# The Authorised Officer, Central Bank of India v. Shanmugavelu

- **Citation:** 2024 INSC 80
- **Court:** Supreme Court of India
- **Decided:** 2024-02-02
- **Case number:** Civil Appeal Nos.235-236 of 2024
- **Bench:** Dr Dhananjaya Y Chandrachud, J B Pardiwala, Manoj Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-authorised-officer-central-bank-of-india-v-shanmugavelu-37512
- **Pages:** 79

## Headnote

(i)Whether, the underlying principle of Section(s) 73 & 74 respectively
of the Contract Act, 1872 Act is applicable to forfeiture of earnestmoney deposit under Rule 9(5) of the SARFAESI Rules. In other
words, whether the forfeiture of the earnest-money deposit under
Rule 9(5) of the SARFAESI Rules can be only to the extent of
loss or damages incurred by the Bank; (ii) Whether, the forfeiture
of the entire amount towards the earnest-money deposit under
Rule 9(5) of the Rules amounts to unjust enrichment. In other
words, whether the quantum of forfeiture under the SARFAESI
Rule is limited to the extent of debt owed; (iii) Whether a case of
exceptionable circumstances could be said to have been made
out by the respondent to set aside the order of forfeiture of the
earnest money deposit.
Headnotes
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Security Interest
(Enforcement) Rules, 2002 - Contract Act, 1872 - ss. 73 and
74 - Whether, the underlying principle of Section(s) 73 & 74
respectively of the Contract Act, 1872 Act is applicable to
forfeiture of earnest-money deposit under Rule 9(5) of the
SARFAESI Rules:
Held: The SARFAESI Act is a special legislation with an overriding
effect on the general law, and only those legislations which are either
specifically mentioned in Section 37 or deal with securitization will
apply in addition to the SARFAESI Act - Being so, the underlying
principle envisaged under Section(s) 73 & 74 of the 1872 Act which
is a general law will have no application, when it comes to the
SARFAESI Act more particularly the forfeiture of earnest-money
deposit which has been statutorily provided under Rule 9(5) of the
[2024] 2 S.C.R.
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The Authorised Officer, Central Bank of India v. Shanmugavelu
SARFAESI Rules as a consequence of the auction purchaser's
failure to deposit the balance amount - The forfeiture can be justified
if the terms of the contract are clear and explicit - If it is found that
the earnest money was paid in accordance with the terms of the
tender for the due performance of the contract by the Promisee,
the same can be forfeited in case of non-performance by him or
her - Since, the forfeiture under Rule 9(5) of the SARFAESI Rules
is also taking place pursuant to the terms & conditions of a public
auction - Suffice to say, Section(s) 73 and 74 of the 1872 Act will
have no application whatsoever, when it comes to forfeiture of the
earnest-money deposit under Rule 9 sub-rule (5) of the SARFAESI
Rules. [Paras 68, 89, 91]
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Security Interest
(Enforcement) Rules, 2002 - Contract Act, 1872 - The High
Court held that forfeiture of the entire deposit u/r. 9 subrule (5) of the SARFAESI Rules by the appellant bank after
having recovered its dues from the subsequent sale amounts
to unjust enrichment - Whether, the forfeiture of the entire
amount towards the earnest-money deposit under Rule 9(5)
of the Rules amounts to unjust enrichment:
Held: The consequence of forfeiture of 25% of the deposit under
Rule 9(5) of the SARFAESI Rules is a legal consequence that has
been statutorily provided in the event of default in payment of the
balance amount - The consequence envisaged under Rule 9(5)
follows irrespective of whether a subsequent sale takes place at a
higher price or not, and this forfeiture is not subject to any recovery
already made or to the extent of the debt owed - In such cases,
no extent of equity can either substitute or dilute the statutory
consequence of forfeiture of 25% of deposit under Rule 9(5) of
the SARFAESI Rules - The High Court erred in law by holding
that forfeiture of the entire deposit under Rule 9 sub-rule (5) of
the SARFAESI Rules by the appellant bank after having already
recovered its dues from the subsequent sale amounts to unjust
enrichment. [Paras 111, 113]
Securitization and Reconstruction of Financial Assets and
Enfor

## Text

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* Author
[2024] 2 S.C.R. 12 : 2024 INSC 80
The Authorised Officer, Central Bank of India
v.
Shanmugavelu
(Civil Appeal No(s). 235-236 of 2024)
02 February 2024
[Dr Dhananjaya Y Chandrachud, CJI, J B Pardiwala,*
Manoj Misra, JJ.]
Issue for Consideration
(i)Whether, the underlying principle of Section(s) 73 & 74 respectively
of the Contract Act, 1872 Act is applicable to forfeiture of earnestmoney deposit under Rule 9(5) of the SARFAESI Rules. In other
words, whether the forfeiture of the earnest-money deposit under
Rule 9(5) of the SARFAESI Rules can be only to the extent of
loss or damages incurred by the Bank; (ii) Whether, the forfeiture
of the entire amount towards the earnest-money deposit under
Rule 9(5) of the Rules amounts to unjust enrichment. In other
words, whether the quantum of forfeiture under the SARFAESI
Rule is limited to the extent of debt owed; (iii) Whether a case of
exceptionable circumstances could be said to have been made
out by the respondent to set aside the order of forfeiture of the
earnest money deposit.
