Prospective application of auction-sale amendments and arbitrariness in forfeiture led to quashing of the re-auction notice.

An amendment to Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 was held inapplicable to an auction process already initiated by public notice before the amendment, because statutory changes are ordinarily prospective unless retrospective intent is clear. The Court applied the unamended rule and held that the amended three-month cap on payment of balance sale consideration did not govern the transaction. It also found the secured creditor's forfeiture of the purchaser's deposit and decision to issue a fresh re-auction notice arbitrary, since the purchaser remained willing and able to pay within the extended period and the creditor's financial interest was not prejudiced. The forfeiture and re-auction notice were quashed.

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Issues: (i) Whether the amended Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 governed an auction process commenced before the amendment came into force. (ii) Whether forfeiture of the petitioner's deposited amount and issuance of a fresh re-auction notice were arbitrary.

Issue (i): Whether the amended Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 governed an auction process commenced before the amendment came into force.

Analysis: The auction was set in motion by the public notice issued before the amendment dated 4.11.2016. The amended provision introduced a maximum three-month limit for payment of the balance sale consideration, whereas the unamended rule permitted extension by agreement between the parties without that cap. The governing principle applied was that statutory amendments are ordinarily prospective unless the statute clearly indicates retrospectivity, and a process already commenced must ordinarily be completed under the rules in force when it began.

Conclusion: The auction was governed by the unamended Rule 9(4), and the amended three-month limitation did not apply.

Issue (ii): Whether forfeiture of the petitioner's deposited amount and issuance of a fresh re-auction notice were arbitrary.

Analysis: The petitioner had informed the secured creditor that funds were available and that the balance amount would be paid within the indicated period, yet the secured creditor proceeded to forfeit the deposit and move for re-auction. The Court found that this course did not advance the bank's financial interest because the balance amount could still have been received with interest, while the re-auction itself was fixed only for a later month. The action was held to be unreasonable and discriminatory in the circumstances.

Conclusion: The forfeiture and re-auction notice were arbitrary and violative of Article 14 of the Constitution of India.

Final Conclusion: The writ petition succeeded, the impugned forfeiture and re-auction notice were quashed, and the petitioner was permitted to complete the purchase by making the directed payment within the time granted by the Court.

Ratio Decidendi: A statutory amendment affecting auction-sale payment terms is prospective unless expressly made retrospective, and a secured creditor's forfeiture and re-auction action is unsustainable where the purchaser is still willing and able to complete payment within a reasonable extended period and the creditor's interest is not prejudiced.

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