered by the defaulting bidder or that the secured creditor has not in the bargain suffered any loss or by sentiments and should stay at a distance since extending sympathy, grace or compassion are outside the scope of the relevant legislation. In any event, the underlying principle of least intervention by tribunals/courts and the overarching objective of the SARFAESI Act duly complimented by the Rules, which are geared towards efficient and speedy recovery of debts, together with the interpretation of the relevant laws by this Court should not be lost sight of. Losing sight thereof may not be in the larger interest of the nation and susceptible to interference." (Emphasis supplied) 13. One of the plea in the aforesaid case like in the instant case was inability of the auction purchaser to get the loan sanctioned. In the instant case as noted above, the petitioner was fully aware of his financial capacity still he participated in the auction and made bid of an amount which was beyond his means. The mortgaged property belonged to the firm of his father and there was every likelihood that the bid was made to create obstacle in the way of the secured creditor in recovering its dues. There was no extraneous condition pleaded by the petitioner as may have incapacitated him from depositing the balance amount. The factors pleaded for getting extension were his own creation and not attributable to any external force. Therefore keeping in mind the limited power of judicial review, we are of the considered opinion that there was no error in the decision of the secured creditor in rejecting the request to extend the time for payment of the balance amount. 14. It is noteworthy that by our previous order dated 15.03.2024, we granted time to the petitioner to make payment of the remaining amount by 18.03.2024 alongwith interest for the period of delay beyond 11.01.2024 and fixed today's date. 15. Shri Vivek Saran, learned counsel for the petitioner, at the outset, submitted that the petitioner could not comply with the said order as he is not in position to deposit the remaining amount, inasmuch as the loan, which he had applied for, has yet not been sanctioned. 16. Keeping in mind the aforesaid facts, we are of the opinion that there was no illegality or infraction of any statutory provision in the action of the Bank. 17. The petition lacks merit and is, accordingly, dismissed.