Headnotes
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Security Interest
(Enforcement) Rules, 2002 - Contract Act, 1872 - ss. 73 and
74 - Whether, the underlying principle of Section(s) 73 & 74
respectively of the Contract Act, 1872 Act is applicable to
forfeiture of earnest-money deposit under Rule 9(5) of the
SARFAESI Rules:
Held: The SARFAESI Act is a special legislation with an overriding
effect on the general law, and only those legislations which are either
specifically mentioned in Section 37 or deal with securitization will
apply in addition to the SARFAESI Act - Being so, the underlying
principle envisaged under Section(s) 73 & 74 of the 1872 Act which
is a general law will have no application, when it comes to the
SARFAESI Act more particularly the forfeiture of earnest-money
deposit which has been statutorily provided under Rule 9(5) of the
[2024] 2 S.C.R.
13
The Authorised Officer, Central Bank of India v. Shanmugavelu
SARFAESI Rules as a consequence of the auction purchaser's
failure to deposit the balance amount - The forfeiture can be justified
if the terms of the contract are clear and explicit - If it is found that
the earnest money was paid in accordance with the terms of the
tender for the due performance of the contract by the Promisee,
the same can be forfeited in case of non-performance by him or
her - Since, the forfeiture under Rule 9(5) of the SARFAESI Rules
is also taking place pursuant to the terms & conditions of a public
auction - Suffice to say, Section(s) 73 and 74 of the 1872 Act will
have no application whatsoever, when it comes to forfeiture of the
earnest-money deposit under Rule 9 sub-rule (5) of the SARFAESI
Rules. [Paras 68, 89, 91]
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Security Interest
(Enforcement) Rules, 2002 - Contract Act, 1872 - The High
Court held that forfeiture of the entire deposit u/r. 9 subrule (5) of the SARFAESI Rules by the appellant bank after
having recovered its dues from the subsequent sale amounts
to unjust enrichment - Whether, the forfeiture of the entire
amount towards the earnest-money deposit under Rule 9(5)
of the Rules amounts to unjust enrichment:
Held: The consequence of forfeiture of 25% of the deposit under
Rule 9(5) of the SARFAESI Rules is a legal consequence that has
been statutorily provided in the event of default in payment of the
balance amount - The consequence envisaged under Rule 9(5)
follows irrespective of whether a subsequent sale takes place at a
higher price or not, and this forfeiture is not subject to any recovery
already made or to the extent of the debt owed - In such cases,
no extent of equity can either substitute or dilute the statutory
consequence of forfeiture of 25% of deposit under Rule 9(5) of
the SARFAESI Rules - The High Court erred in law by holding
that forfeiture of the entire deposit under Rule 9 sub-rule (5) of
the SARFAESI Rules by the appellant bank after having already
recovered its dues from the subsequent sale amounts to unjust
enrichment. [Paras 111, 113]
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Security Interest
(Enforcement) Rules, 2002 - Contract Act, 1872 - Whether a
case of exceptionable circumstances could be said to have
been made out by the respondent to set aside the order of
forfeiture of the earnest money deposit:
14
[2024] 2 S.C.R.
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Held: Where extraneous conditions exist that might have led to the
inability of the successful auction purchaser despite best efforts
from depositing the balance amount to no fault of its own, in such
cases the earnest-money deposited by such innocent successful
auction purchaser could certainly be asked to be refunded - In the
instant case, it is the respondent's case that he was unable to make
the balance payment owing to the advent of the demonetization -
The same led to a delay in raising the necessary finance - It has
been pleaded by the respondent that the appellant bank failed to
provide certain documents to him in time as a result of which he
was not able to secure a term loan - However, the aforesaid by no
stretch can be said to be an exceptional circumstance warranting
judicial interference - Because demonetization had occurred much
before the e-auction was conducted by the appellant bank - As
regards the requisition of documents, the sale was confirmed on
07.12.2016, and the respondent first requested for the documents
only on 20.12.2016, and the said documents were provided to
him by the appellant within a month's time i.e., on 21.01.2017 - It
may also not be out of place to mention that the respondent was
granted an extension of 90-days' time period to make the balance
payment, and was specifically reminded that no further extension
would be granted, in-spite of this the respondent failed to make the
balance payment - The e-auction notice inviting bids along with the
correspondence between the appellant bank and the respondent
are unambiguous and clearly spelt out the consequences of not
paying the balance amount within the specified period. [Paras
117, 118, 119, 120]
Doctrines/Principles - Principle of 'Reading-Down' a provision:
Held: The principle of "reading down" a provision refers to a legal
interpretation approach where a court, while examining the validity
of a statute, attempts to give a narrowed or restricted meaning to
a particular provision in order to uphold its constitutionality - This
principle is rooted in the idea that courts should make every effort
to preserve the validity of legislation and should only declare a law
invalid as a last resort - When a court encounters a provision that,
if interpreted according to its plain and literal meaning, might lead
to constitutional or legal issues, the court may opt to read down the
provision -Reading down involves construing the language of the
provision in a manner that limits its scope or application, making
it consistent with constitutional or legal principles - The rationale
[2024] 2 S.C.R.
