Ramesh Babu v. Federal Bank Ltd.

W.P(C).No.16975/2022 -1- ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE T.R.RAVI** **THURSDAY, THE 14TH DAY OF SEPTEMBER 2023 / 23TH BHADRA, 1945 WP(C) NO. 16975 OF 2022** ## **PETITIONER:** RAMESH BABU AGED 53 YEARS S/O RAVEENDRAN NAIR, VENGOOR HOUSE, LAHASERRY MURI, CHENGANNUR, CHENGANNUR P.O., ALAPPUZHA DISTRICT. PIN-689121. BY ADV K.N.RADHAKRISHNAN(THIRUVALLA) ## **RESPONDENTS:** 1 FEDERAL BANK LTD. CHENGANNUR BRANCH, REPRESENTED BY MANAGER. 689121. 2 AUTHORISED OFFICER, THE FEDERAL BANK, LTD, LCRD MAVELIKKARA DIVISION, FIRST FLOOR, PADINJARETHALAKAL CHERIYAN CHAMBERS, PUTHIYAKAVU, MAVELIKKARA PIN- 690 101 BY ADVS. SRI SUNIL SHANKER MS.FARHA MATHER K.B. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 22.02.2023, THE COURT ON 14.09.2023 DELIVERED THE FOLLOWING: W.P(C).No.16975/2022 -2- ## **T.R. RAVI, J.** ## **-------------------------------------------W.P.(C)No.16975 of 2022 -------------------------------------------Dated this the 14[th] day of September, 2023** ## **JUDGMENT** The petitioner participated in an e-auction on 17.09.2021 pursuant to a sale notice dated 26.8.2021. As he was the highest bidder, the sale was confirmed in his name for an amount of Rs.86,10,000/-. The petitioner deposited 25% of the purchase amount, including the bid amount, and on 18.9.2021, the respondents wrote to the petitioner asking him to deposit the balance 75% of the purchase amount on or before 03.10.2021, as evidenced by Ext.P1. The petitioner was informed that in case of default, the bank shall have the right to forfeit the deposits made by the petitioner. The petitioner deposited further amounts of Rs.5,00,000/- and Rs.8,00,000/- on 13.10.2021 and 26.10.2021, respectively, by transfer from his A/C.No.17210100052790 of Federal Bank, Kallissery branch. 2. The respondents had initiated proceedings against their debtors for the realisation of amounts due, and in the process, the mortgaged property was brought for sale. Ext.R1(a), produced along with the counter affidavit filed by the respondents, is the W.P(C).No.16975/2022 -3- notice of sale. The notice says that to the knowledge of the respondents, the property was attached by the Family Court, Thiruvalla, on 20.10.2014, and there are no other encumbrances to their knowledge and information. According to the petitioner, it was on the above basis that he participated in the auction. The petitioner submits that on enquiry, he came to know that the property was also attached by the Munsiff’s Court, Chengannur, in O.S.228 of 2019. The petitioner hence sent Ext.P2 letter on 30.9.2021 pointing out the above fact and stating that on enquiry at the office of the Registrar, he was informed that the auction sale could not be registered. On 1.12.2021, the Bank informed the petitioner that they were proceeding to forfeit the entire amount remitted by him. The petitioner, through his lawyer, sent Ext.P4 notice on 6.12.2021 narrating the circumstances and demanding a return of Rs.34,52,500.00/- along with interest. The respondents sent Ext.P5 reply extending the time for payment till 19.12.2021 and informing that if there is failure to pay, the amount in deposit will be forfeited. The writ petition is filed praying for a direction to the respondents to return the amount of Rs.34,52,500/- with interest to the petitioner and for a declaration that the Bank has no right to forfeit the amount. 3. The respondents have filed a counter affidavit contending W.P(C).No.16975/2022 -4- that the right of the petitioner is to approach the Debt Recovery Tribunal under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) and not under Article 226 of the Constitution of India. Reliance is placed on the decision in **Agarwal Tracom Pvt.Ltd. V. Punjab National Bank & Ors.** reported in **[AIR 2017 SC 5562]** . It is stated that as the attachment is dated 20.07.2017 and the equitable mortgage was on 24.06.2015, the attachment cannot have priority. It is stated that the amount was forfeited as per Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, and the SARFAESI Act, 2002. It is further stated that the attachment can be lifted only after the issuance of the sale certificate and not prior to that. 4. The petitioner has filed a reply affidavit. It is contended that the forfeiture without assigning sufficient reason is unjust, and it leads to unjust and unlawful enrichment of the bank. It is the further contention that even if the bank sustains any loss due to the withdrawal of the petitioner from the purchase, the bank is entitled to get only minimum damages. 5. Heard Sri K.N.Radhakrishnan, counsel for the petitioner, and Sri Sunil Shankar, counsel for the respondents. 6. There is no serious dispute regarding the facts. The W.P(C).No.16975/2022 -5- respondents had brought to sale the properties of their debtors for the realisation of a sum of Rs.1,00,56,000/-. The properties were bid for an amount of Rs.86,10,000/- by the petitioner. A sum of Rs.34,52,500/- has been deposited. The sale took place on 17.9.2021. On 30.09.2021, the petitioner informed the respondents by letter that the property had been attached by the Munsiff Court, Chengannur, in O.S.No.228 of 2019, and that this fact was not known to the petitioner. It is also stated that on enquiry, the Office of the Registrar has informed him that so long as the attachment is in force, the sale cannot be registered in the petitioner's favour. When the bank threatened to forfeit, the petitioner demanded a refund of the amount paid. The Bank replied by extending the time for payment and informing that if the amount is not paid, whatever is paid will be forfeited. 7. The counsel for the respondent Bank submitted that the remedy of the petitioner is not to move this Court, but to approach the Debt Recovery Tribunal under Section 17 of the SARFAESI Act since it is a case of forfeiture of the amount deposited towards the auction price. It is also contended that the respondent was entitled to forfeit the amount under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002. 