{"id":310485,"date":"2024-01-01T17:00:29","date_gmt":"2024-01-01T11:30:29","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=310485"},"modified":"2024-01-31T18:05:27","modified_gmt":"2024-01-31T12:35:27","slug":"calcutta-high-court-upholds-forfeiture-of-earnest-money-in-e-auction-sale-dispute-scc-blog","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/01\/01\/calcutta-high-court-upholds-forfeiture-of-earnest-money-in-e-auction-sale-dispute-scc-blog\/","title":{"rendered":"Calcutta High Court upholds forfeiture of earnest money in e-auction sale dispute"},"content":{"rendered":"
\n

Calcutta High Court:<\/span> In an application challenging the order of Debt Recovery Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT) upholding the validity of the equitable mortgage created with a certified copy of the deed, stating that the petitioner was aware of it and willingly participated in the auction, a single-judge bench comprising of Ajoy Kumar Mukherjee,* J.<\/span>, on finding no jurisdictional error or illegality in the concurrent findings of the Tribunals, dismissed the application under Article 227<\/a> of the Constitution of India<\/a> and upheld the forfeiture of earnest money by the bank.<\/p>\n

Factual Matrix<\/p>\n

In the instant matter, the respondent bank issued a notice of e-auction for sale to which the petitioner expressed his interest and deposited money for the auction which was going to be held on 10-10-2017. The petitioner vide letter dated 06-10-2017 informed the bank about the lack of proper endorsement and decided to withdraw his name from the auction consequently demanded his earnest money deposited. The petitioner was assured by the bank that proper endorsement will be added before the auction and the petitioner agreed to participate in the auction on 09-10-2017. The petitioner on 10-10-2017 emerged as the highest bidder and deposited 25% of the amount which was 1.44 Crore Rupees on the assurance that the certified copy of title deed would be endorsed by the Registrar of Assurance. The Bank asked the petitioner to deposit the rest of the amount vide letters dated 20-12-2017. The petitioner, vide letter dated 26-12-2017, replied and stated that the necessary endorsements were not made and the undertakings by the Bank were not fulfilled. The petitioner filed a Writ Petition which was dismissed owing to the alternate remedies available. The application of the petitioner under SARFAESI Act, 2002 was dismissed by the DRT. The appeal before DRAT Kolkata was also dismissed vide order dated 08-08-2017.<\/p>\n

Petitioner’s Contentions<\/p>\n

The petitioner contended that the participation in the auction was on the assurance of the bank that the title deed would be properly endorsed by the Registrar of Assurance as the original deed was destroyed in fire. The petitioner contended that without proper endorsement, mortgage cannot be created. The Bank, as per the petitioner, had accepted the conditions of the petitioner vide letter dated 16.12.2017. The petitioner relied upon K.J. Nathan<\/span> v. S.V. Maruthi Rao<\/span>, AIR 1965 SC 430 to further their contentions. The petitioner argued that the forfeiture of the 25% of the amount deposited by the petitioner is not justified as the bank has already sold the property to Radder Vision Limited and thus have not suffered any loss.<\/p>\n

Respondent’s Contentions<\/p>\n

The respondent bank stated that the petitioner in the case merely participated in the auction and has no right to challenge the mortgage. The petitioner as per the respondent had agreed to the rules of auction vide his declaration of 04-10-2017 and was bound by them and the default in paying the rest of 75% amount has led to the forfeiture of the Earnest money as per Rule 9(5) of the Security (Enforcement) Rules, 2002. The petitioner is thus legally debarred from disputing the forfeiture.<\/p>\n

Legal Principles<\/p>\n

    \n
  1. \n

    Forfeiture of earnest money is permissible as per Rule 9(5) of the Security Interest (Enforcement) Rules 2002.<\/p>\n<\/li>\n

  2. \n

    The High Court’s power under Article 227 is limited to correcting jurisdictional errors or flagrant violations of fundamental principles of law or justice.<\/p>\n<\/li>\n<\/ol>\n