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The Authorised Officer, Central Bank of India v. Shanmugavelu
behind the principle of reading down is to avoid striking down an
entire legislation - Courts generally prefer to preserve the intent
of the legislature and the overall validity of a law by adopting an
interpretation that addresses the specific constitutional concerns
without invalidating the entire statute. [Paras 93, 94, 95]
Security Interest (Enforcement) Rules, 2002 - Rule 9 sub-rule
(5) - Harshness of a provision is no reason to read down the
same:
Held: Harshness of a provision is no reason to read down the
same, if its plain meaning is unambiguous and perfectly valid - A
law/rule should be beneficial in the sense that it should suppress
the mischief and advance the remedy - The harsh consequence of
forfeiture of the entire earnest-money deposit has been consciously
incorporated by the legislature in Rule 9(5) of the SARFAESI
Rules so as to sub-serve the larger object of the SARFAESI Act
of timely resolving the bad debts of the country - The idea behind
prescribing such a harsh consequence is not illusory, it is to attach
a legal sanctity to an auction process once conducted under the
SARFAESI Act from ultimately getting concluded - Any dilution of
the forfeiture provided under Rule 9(5) of the SARFAESI Rules
would result in the entire auction process under the SARFAESI
Act being set at naught by mischievous auction purchaser(s)
through sham bids, thereby undermining the overall object of the
SARFAESI Act of promoting financial stability, reducing NPAs and
fostering a more efficient and streamlined mechanism for recovery
of bad debts. [Paras 101 and 102]
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - Legislative History
and scheme - Discussed.
Case Law Cited
Fateh Chand v. Balkishan Dass, [1964] SCR 515 : AIR
1963 SC 1405 - followed.
Madras Petrochem Ltd. & Anr. v. Board for Industrial
and Financial Reconstruction & Ors., [2016] 11 SCR
419 : (2016) 4 SCC 1; Karsandas H. Thacker v. M/s.
The Saran Engineering Co. Ltd., AIR 1965 SC 1981;
K. P. Subbarama Sastri and others v. K. S. Raghavan
& Ors., [1987] 2 SCR 767 : (1987) 2 SCC 424; Rakesh
16
[2024] 2 S.C.R.
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Birani (Dead) through LRs v. Prem Narain Sehgal &
Anr., [2018] 3 SCR 750 : (2018) 5 SCC 543; Agarwal
Tracom Private Limited v. Punjab National Bank & Ors.,
[2017] 11 SCR 164 : (2018) 1 SCC 626; Celir LLP. v.
Bafna Motors (Mumbai) Pvt. Ltd. & Ors., 2023 SCC
OnLine SC 1209; R.S. Joshi, Sales Tax Officer, Gujarat
& Ors. v. Ajit Mills Limited & Anr., [1978] 1 SCR 338 :
(1977) 4 SCC 98; Maula Bux v. Union of India, [1970] 1
SCR 928 : 1969 (2) SCC 554; Kailash Nath Associates
v. Delhi Development Authority & Anr., [2015] 1 SCR
627 : (2015) 4 SCC 136; B.R. Enterprises v. State of
U.P. & Ors., [1999] 2 SCR 1111 : (1999) 9 SCC 700;
Calcutta Gujarati Education Society & Anr. v. Calcutta
Municipal Corpn. & Ors., [2003] 2 Suppl. SCR 915 :
(2003) 10 SCC 533; Sahakari Khand Udyog Mandal
Ltd. v. Commissioner of Central Excise & Customs,
[2005] 2 SCR 606 : (2005) 3 SCC 738; National Spot
Exchange Ltd. v. Anil Kohli, Resolution Professional for
Dunar Foods Ltd., [2021] 7 SCR 1024 : (2022) 11 SCC
761; Alisha Khan v. Indian Bank (Allahabad Bank) &
Ors, 2021 SCC OnLine SC 3340; Authorized Officer
State Bank of India v. C. Natarajan, [2023] 5 SCR 1067:
2023 SCC Online SC 510 - relied on.
Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.,
[2004] 3 SCR 982 : (2004) 4 SCC 311; United Bank
of India v. Satyawati Tondon & Ors., [2010] 9 SCR 1 :
(2010) 8 SCC 110; Satish Batra v. Sudhir Rawal, [2012]
9 SCR 662 : (2013) 1 SCC 345; Videocon Properties
Ltd. v. Dr. Bhalchandra Laboratories & Ors., [2003] 6
Suppl. SCR 1197 : (2004) 3 SCC 711; Shree Hanuman
Cotton Mills & Ors. v. Tata Air Craft Limited, [1970]
3 SCR 127 : (1969) 3 SCC 522; Delhi Development
Authority v. Grihshapana Cooperative Group Housing
Society Ltd., [1995] 2 SCR 115 : 1995 Supp (1) SCC
751; V. Lakshmanan v. B.R. Mangalagiri & Ors., 1995
Supp (2) SCC 33; HUDA v. Kewal Krishnan Goel, [1996]
2 Suppl. SCR 587 : 1996 (4) SCC 249 - referred to.
Dinanath Damodar Kale v. Malvi Mody Ranchhoddas
and Co., AIR 1930 Bom 213 - referred to.
[2024] 2 S.C.R.
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The Authorised Officer, Central Bank of India v. Shanmugavelu
Hadley & Anr. v. Baxendale & Ors., (1843-60) ALL E.R.
Rep. 461; Victoria Laundry (Windsor) Ltd v. Newman
Industrial Ltd., [1949] 2 K.B. 528; Kunwar Chiranjit
Singh v. Har Swarup, (1926) 23 LW 172; Vide Howe
v. Smith, (1884) 27 Ch.D. 89; Stockloser v. Johnson,
(1954) 1 All. E.R. 630 - referred to.