8. The counsel for the petitioner submitted that this is a W.P(C).No.16975/2022 -6- case where there was a failure on the part of the Bank to inform about the attachment prior to the auction. The petitioner came to know about this fact only on enquiry at the Registrar's Office and that too after the auction. It is submitted that forfeiture is in the nature of a penalty, and such penal provision cannot be invoked without any due process. Reliance is placed on the judgment of a learned Single Judge of this Court in W.P.(C)No.6083 of 2015 to submit that mere default will not entail the forfeiture of the amount. In the said case, this Court directed the Bank to release the amount deposited and observed that the retention of the amount would amount to unjust enrichment. The counsel for the petitioner referred to the judgment of the Hon'ble Supreme Court in **Alisha Khan v. Indian Bank (Allahabad Bank) & Ors. (SLP Nos.15959-15960/2021)** , wherein the Hon'ble Supreme Court, while considering a case in which 25% of auction sale consideration had been deposited, and 75% was not deposited due to the pandemic, held that there was no case for the respondents that loss was suffered. In the above circumstances, the Apex Court set aside the order of forfeiture of 25% and directed the return of the amount after deducting Rs.50,000/- towards the expenditure which was required to be incurred by the respondent Bank for conducting the fresh auction. W.P(C).No.16975/2022 -7- 9. In **Mohd. Shariq v. Punjab National Bank & Ors. (Civil Appeal Nos.2724 of 2023 arising out of SLP(C) No.17470 of 2019)** , the Hon'ble Supreme Court considered Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, and held that it cannot be pressed into service as the auction purchaser was not informed regarding the proceedings pending before the DRT at the time of auction or even thereafter. The present case is also one where the auction purchaser was not informed about the existence of an attachment by the civil court over the property, which had been ordered much before the auction sale. In the aforesaid decision, the Hon'ble Supreme Court directed the return of the amount deposited within two months, failing which the amount was to carry interest at the rate of 12% per annum till the date it is made over to the party. The counsel also referred to the decision in **Maya Devi v. Lalta Prasad** reported in **[(2015) 5 SCC 588]** , which was a decision on the question of claim for liquidated damages. In paragraph 25 of the judgment, the Court extracted a passage from Halsbury's Laws of England regarding the difference between liquidated damages and penalty. It is stated therein that the parties to a contract may agree at the time of entering into the contract that, in the event of a breach, the party in default shall pay a stipulated sum of money to the other, and if the sum is a genuine W.P(C).No.16975/2022 -8- pre-estimate of the loss which is likely to flow from the breach, then it represents the agreed damages, called 'liquidated damages' which is recoverable without the necessity of proving the actual loss suffered. The passage also says that if, however, the stipulated sum is not a genuine pre-estimate of the loss but is in the nature of a penalty intended to secure the performance of the contract, then it is not recoverable, and the plaintiff must prove what damages he has suffered. 10. I have considered the principles laid down in the judgments referred to in the light of the facts brought out on record. The petitioner had participated in the auction without knowing about a defect regarding the property, in the sense that there was an attachment by a civil court, which was not revealed in the sale notice. Maybe the Bank also was not aware of such an attachment. The petitioner, immediately on coming to know about the defect, had pointed out the same to the Bank. The Bank, however, demanded the balance payment from the petitioner. It was in these circumstances that the petitioner sought the return of the money deposited. The petitioner cannot be blamed for being wary of the attachment since he was parting with good money. The Bank's right to sell the property for the realisation of the due is also not closed in any manner. Going by the decisions of the Apex W.P(C).No.16975/2022 -9- Court, I am of the opinion that the Bank is not entitled to forfeit the amount since this is not a case where the entire fault for not remitting the balance purchase consideration was that of the auction purchaser. As a matter of fact, the auction purchaser had remitted Rs.34,52,500/-. 11. In the above circumstances, the writ petition is allowed, directing the respondents to return the amount of Rs.34,52,500/after deducting a sum of Rs.30,000/- towards the expenses for the subsequent auction within two months from the date of receipt of a certified copy of this judgment and if the amount is not returned within the above said time, the same will carry interest at the rate of 10% per annum till the payment is effected. Sd/- **T.R. RAVI JUDGE** dsn W.P(C).No.16975/2022 -10- ## **APPENDIX OF WP(C) 16975/2022** PETITIONER EXHIBITS Exhibit P1 THE COPY OF CONFIRMATION LETTER ISSUED BY THE RESPONDENT BANK IN FAVOUR OF THE PETITIONER DATED 18.09.2021. Exhibit P2 THE COPY OF LETTER DATED 30.09.2021 SENT BY THE PETITIONER TO THE SECOND RESPONDENT. Exhibit P3 THE COPY OF COMMUNICATION DATED 01.12.201 ISSUED BY THE SECOND RESPONDENT TO THE PETITIONER. Exhibit P4 THE COPY OF REPLAY NOTICE SENT BY THE PETITIONER TO THE SECOND RESPONDENT DATED 6.12.2021. Exhibit P5 THE COPY OF NOTICE SENT BY THE RESPONDENT BANK DATED 10.12.2021. RESPONDENT EXHIBITS Exhibit R1A TERMS AND CONDITIONS OF AUCTION SALE.