AUTHORISED OFFICER STATE BANK OF INDIA versus C. NATARAJAN & ANR

AUTHORISED OFFICER STATE BANK OF INDIA

C. NATARAJAN & ANR.

(Civil Appeal No. 2545/2023)

APRIL 10, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 : ss. 13(4), 17 – SecurityInterest (Enforcement) Rules, 2002 – r. 9 – Contract Act – ss. 73, 74– Power of forfeiture by the Authorized Officer – Exercise of –Interference with the forfeiture order by the High Court –Justification of – On facts, default committed by one in dischargingits debts to the Bank and declared as non-performing asset – E-auction held by the Authorized Officer for secured asset of thedefaulter– Respondent declared the highest bidder and paid theearnest money and 25% of the sale price – However, could not paythe balance 75% within the stipulated period and sought extensionof timeand the same was granted – Respondent further soughtextension and the same was rejected– Thereafter, the AuthorizedOfficer cancelled the e-auction sale concluded in favour ofrespondent and forfeited the amount deposited– Respondent appliedbefore the DRT for the extension of time to deposit the balanceamount – DRT directed the Authorized officer to maintain statusquo – In appeal, the DRAT permitted the Authorized Officer toproceed with fresh auction without, however, vacating the order ofstatus quo passed earlier – Writ petition by the respondent seekingrefund of the forfeited amount – Meanwhile, the secured asset wasput up for auction and was sold to another auction-purchaser forthe same amount– High Court directed refund of forfeited amounton the ground that the Bank should not be permitted to enrich byforfeiting the amount from the respondent– On appeal, held: Powerof forfeiture is statutorily conferred – Nothing prevented therespondent from making full payment of the balance amount andhave the sale certificate issued in his favour – Respondent notgenuinely interested in proceeding with his part of obligations –Counsel for the respondent has not shown how the AuthorizedOfficer acted in derogation of the statute – While dealing with

CDEFGH

Acase covered by r. 9, an order of forfeiture of sale price should notbe lightly interfered – Thus, no arbitrariness or unreasonablenessin the action of the Authorized Officer found in forfeiting 25% ofthe sale price – Furthermore, there being no enrichment of the Bankby reason of the forfeiture, the High Court not justified in directinga refund of 25% of the sale price – Thus, the order passed by theBHigh Court set aside.

Words and Phrases:”Forfeiture” – Meaning of.

Allowing the appeal, the Court

HELD: 1.1The bare perusal of the provisions reveals anCordainment in sub–rule (4) of r. 9 of the Security Interest(Enforcement) Rules, 2002 that on mutual agreement, the timefor making deposit of the balance amount of sale price can beextended for period not exceeding ninety days; but, extensionbeyond ninety days is not permissible on any count. Since grantDof extension for intermittent periods so that the duration of suchperiods taken together does not exceed ninety days wouldsuggest some element of discretion being reserved unto theauthorized officer of secured creditor under sub–rule (5) of rule9. However, there can be no gainsaying that such discretion hasto be exercised reasonably and not on whims or caprice; at theEsame time, no auction purchaser can claim extension as matterof right and that too beyond the statutorily prescribed period.Whether or not case for extension does exist would dependupon the peculiar facts of each case and no strait–jacket formulacan ever be laid down therefor. If, however, circumstances areFshown to exist where bidder is faced with such grave disabilitythat he has no other option but to seek extension of time ongenuine grounds so as not to exceed the stipulated period ofninety days and the prayer is rejected without due considerationof all facts and circumstances, refusal of the prayer for extensioncould afford ground for judicial review of the decision-makingGprocess on valid ground(s). [Para 13][1080-A-E]

1.2. Sub-rule (5) of rule 9 does envisage forfeiture, shouldthere be default in payment of the balance amount of purchaseprice within the period mentioned in sub–rule (4). The power of

forfeiture is, therefore, statutorily conferred. The express powerconferred on secured creditor by sub-rule (5) of rule 9 to forfeitthe initial deposit made by the bidder in case he commits anydefault in paying installments of the sale price to the securedcreditor is an action which is part of the measures specified insection 13(4) of the SARFAESI Act and, therefore, amenable tochallenge on valid ground(s) in an application under section 17(1)thereof. [Para 14][1080-F-G]