Books and Periodicals Cited
Treatise on the Law of Sale of Personal Property by
Benjamin, 1950, 8th Edition at page 946; Halsbury's
Laws of England, third edition, volume XXXIV, page
118; G. C. Cheshire and C.H.S. Fifoot on the Law of
Contracts (fifth edition) at pages 496- 497.
List of Acts
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002; Security Interest
(Enforcement) Rules, 2002; Contract Act, 1872.
List of Keywords
Simple mortgage; Default in payment; e-auction notice; Secured
asset; Public auction; Auction purchaser; Failure in remitting balance
amount; Cancellation of sale; Forfeiture under the SARFAESI
Rules; Secured creditor; Earnest money; Law on forfeiture of
earnest money; Principle of 'Reading-Down'; Unjust enrichment;
Compensation for loss or damage caused by breach of contract.
Case Arising From
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.235-236 of
2024.
From the Judgment and Order dated 27.10.2021 of the High Court
of Judicature at Madras in CRP Nos.1892 and 2282 of 2021.
Appearances for Parties
Dhruv Mehta, Sr. Adv., Amit K. Nain, PBA Srinivasan, Keith Verghese,
V. Aravind, Ms. Srishti Bansal, Sumit Swami, Ms. Pooja Kumari,
Advs. for the Appellant.
Dr. S. Muralidhar, Sr. Adv., S. Sethuraman, M. A. Karthik, Ms. Aswathi
M. K., Advs. for the Respondents.
18
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Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
For the convenience of exposition, this judgment is divided in the
following parts:-
INDEX*
A.
FACTUAL MATRIX.................................................................3
B.
IMPUGNED ORDER.............................................................13
C.
SUBMISSIONS OF THE APPELLANT................................17
D.
SUBMISSIONS OF THE RESPONDENT.............................18
E.
ANALYSIS (Points for Determination)...............................19
i)
Legislative History and Scheme of the
SARFAESI Act..............................................................20
ii)
Applicability of Section(s) 73 & 74 of the 1872
Act to Forfeiture under the SARFAESI Rules..........32
a.
Forfeiture under the SARFAESI Rules.................44
b.
Concept of Earnest-Money & Law on
Forfeiture of Earnest-Money Deposit....................49
c.
Law on the principle of
'Reading-Down' a provision..................................66
iii)
Whether, the forfeiture of the entire
earnest-money deposit amounts to Unjust
Enrichment?................................................................73
iv)
Whether Exceptional Circumstances exist
to set aside the forfeiture of the earnest
money deposit?...........................................................77
F.
CONCLUSION......................................................................81
* Ed. Note : Pagination is as per the original judgment.
[2024] 2 S.C.R.
19
The Authorised Officer, Central Bank of India v. Shanmugavelu
1.
Since the issues raised in both the captioned appeals are the same,
the parties are also the same and the challenge is also to the selfsame judgment and order passed by the High Court, those were
taken up for hearing analogously and are being disposed of by this
common judgment and order.
2.
For the sake of convenience, the appellant shall hereinafter be referred
to as the Bank being the Secured Creditor, and the respondent shall
hereinafter be referred to as the original Auction-Purchaser.
3.
These appeals are at the instance of a Nationalized Bank and are
directed against the common judgment and order dated 27.10.2021
passed by the High Court of judicature at Madras in C.R.P No(s).
1892 & 2282 respectively of 2021 ("Impugned Order") by which the
High Court allowed the respondent's writ petition and held that the
forfeiture of the earnest money deposit by the appellant bank could
only be to the extent of the loss suffered by it.
A.
FACTUAL MATRIX
4.
It appears from the materials on record that the appellant bank
herein had sanctioned credit facilities to one 'Best and Crompton
Engineering Projects' against a parcel of land admeasuring 10581
sq.ft. (approx.) with superstructures situated in Survey Nos. 60 and
65/2, Block 6, Alandur village, Mambalam-Guindy, Chennai (for short
the, "Secured Asset") as security interest in the form of a simple
mortgage in lieu of the sanctioned credit. Sometime thereafter the
said borrowers defaulted and the said loan account was classified as
a non-performing asset ("NPA") by the appellant bank on 28.05.2013.
5.
In order to recover its dues, the appellant bank took measures
under the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short, the "SARFAESI
Act"), more particularly under Section 13(4) by taking over the
possession of the Secured Asset and putting the same for sale by
way of public auction.
6.
Accordingly, on 24.10.2016 an e-auction notice for the sale of the
Secured Asset at a reserve price of Rs. 9,62,00,000/- came to be
issued by the appellant bank, with the following terms and conditions: -
20
[2024] 2 S.C.R.
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"TERMS & CONDITIONS
1.
The e-Auction is being held on "AS IS WHERE IS" and "AS IS
WHAT IS" basis and "NO COMPLAINT" condition.
2.
The auction sale will be Online E-Auction/Bidding through
website https://www.bankeauctions.com on 07-12-2016 from
11.00 a.m. to 12. Noon
3.
Intending bidders shall hold a valid Digital Signature Certificate,
e-mail address and PAN number. For details with regard to
Digital Signature Certificate please contact M/s C1 India Pvt.
