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 for an extension of time for payment and upheld the Bank's decision to cancel the sale. Additionally, the Court ruled in favor of the Bank regarding the disclosure of encumbrances in the sale notice, emphasizing the importance of independent inquiries by bidders.

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Issues:
1. Forfeiture of Earnest Money Deposit
2. Extension of Time for Payment
3. Disclosure of Encumbrances in Sale Notice

Forfeiture 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.

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