(A) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(4), 35, 37–Security Interest (Enforcement) Rules, 2002, Rule 9(5) – Contract Act, 1872, Section 73, 74 – Secured Assets – Auction sale – Default to deposit bid amount – Forfeiture of earnest–money deposit – Whether, the underlying principle of Section(s) 73 & 74 respectively of the 1872 Act is applicable to forfeiture of earnest-money deposit under Rule 9(5) of the SARFAESI Rules? In other words, whether the forfeiture of the earnest-money deposit under Rule 9(5) of the SARFAESI Rules can be only to the extent of loss or damages incurred by the Bank? – Held that the SARFAESI Act is a special legislation with an overriding effect on the general law, and only those legislations which are either specifically mentioned in Section 37 or deal with securitization will apply in addition to the SARFAESI Act – Being so, the underlying principle envisaged under Section(s) 73 & 74 of the 1872 Act which is a general law will have no application, when it comes to the SARFAESI Act more particularly the forfeiture of earnest-money deposit which has been statutorily provided under Rule 9(5) of the SARFAESI Rules as a consequence of the auction purchaser’s failure to deposit the balance amount. (Para 34, 68, 79)
(B) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(4), 35, 37 – Security Interest (Enforcement) Rules, 2002, Rule 9(5) – Contract Act, 1872, Section 73, 74 – SARFAESI – Auction sale – Default to deposit bid amount – Forfeiture of earnest–money deposit – Whether, the forfeiture of the entire amount towards the earnest-money deposit under Rule 9(5) of the Rules amounts to unjust enrichment? – In other words, whether the quantum of forfeiture under the SARFAESI Rule is limited to the extent of debt owed? – Held that the concept of ‘Unjust Enrichment’ is a by-product of the doctrine of equity and it is an equally well settled cannon of law that equity always follows the law – In other words, equity cannot supplant the law, equity has to follow the law if the law is clear and unambiguous – 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 – Held that High Court erred in law by holding that forfeiture of the entire deposit under Rule 9 sub-rule (5) of the SARFAESI Rules by the appellant bank after having already recovered its dues from the subsequent sale amounts to unjust enrichment. (Para 109, 111 and 113)
(C) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(4), 35, 37 – Security Interest (Enforcement) Rules, 2002, Rule 9(5) – Contract Act, 1872, Section 73, 74 – SARFAESI – Auction sale – Default to deposit bid amount – Forfeiture of earnest-money deposit – Whether a case of exceptionable circumstances could be said to have been made out by the respondent to set aside the order of forfeiture of the earnest money deposit? – Respondent’s case that he was unable to make the balance payment owing to the advent of the demonetisation which led to a delay in raising the necessary finance – Held that the aforesaid by no stretch can be said to be an exceptional circumstance warranting judicial interference – Demonetization had occurred much before the e-auction was conducted by the appellant bank – As regards the requisition of documents, the sale was confirmed on 07.12.2016, and the respondent first requested for the documents only on 20.12.2016, and the said documents were provided to him by the appellant within a month’s time i.e., on 21.01.2017. – Respondent was granted an extension of 90-days’ time period to make the balance payment, and was specifically reminded that no further extension would be granted, in-spite of this the respondent failed to make the balance payment – The e-auction notice inviting bids along with the correspondence between the appellant bank and the respondent are unambiguous and clearly spelt out the consequences of not paying the balance amount within the specified period. – Respondent being aware of his financial capacity, willingly participated in the e-auction and offered his bid fully knowing the reserve price of the Secured Asset and the consequences of its failure in depositing the balance amount. (Para 118 to 121)
SUPREME COURT OF INDIA
2024 STPL(Web) 85 SC
[JT 2024 (2) SC 357 = 2024 INSC 80]
Authorised Officer, Central Bank Of India Vs. Shanmugavelu
Appeal No(S). 235-236 of 2024-Decided on 2-2-2024
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