Ltd., E-Mail ID: support@bankeauctions.com or shankar.
ganesh@c1india.com
4.
Bidders are required to go through the website https://www.
bankeauctions.com for detailed terms and conditions of auction
sale before submitting their bids and taking part in the e- Auction
sale proceedings.
5.
To the best of knowledge and information of the Authorized
Officer, there is no encumbrance on property affecting the
security interest. However, the intending bidders should make
their own independent inquiries regarding the encumbrances,
title of property put on auction and claims / rights / dues
affecting the property, prior to submitting their bid. The e-Auction
advertisement does not constitute and will not be deemed to
constitute any commitment or any representation of the bank.
The property is being sold with all the existing and future
encumbrances whether known or unknown to the bank. The
Authorized Officer / Secured Creditor shall not be responsible
in any way for any third party claims / rights / dues.
6.
It shall be the responsibility of the bidders to inspect and
satisfy themselves about the asset and specification before
submitting the bid. The inspection of property put on auction
will be permitted to interested bidders at site on 23-11-2016
from 10.00 a.m. to 5.00 p.m.
7.
The above mentioned amount should be remitted towards EMD
through RTGS/NEFT to Account No. 3227870680 of Central
Bank of India, CFB, Chennai 600008 IFSC Code CBIN0283507.
Cheques or demand draft shall not be accepted as EMD amount.
[2024] 2 S.C.R.
21
The Authorised Officer, Central Bank of India v. Shanmugavelu
8.
Prospective bidders are advised to obtain user id and password
which are mandatory for bidding in the above e-auction from M/s
C1India Pvt. Ltd., helpline 01244302020/2021/2022/2023/2024
E - m a i l s u p p o r t @ b a n k e r a u c t i o n s . c o m o r K . N .
SHRINATH-9840446485. Passwords will be allotted only to
those bidders who fulfil all the terms and conditions of e-auction
and have deposited the requisite EMD. And for further property
related query you may contact Mr. G.S. Prasad, Chief Manager,
Central Bank of India, CFB, Chennai Tel. No. 044-42625259
Mobile 9962029300 e-mail ID: bmchen3507@centralbank.co.in
during officer hours i.e. 10 AM to 5 PM during the working days.
9.
After Registration by the bidder in the Web-Portal, the intending
bidder / purchaser is required to get the copies of the following
documents uploaded in the Web Portal before last date of
submission of the bid viz. i) Copy of the NEFT/RTGS Challan;
ii) Copy of PAN Card; iii) Proof of Identification (KYC) viz. selfattested copy of Voter ID Card / Driving License / Passport etc.
iv) Copy of proof of address; without which the bid is liable to
be rejected.
10. The interested bidders, who have submitted their bid not below
the Reserve price through online mode before 4.00 p.m. on
05-12-2016 shall be eligible for participating in the e-bidding
process. The e-Auction of above properties would be conducted
exactly on the scheduled Date & Time as mentioned against
each property by way of inter-se bidding amongst the bidders.
The bidder shall improve their offer in multiple of the amount
mentioned under the column "Bid Increase Amount". In case
bid is placed in the last 5 minutes of the closing time of the
e-Auction, the closing time will automatically get extended for
3 minutes (subject to maximum of unlimited extensions of 3
minutes each). The bidder who submits the highest bid amount
(not below the Reserve Price) on closure of e-Auction process
shall be declared as Successful Bidder and a communication
to that effect will be issued which shall be subject to approval
by the Authorized Officer/Secured Creditor.
11. The Earnest Money Deposit (EMD) of the successful bidder
shall be retained towards part sale consideration and the EMD
of unsuccessful bidders shall be refunded. The Earnest Money
Deposit shall not bear any interest. The successful bidder shall
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have to deposit 25% of the auction price less the EMD already
paid, within 24 hours of the acceptance of bid price by the
Authorized Officer and the balance 75% of the sale price on
or before 15th day of sale or within such extended period as
agreed upon in writing by and solely at the discretion of the
Authorized Officer. If any such extension is allowed, the amount
deposited by the successful bidder shall not carry any interest.
In case of default in payment by the highest and successful
bidder, the amount already deposited by the bidder shall be
liable to be forfeited and property shall be put to re-auction
and the defaulting bidder shall have no claim / right in respect
of property/amount.
12. The authorized Officer is not bound to accept the highest offer
and the authorized officer has absolute right to accept or reject
any or all offer(s) or adjourn / postpone / cancel the e-auction
without assigning any reasons thereof. ..."
7.
Pursuant to the same, the e-auction was conducted on 07.12.2016
and a total of four bids were received wherein the respondent also
participated and submitted its bid to the tune of Rs. 12,27,00,000/-.
The respondent's bid was found to be the highest and was classified
as H1 and accordingly, the respondent was declared as the successful
auction purchaser.
8.
Pursuant to the aforesaid, the respondent on the same day deposited
25% of the bid amount i.e., Rs. 3,06,75,000/- as the earnest money
deposit upon which, the appellant confirmed the sale of the Secured
Asset in favour of the respondent vide its letter dated 07.12.2016
which inter-alia stipulated that in the event of default in payment of
the balance amount, the sale shall be liable to be cancelled and the
earnest money would be forfeited. The said sale confirmation letter
is being reproduced below: -
"CFB/CHEN/2016-17/685
December 7, 2016
Mr. R Shanmugavelu
Managing Director
M/s Sunbright Designers Private Limited
Module No - 4, Readymade Garment Complex
SIDCO Industrial Estate, Guindy
Chennai-600032
[2024] 2 S.C.R.
