SARFAESI auction payment schedule is mandatory, but earnest money forfeiture needs express authority in the sale terms or rules.

In a SARFAESI auction, Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 requires the successful bidder to pay 25% of the sale price immediately and the balance within the prescribed time, and that schedule is treated as mandatory. A purchaser who fails to pay the balance within time cannot seek extension contrary to the statutory regime or auction terms. However, forfeiture of the Earnest Money Deposit is sustainable only if the sale notice, sale conditions, or governing rules expressly authorise it; where no such authorisation exists, forfeiture cannot be upheld and refund is required.

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Issues: (i) Whether the successful auction purchaser was entitled to extension of time for payment of the balance sale consideration under the SARFAESI sale process; (ii) Whether forfeiture of the Earnest Money Deposit was sustainable when the sale notice and sale conditions did not provide for such forfeiture.

Issue (i): Whether the successful auction purchaser was entitled to extension of time for payment of the balance sale consideration under the SARFAESI sale process.

Analysis: The auction was conducted under the Security Interest (Enforcement) Rules, 2002. Rule 9(3) requires the successful bidder to deposit 25% of the sale price immediately, and the balance within the prescribed time. The Court treated the statutory schedule as mandatory and held that the purchaser, having failed to make the balance payment within time, could not seek enlargement of time contrary to the statutory regime and the auction terms.

Conclusion: The request for extension of time was rejected.

Issue (ii): Whether forfeiture of the Earnest Money Deposit was sustainable when the sale notice and sale conditions did not provide for such forfeiture.

Analysis: The sale notice disclosed existing encumbrances and placed the responsibility on bidders to conduct their own enquiry. However, the Court found that forfeiture of the Earnest Money Deposit was not specifically provided for in the terms and conditions of sale, and the Rules did not independently authorise such forfeiture on the facts of the case. The Court therefore distinguished the forfeiture component from the failure to pay the balance consideration and held that the impugned order could not be sustained to the extent it directed forfeiture.

Conclusion: The forfeiture of the Earnest Money Deposit was set aside and refund was directed.

Final Conclusion: The writ petition succeeded only to the extent of quashing the forfeiture of the Earnest Money Deposit and directing refund, while the prayer for extension of time and related reliefs was declined.

Ratio Decidendi: In a SARFAESI auction, the statutory payment schedule is mandatory, but forfeiture of the Earnest Money Deposit can be sustained only if it is authorised by the applicable sale terms or governing rules.

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