{"id":313124,"date":"2024-02-05T15:00:31","date_gmt":"2024-02-05T09:30:31","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=313124"},"modified":"2024-02-08T18:21:29","modified_gmt":"2024-02-08T12:51:29","slug":"banks-can-forfeit-entire-earnest-money-not-just-extent-loss-damage-suffered-supreme-court","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2024\/02\/05\/banks-can-forfeit-entire-earnest-money-not-just-extent-loss-damage-suffered-supreme-court\/","title":{"rendered":"Banks can forfeit entire earnest money and not just extent of loss suffered by it due to auction purchaser\u2019s default: SC"},"content":{"rendered":"
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Supreme Court:<\/span> In appeals filed by a Nationalised Bank against the judgment and order passed by the Madras High Court, wherein the Court held that the forfeiture of the earnest money deposit by the bank could only be to the extent of the loss suffered by it, the Three Judge Bench of Dr. Dhananjaya Y. Chandrachud, CJI, JB Pardiwala*<\/span>, and Manoj Misra, JJ. while setting aside the impugned judgment and order, has held that the entire earnest money deposited by an auction purchaser would be forfeited as per Rule 9(5) of the Security Interest (Enforcement) Rules, 2002<\/a> (SARFAESI Rules) on the failure to deposit the remaining amount within the stipulated period.<\/p>\n

Background<\/p>\n

The Central bank of India (‘Bank’) had sanctioned credit facilities to ‘Best and Crompton Engineering Projects’ against a parcel of land with superstructures, as security interest in the form of a simple mortgage in lieu of the sanctioned credit. Thereafter, the said borrowers defaulted, and the loan account was classified as a non-performing asset (‘NPA’) by the bank. To recover its dues, the bank took measures under Section 13(4)<\/a> of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002<\/a> (“SARFAESI Act”), by taking over the possession of the Secured Asset and putting the same for sale by way of public auction. Accordingly, an e-auction notice for the sale of Secured Asset at a reserve price was issued by the bank.<\/p>\n

Pursuant to the same, the e-auction was conducted, and four bids were received, where the respondent also participated and submitted its highest bid, and he was declared the successful auction purchaser. Thereafter, the respondent on the same day deposited 25% of the bid amount as the earnest money deposit upon which, the bank confirmed the sale of the secured asset in favour of the respondent vide its letter which stipulated that in the event of default in payment of the balance amount, the sale shall be liable to be cancelled and the earnest money would be forfeited. The respondent, being unable to pay the balance amount within the extended period, sought an additional 15 days to make the balance payment. However, the bank turned down the said request for further extension and intimated the respondent that due to its failure in remitting the balance amount within the stipulated time, the sale is cancelled, and the amount already deposited stands forfeited.<\/p>\n

High Court’s Order:<\/p>\n