23
The Authorised Officer, Central Bank of India v. Shanmugavelu
Sir,
Reg: Recovery Proceedings under the provision of SARFAESI
Act 2002 in our borrowal account M/s Best & Crompton
Engineering Projects Limited - E Auction of property held on
07/12/2016.
We have to inform you that in the E auction held on 07/12/2016
pursuant to the E-auction sale notice dated 24/10/2016 issued by
the Authorized Officer. In respect of Schedule property covered
in the E auction sale notice i.e.,
Lot no. 1: Property belonging to M/s Futuretech Industries Ltd.
presently known as Candid Industries Ltd. All that piece and
parcel of the immovable property being industrial land together
with the superstructure/shed standing thereon admeasuring
10581 sq. ft. or thereabouts comprised in survey nos. 60 part
and 65/2, Block no. 6, Alandur village, Mambalam-Guindy Taluk,
sub-registration district Alandur, registration district Chennai
South presently situated at plot no. A-19, Thiru Vi Ka Industrial
Estate, South by: Plot no. A-18, Thiru Vi Ka Industrial Estate
East by: 80 feet Road, West by: Service Road.
You have been declared as successful bidder at the sale price
of Rs. 12,27,00,000/- (Rupees Twelve Crore Twenty Seven
Lac only). You are now required to remit as per E auction
Sale notice 25% of the sale price less Earnest Money Deposit
amount already remitted by you i.e., Rs. 3,06,75,000/- minus
EMD remitted Rs. 96,20,000/- = Rs. 2,10,55,000/- (Rupees
Two Crore Ten Lac Fifty Five Thousand only) by RTGS/NEFT
to the same account number to which you have remitted the
Earnest Money Deposit within 24 hours of acceptance of bid.
The balance amount amounting to Rs. 9,20,25,000/- (Rupees
Nine Crore Twenty Lac Twenty Five Thousand Only) is to be
remitted by you by RTGS to the same account number on or
before 15 days from today; failing which the sale is liable to be
cancelled and the EMD will be forfeited.
Please note that the E Auction sale has been conducted strictly
as per the terms and conditions spelt out in the E Auction notice
dated 24/10/2016.
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[2024] 2 S.C.R.
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Thanking You
Yours sincerely,
Sd/-
AUTHORIZED OFFICER"
9.
The respondent vide its email dated 19.12.2016, requested the
appellant bank for grant of extension of three-months' time for the
payment of the balance amount on the ground that its term-loan
was still under-process.
10. The appellant bank vide its letter dated 20.12.2016, acceded to
the request of the respondent and granted a further extension of
three-months' time i.e., till 07.03.2017 in terms of Rule 9(4) of the
Security Interest (Enforcement) Rules, 2002 (for short, the "SARFAESI
Rules"). The said letter also stated that no further extension of time
shall be granted and in the event the respondent fails to pay the
balance amount, the sale shall be cancelled and the amount already
paid shall be forfeited. The said letter is being reproduced below: -
"CFB/CHEN/2016-17/718
December 20, 2016
Mr. R Shanmugavelu
Managing Director
M/s Sunbright Designers Private Limited
Module No - 4, Readymade Garment Complex
SIDCO Industrial Estate, Guindy
Chennai-600032
Sir,
Reg: Recovery Proceedings under the provision of SARFAESI
Act 2002 in the account M/s Best & Crompton Engineering
Projects Limited - E Auction of property held on 07/12/2016.
We may once again inform you that in the E auction held
on 07/12/2016 pursuant to the E-auction sale notice dated
24/10/2016 issued by the Authorized Officer in respect of
Schedule property covered in the E auction sale notice i.e.,
Property belonging to M/s Futuretech Industries Ltd. presently
known as Candid Industries Ltd. Al that piece and parcel of
the immovable property being industrial land together with the
superstructure/shed standing thereon admeasuring 10581 sq.
[2024] 2 S.C.R.
25
The Authorised Officer, Central Bank of India v. Shanmugavelu
ft. or thereabouts comprised in survey nos. 60 part and 65/2
part, Block no. 6, Alandur village, Mambalam-Guindy Taluk, subregistration district Alandur, registration district Chennai South
presently situated at plot no. A-19, Thiru Vi Ka Industrial Estate,
South by: Plot no. A-18, Thiru Vi Ka Industrial Estate East by:
80 feet Road, West by: Service Road, you have been declared
as successful bidder at the sale price of Rs. 12,27,00,000/-
(Rupees Twelve Crore Twenty Seven Lac only).
You had remitted Rs. 2,10,55,000/- (Rupees Two Crore Ten Lac
Fifty Five Thousand only) as per E auction Sale notice 25%
of the sale price less Earnest Money Deposit amount already
remitted by you (i.e., Rs. 3,06,75,000/- minus Rs.96,20,000/-)
on 08/12/2016 as per the bid terms.
The balance amount amounting to Rs. 9,20,25,000/- (Rupees
Nine Crore Twenty Lac Twenty Five Thousand Only) was to be
remitted by you before 15 days from the date of bid failing which
the sale is liable to be cancelled and the EMD will be forfeited.
