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Authorised Officer, State Bank of India vs. C. Natarajan & Anr.

Civil Appeal · 2023 INSC 341Decided 10 Apr 2023
Civil Appeal No. 2545 of 2023
S. Ravindra Bhat · Dipankar Datta

Background

A company (Stallion Knitwear) defaulted on its loan from the State Bank of India, and the Bank's Authorised Officer took possession of its pledged machinery and put it up for e-auction under the SARFAESI Act. The respondent won the auction with a bid of about Rs. 1.23 crore and paid 25% of the price (Rs. 30.75 lakh) immediately, agreeing to pay the remaining 75% within two weeks. He failed to pay by the deadline, was granted a short extension, but still could not arrange the funds: partly because the borrower had meanwhile gone to the Debt Recovery Tribunal (DRT) seeking to stop the sale. The Bank cancelled the sale and forfeited his 25% deposit. The respondent then went to the Madras High Court seeking a refund of the forfeited amount, and the High Court ruled in his favour, prompting the Bank to appeal.

Decision Breakdown

The Supreme Court held that the forfeiture of the 25% deposit was validly authorised under the Security Interest (Enforcement) Rules framed under the SARFAESI Act, which specifically provide for forfeiture when a successful bidder fails to pay the balance sale price in time, and that an auction-purchaser who bids with open eyes takes on the risk of losing this deposit if he defaults, regardless of whether his default was due to his own inability to pay or complications from parallel litigation by the borrower. On the separate question of whether the Bank was unjustly enriched by keeping the forfeited money without actually suffering a loss, the Court held that forfeiture under a valid statutory rule, aimed at protecting public money lent by a public sector bank, is not "unjust enrichment" merely because the Bank cannot point to a matching loss. Courts exercising writ jurisdiction should not use equitable sympathy to override a clear statutory consequence, especially to favour a private bidder's interest over the public interest in loan recovery. The High Court's order directing a refund was set aside and the Bank's appeal was allowed, with the Court also noting that the writ petition itself was arguably not maintainable given the availability of an alternative remedy under Section 17 of the SARFAESI Act.

Lesson Learnt

If you bid in a bank e-auction and fail to pay the balance amount on time, you can lose your deposit even if the delay partly resulted from someone else's court case, because forfeiture rules under laws like SARFAESI exist to protect public money and are enforced regardless of individual hardship or the Bank's own actual loss.

Official source (sci.gov.in)View Judgment (PDF)

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