2017 (2) TMI 464 - HC - Indian Laws

High Court Orders Refund of Earnest Money Deposit, Upholds Sale Cancellation, Emphasizes Bidder Due Diligence

The High Court partially allowed the writ petition, directing the Bank to refund the Earnest Money Deposit to the petitioner. The Court dismissed the plea ... E-Auction - forfeiting the EMD payment made by the petitioner and quash the same and consequently direct the respondents 2 and 3 to enlarge the time for compliance of the balance payment payable by the petitioner in accordance to the E-Auction - Held that:- he e-auction advertisement does not constitute and will not be deemed to constitute any commitment or any representation of the bank. The property is being sold with will the existing and future encumbrances whether known or unknown to the bank. The Authorised Officer/ Secured Creditor shall not be responsible in any way for any third party claims / rights / dues. The sale notice contained other terms and conditions of the e-auction. The auction sale is subject to rules / conditions prescribed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This sale will attract the provisions of Section 194-1A of the Income Tax Act. The sale notice in the instant case has been issued on 25.07.2016. Request letter for participation was to be submitted on or before 03.09.2016 and the sale dated was fixed for 07.09.2016. It is important to note that the bank has filed W.P. on 29.08.2016. Therefore, there is sufficient time for intending purchasers to make their own independent inquiries regarding the defects in the property. The petitioner prayed for extension of time to make the balance payment. As it has been declared by the supreme court that Rule 8(3) of Security Interest (Enforcement) Rules, 2002 is mandatory, we hold that the petitioner is not entitled to extension of time for the balance payment. As per Rule 9(3) of Security Interest (Enforcement) Rules, 2002 if the buyer does not deposit 25% of the sale price immediately, the immovable assets shall be offered for e-auction on 25.07.2016. The Bank has already issued subsequent sale notice on 15.09.2016 and the sale was fixed for 24.10.2016 in terms of Rule 9(3) of Security Interest (Enforcement) Rules, 2002. Therefore, we are inclined to accede to the offer of the petitioner. The Bank has forfeited the earnest money deposit of ₹ 6,60,00,000/- paid by the petitioner. For the reasons stated above, the Writ Petition is allowed in part. In other aspects, the writ petition is dismissed. The Bank is directed to refund the earnest money deposit of ₹ 6,60,00,000/-to the petitioner within a period of six weeks from the date of receipt of a copy of this order as in the present case, the terms and conditions do not provide for forfeiture of the earnest money deposit. Issues:1. Forfeiture of Earnest Money Deposit2. Extension of Time for Payment3. Disclosure of Encumbrances in Sale NoticeForfeiture of Earnest Money Deposit:The petitioner filed a writ petition seeking to quash the decision of the Bank to forfeit the Earnest Money Deposit (EMD) of &8377; 6,60,00,000. The petitioner participated in an e-auction, became the highest bidder, but failed to pay the balance amount as required. The Bank cancelled the sale and forfeited the EMD. The petitioner argued that the Bank should not have forfeited the EMD as the sale was subject to the outcome of a pending writ petition and the Bank had agreed to extend the payment deadline. The Court referred to previous judgments and ruled that the Bank cannot forfeit the EMD as the terms and conditions did not provide for it. The Court directed the Bank to refund the EMD to the petitioner.Extension of Time for Payment:The petitioner requested an extension of time to pay the balance amount after winning the e-auction bid. The Bank had allowed the petitioner to deposit the balance amount by a certain date, but the petitioner failed to comply. The petitioner argued that the Bank had agreed to extend the payment deadline, but the Bank cancelled the sale without considering the request. The Court held that the petitioner was not entitled to an extension of time as Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 is mandatory. The Court dismissed the petitioner's plea for an extension of time.Disclosure of Encumbrances in Sale Notice:The petitioner contended that the Bank failed to disclose certain encumbrances and pending cases related to the property in the sale notice. The Bank argued that the petitioner was aware of the encumbrances listed in the notice and participated in the auction voluntarily. The Court noted that the sale notice did disclose encumbrances and legal actions against encroachers. The Court emphasized that intending bidders must conduct independent inquiries regarding encumbrances before participating in the auction. The Court held that the Bank was not obligated to disclose all details in the sale notice and ruled in favor of the Bank on this issue.In conclusion, the High Court partially allowed the writ petition, directing the Bank to refund the EMD to the petitioner. The Court dismissed the plea for an extension of time for payment and upheld the Bank's decision to cancel the sale. The Court also ruled in favor of the Bank regarding the disclosure of encumbrances in the sale notice, emphasizing the importance of independent inquiries by bidders.