However, you had vide your mail dated 19/12/2016 requested to
give you three (3) months time to pay the balance 75% payment
of the bid amount and also assured that you will honour the
offer in the time frame.
After carefully going through your request, the Authorized
officer hereby permit/ allow you to pay the balance amount of
Rs 9,20,25,000/- (Rupees Nine crore Twenty Lac Twenty Five
Thousand Only) within 90 days from the date of BID. Further
we may also inform you that no further extension of time will
be granted and if you fail to pay the balance sale amount the
sale will be cancelled and the amount already paid will be
forfeited by the Bank.
Thanking You
Yours sincerely,
Sd/-
AUTHORIZED OFFICER"
11. The respondent being unable to pay the balance amount within
the extended period sought an additional 15-days for making the
balance-payment vide its letter dated 06.03.2017.
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[2024] 2 S.C.R.
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12. However, the appellant vide its letter dated 27.03.2017 turned down
the said request for further extension and intimated the respondent that
due to its failure in remitting the balance amount within the stipulated
time, the sale is cancelled and the amount already deposited stands
forfeited. The said sale cancellation letter is being reproduced below: -
"CFB/CHEN/2016-17/919
March 27, 2017
Mr. R. Shanmugavelu
Managing Director
M/s Sunbright Designers Private Limited
Module No.-4, Readymade Garment Complex
SIDCO Industrial Estates, Guindy
Chennai-600032
Sir,
Reg: Recovery Proceedings under the provision of SARFAESI
Act 2002 in the account M/s Best & Crompton Engineering
Projects Limited
Ref: E Auction of property held on 07/12/2016
You were declared as successful bidder at the sale price of Rs.
12,27,00,000/- (Rupees Twelve Crore Twenty Seven Lac only)
in the E auction held on 07/12/2016 pursuant to the E auction
sale notice dated 24/10/2016 issued by the Authorised Officer
in respect of Schedule property covered in the E auction sale
notice i.e., mortgaged property belonging to M/s Futuretech
Industries Ltd presently known as Candid Industries Ltd.
Schedule
All that place and parcel of the immovable property being
industrial land together with the superstructure/shed standing
thereon admeasuring 10581 sq.ft. or thereabouts comprised in
survey nos. 60 part and 65/2 part. Block no. 6, Alandur village,
Mambalam-Guindy Taluk, sub-registration district Alandur,
registration district Chennai South presently situated at plot
no. A-19. Thiru Vi Ka Industrial Estate, South by: Plot no. A-18,
Thiru Vi Ka Industrial Estate, and East by: 80 feet Road, West
by: Service Road.
[2024] 2 S.C.R.
27
The Authorised Officer, Central Bank of India v. Shanmugavelu
You had remitted a total of Rs. 3,06,75,000 towards 25% of the
sale price on (i.e. Rs. 96,20,000 on 7-12-2016 towards EMD
and Rs. 2,10,55,000 on 08/12/2016 as per the terms of the bid.
The balance sale price amount to Rs. 9,20,25,000/- (Rupees
Nine Crore Twenty Lac Twenty Five Thousand only) was to be
remitted by you before 15 days from the date of bid failing which
the sale was liable to be cancelled and the amount deposited
by you had to be forfeited. However, you had vide your mail
dated 19/12/2016 requested to give you three (3) months' time
to pay the balance 75% payment of the bid amount and also
assured that you will honour the offer in the time frame.
After carefully going through your request, the Authorized
officer permitted/allowed you to pay the balance amount of
Rs.9,20,25,000/-( Rupees Nine crore Twenty Lac Twenty Five
Thousand Only) within 90 days from the date of BID vide our
letter No. CFB/CHEN/2016-17/718 dated 20/12/2016. Further
we also informed you that no further extension of time will be
granted and if you fail to pay the balance sale amount the sale
will be cancelled and the amount already paid was liable to be
forfeited by the Bank.
You had again requested for extension of time for another 15
days vide your letter dated 06/03/2017. After going through your
representation/request, we permitted you to remit the balance
of Rs. 9,20,25,000/- (Rupees Nine Crore Twenty Lac Twenty
Five Thousand Only) by 22/03/2017 thereby giving three months
time from the 15th day of confirmation of sale as per the Security
Interests (Enforcement) Rules, 2002.
We hereby inform you that as you have failed to remit the balance
amount of Rs. 9,20,25,000/- (Rupees Nine crore Twenty Lac
Twenty Five Thousand Only) by 22/03/2017, the amount of Rs.
3,06,75,000/- which was already paid by you stands forfeited.
This letter issued without prejudice to the bank's rights to bring
the property for fresh auction sale.
Thanking you
Yours sincerely,
Sd/-
AUTHORISED OFFICER"
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[2024] 2 S.C.R.
Digital Supreme Court Reports
13. Despite the aforesaid letter, the respondent on 05.04.2017 addressed
one another letter to the appellant seeking further extension of 90
days for making the balance sale payment by enclosing a cheque
of Rs.50,00,000/- to show its bona fides. However, the appellant
returned the cheque and declined the said request vide its letter
dated 06.04.2017.
14. Aggrieved by the aforesaid, the respondent filed an application being
SA No. 143 of 2018 before the Debts Recovery Tribunal-II ("DRT")
assailing the appellant's sale cancellation and forfeiture letters dated
27.03.2017 and 06.04.2017 respectively.