    Court’s Assessment<\/p>\n

    The Court observed that the DRT held that the petitioner had failed to comply with the terms and conditions of the e-auction and upheld the forfeiture of the earnest money and the Appellate Tribunal, DRAT affirmed the decision, stating that the petitioner breached the terms and conditions of the auction sale notice, justifying the forfeiture of the deposited amount.<\/p>\n

    The Court observed that the terms and conditions of the auction were mentioned clearly in the e-auction notice dated 20-09-2017 and the petitioner entered into auction voluntarily and signed the declaration. The respondent bank cancelled the e-auction dated 10-10-2017 after non- payment of the remaining 75% amount by the petitioner and as per Rule 9 (4) & 9 (5) of the Security Interest (Enforcement) Rules 2002, forfeited the Earnest Money deposited. The Court observed that the Bank has not concealed and fact or misled the petitioner when the petitioner gave un undertaking that the petitioner will be unconditionally bound to comply with the terms and conditions.<\/p>\n

    The Court opined that since the petitioner has not previously challenged the legality of the mortgage in the prayers before the Tribunals, therefore, the petitioner was not in condition to raise the question under Article 227<\/a> of the Constitution of India<\/a>. The Court observed that the 25% amount so deposited amounts to the Earnest money which is the part payment made as earnest to bind the bargain and also states that the buyer has accepted the property on “as is where is” and “as is what is” basis.<\/p>\n

    The Court relied upon Boorugu Mahadeb & Sons<\/span> v. Sirigiri Narasing Rao<\/span>, (2016) 3 SCC 343, and stated that any interference in the order of court below without jurisdictional error would be uncalled for and there cannot be any interference in the impugned order “only on the ground of mere possibility of arriving at a different view on facts and circumstances of the case.”<\/span> The Court held that since the petitioner failed to show a jurisdictional error or a violation of fundamental principles of law or justice, there is no interference warranted as the findings of both Tribunals are not perverse or illegal.<\/p>\n

    Court’s Decision<\/p>\n

    The Court upheld the decisions of the DRT and DRAT that justified the forfeiture of earnest money due to the petitioner’s failure to comply with the e-auction terms and conditions. The Court, in its Article 227 jurisdiction, dismissed the petitioner’s application, finding no jurisdictional error or flagrant violation of fundamental principles of law or justice.<\/p>\n

    [NRSKL Health Care (P) Ltd.<\/span> v. SBI<\/span>, 2023 SCC OnLine Cal 5707<\/a>, order dated 21-12-2023<\/span>]<\/p>\n

    *Judgment by Justice Ajoy Kumar Mukherjee<\/span><\/strong><\/p>\n\n

    Advocates who appeared in this case :<\/p>\n

    Mr. Radhashyam Tewary, Counsel for the Petitioner<\/p>\n

    Mr. Shiv Mangal Singh, Ms. Jahan Ara Keelsum and Ms. Moriam Sanfei, Counsel for the Respondent\/State<\/p>\n

    Buy Constitution of India  HERE<\/a><\/h3>\n

    \"Constitution<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

    The Calcutta High Court stated that the terms of the e-auction notice explicitly stated the conditions of the sale, including the forfeiture clause in case of non-compliance by the bidder.<\/p>\n","protected":false},"author":67514,"featured_media":290502,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[14471,2689,63998,63997,60251],"class_list":["post-310485","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-highcourts","tag-article-227","tag-Calcutta_High_Court","tag-e-auction-sale","tag-forfeiture-of-earnest-money","tag-justice-ajoy-kumar-mukherjee"],"yoast_head":"\nCalcutta High Court upholds forfeiture of earnest money in e-auction sale dispute | SCC Blog<\/title>\n<meta name=\"description\" content=\"Calcutta High Court upheld forfeiture of earnest money in e-auction 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