15. During the pendency of the proceedings before the DRT as aforesaid
a fresh auction of the Secured Asset was conducted by the appellant
bank on 13.03.2019, and it appears that pursuant to the same the
sale was completed at an enhanced price of Rs. 14.76 crore i.e.,
more than the price fetched in the previous auction.
16. The DRT-II vide its order dated 06.05.2019 allowed the application
being SA No. 143 of 2018 and directed the appellant bank to refund
the earnest money deposited by the respondent after deducting a
sum of Rs. 5,00,000/- towards the expenditure incurred. The DRT-II
in its order observed that the respondent had requested the appellant
bank to provide certain documents required for the grant of term loan
which was not provided, as a result of which the term loan was not
granted and the respondent failed to remit the balance amount. It
further observed that as the Secured Asset had been sold for an
amount higher than the initial bid, no loss was caused to the appellant.
17. The aforesaid order was challenged by the appellant before the Debt
Recovery Appellate Tribunal, Chennai ("DRAT") by way of RA(SA)
No. 119 of 2019. The DRAT vide its order dated 30.07.2021 observed
that the secured creditor was not entitled to forfeit the entire amount
deposited, but partly allowed the appeal and enhanced the forfeiture
from Rs. 5 Lac to Rs. 55 Lac.
B.
IMPUGNED ORDER
18. Aggrieved with the aforesaid, both the appellant and the respondent
approached the High Court of judicature at Madras by way of
C.R.P. No(s). 1892 & 2282 of 2021 respectively, assailing the
order dated 30.07.2021 passed by the DRAT, Chennai, wherein
[2024] 2 S.C.R.
29
The Authorised Officer, Central Bank of India v. Shanmugavelu
the High Court vide the impugned judgment and final order dated
27.10.2021 allowed the respondent's civil revision petition. The
operative portion is reproduced below: -
"19. For the reasons aforesaid, the enhancement of
the quantum of forfeiture as permitted by the Appellate
Tribunal in the impugned order of July 30, 2021 cannot
be sustained and the same is set aside. The quantum
as awarded by the DRT-II, Chennai in its order of May
06, 2019 is restored and to such extent the order of the
appellate authority is set aside."
19. The impugned judgment of the High Court is in two-parts. In other
words, the High Court allowed the respondent's civil revision petition
setting aside the DRAT's order on two grounds: -
(i)
First, the High Court took the view that the forfeiture of an amount
or deposit by a secured creditor under the SARFAESI Rules
cannot be more than the loss or damage suffered by it. The
High Court held that Rule 9 sub-rule (5) of the SARFAESI Rules
which provides for forfeiture cannot override the underlying ethos
of Section 73 of the Indian Contract Act, 1872 (for short, "the
1872 Act"). The relevant observations are reproduced below: -
"10. Section 74 of the Contract Act, 1872 provides for
compensation for breach of contract where the penalty is
stipulated. Section 73 of the Contract Act is the general
rule that provides for compensation for loss or damage
caused by breach of contract and Section 74 is where
the quantum is specified. What Section 73 of the Contract
Act mandates is that a party who suffers as a result of
a breach committed by the other party to the contract
"is entitled to receive from the party who has broken the
contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of
things from such breach, or which the parties knew, when
they made the contract, to be likely to result from the breach
of it." Any detailed discussion on such provision would
be beyond the scope of the present lis and may require
many more sheets that may be conveniently expended in
the present exercise. Indeed, Section 73 of the Contract
Act is in the nature of a jurisprudential philosophy that is
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[2024] 2 S.C.R.
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accepted as a part of the law in this country. In short, it
implies that only such of the loss or damage suffered by
the party not in breach, may be recovered from the party
in breach, as a consequence of the breach. It is possible
that as a result of the breach, the party not in breach does
not suffer any adverse impact. It is also possible, as in the
present case, that as a consequence of the breach, the
party not in breach obtains a benefit, in such cases, where
no loss or damage has been occasioned to the party not
in breach, such party cannot extract any money merely
on account of such breach, as the entitlement in law to
compensation is not upon the commission of breach, but
only upon any loss or damage suffered as a consequence
thereof. That is elementary.
xxx

xxx

xxx
12. Rule 9(5) of the said Rules of 2002 has to be seen as
an enabling provision that permits forfeiture in principle.
However, such Rule cannot be conferred an exalted status
to override the underlying ethos of Section 73 of the
Contract Act. In other words, Rule 9(5) has to yield to the
principle recognised in Section 73 of the Contract Act or
it must be read down accordingly. Thus, notwithstanding
the wide words used in Rule 9(5) of the said Rules, a
secured creditor may not forfeit any more than the loss
or damage suffered by such creditor as a consequence of
the failure on the part of a bidder to make payment of the
consideration or the balance consideration in terms of the
bid. It is only if such principle as embodied in Section 73 of
the Contract Act, is read into Rule 9(5) of the said Rules,
would there be an appropriate answer to the conundrum
as to whether a colossal default of the entirety of the
consideration or the mere default of one rupee out of the
consideration would result in the identical consequence
of forfeiture as indicated in the provision.
13. In any event, notwithstanding the reference to Section
35 of the Act of 2002, the apparent overriding effect of
the provisions of the Act of 2002 has to be tempered in
the light of Section 37 of the Act. Though Section 37 of
[2024] 2 S.C.R.
31
The Authorised Officer, Central Bank of India v.