1.3. Rule 9(5) legislatively lays down penal consequence.‘Forfeiture’ referred to in sub-rule (5) of rule 9, in the setting ofthe SARFAESI Act and the Rules, has to be construed as denotinga penalty that the defaulting bidder must suffer should he fail tomake payment of the entire sale price within the period allowedto him by the authorized officer of secured creditor. Though itis true that the power conferred by sub-rule (5) of rule 9 of theRules ought not to be exercised indiscriminately without havingdue regard to all relevant facts and circumstances, yet, the saidsub-rule ought also not be read in manner so as to render itsexistence only on paper. Sub-rule (5) of rule 9 cannot but beinterpreted pragmatically to serve twin purposes-first, to facilitatedue enforcement of security interest by the secured creditor (oneof the objects of the SARFAESI Act); and second, to prohibitwrong doers from being benefitted by liberal constructionthereof. [Paras 18, 19][1081-G-H; 1082-A-C, F]1.4As regards the question does sub-rule (5) of rule 9,which is part of delegated legislation, i.e., the Rules, have theeffect of diluting section 73 and section 74 of the Contract Act,the answer must be in the negative. While the Contract Actembodies the general law of contract, the SARFAESI Act is aspecial enactment, inter alia, for enforcement of security interestwithout intervention of court. Rule 9(5) providing for forfeitureis part of the Rules, which have validly been framed in exerciseof statutory power conferred by section 38 of the SARFAESI Act.Law is well settled that rules, when validly framed, become partof the statute. Apart from the presumption as to constitutionalityof statute, the contesting respondent did not mount anychallenge to sub–rule (5) of rule 9 of the Rules. The applicability

Aand enforcement of sub–rule (5) of rule 9 on its terms, therefore,has to be secured in appropriate cases. [Para 22][1084-E-H]

1.5 Whenever challenge is laid to an order of forfeituremade by an authorized officer under sub–rule (5) of rule 9 of theRules by bidder, who has failed to deposit the entire sale priceBwithin ninety days, the tribunals/courts ought to be extremelyreluctant to interfere unless, of course, very exceptional casefor interference is set up. What would constitute very exceptionalcase, however, must be determined by the tribunals/courts onthe facts of each case and by recording cogent reasons for theconclusion reached. Insofar as challenge to an order of forfeitureCthat is made upon rejection of an application for extension of timeprior to expiry of ninety days and within the stipulated period isconcerned, the scrutiny could be bit more intrusive forascertaining whether any patent arbitrariness orunreasonableness in the decision making process has had theDeffect of vitiating the order under challenge. However, in courseof such scrutiny, the tribunals/courts must be careful and cautiousand direct their attention to examine each case in some depth tolocate whether there is likelihood of any hidden interest of thebidder to stall the sale to benefit the defaulting borrower andmust, as of necessity, weed out claims of bidders who instead ofEgenuine interest to participate in the auctions do so to rig priceswith an agenda to withdraw from the fray post conclusion of thebidding process. In course of such determination, the tribunals/courts ought not to be swayed only by supervening events like asubsequent sale at higher price or at the same price offered by

Fthe defaulting bidder or that the secured creditor has not in thebargain suffered any loss or by sentiments and should stay at adistance since extending sympathy, grace or compassion areoutside the scope of the relevant legislation. In any event, theunderlying principle of least intervention by tribunals/courts and

the overarching objective of the SARFAESI Act dulyGcomplimented by the Rules, which are geared towards efficientand speedy recovery of debts, together with the interpretation ofthe relevant laws should not be lost sight of. Losing sight thereofmay not be in the larger interest of the nation and susceptible tointerference. [Para 24][1085-F-H; 1086-A-E]H

1.6 There is no reason to hold that there has either beenany manifest arbitrariness or unreasonableness, which warrantedinterdiction with the order of forfeiture. [Para 26][1087-B-C]

1.7 It has to be held that the transaction fell through byreason of the default or failure of the contesting respondent todeposit 75% of the sale price by 23rd October, 2017, as per theterms of rule 9(4). On facts, the contesting respondent wasarranging for funds when he received the summons from the DRTon 10th October, 2017. It is, therefore, clear that at least till thatdate, the contesting respondent was lacking in financial resourcesto make payment of the entire sale price. Although it is not alwaysnecessary for an auction purchaser to arrange for funds and beready to pay the entire sale price within 15 days of confirmationof sale, since extension of time is contemplated in rule 9, it isbeyond comprehension why the contesting respondent whileapplying for an extension of time on 27th September, 2017 soughtfor only 25 days’ time and not for more time, at least up to theentire period of ninety days, being the maximum time that hecould have asked for and made available to him in terms of rule9(4). He had also moved the DRT for extension of time, whichwas not granted. The DRT, however, granted him liberty toparticipate in the auction to be held on 5th January, 2018 butwithout waiving any condition. These are circumstances whichcertainly are adverse to the contesting respondent. [Para27][1087-G-H; 1088-A-C]

1.8 The terms of the auction notice made it clear that theauction sale would be conducted in terms of the provisionscontained in the SARFAESI Act. All prospective bidders were,therefore, put on guard as to what could follow in case of defaultor neglect. Notwithstanding the proceedings that were initiatedbefore the DRT by defaults of which the contesting respondentbecame aware on 10th October, 2017, nothing prevented himfrom making full payment of the balance amount and have thesale certificate issued in his favour. It can be inferred from thefacts and circumstances that the contesting respondent wasseeking to buy time. Counsel for the contesting respondent hasnot shown how the Authorized Officer acted in derogation of thestatute. Indeed, it was open to the Authorized Officer to extendthe time further; equally, he was also free not to grant further

ABC

Aextension having regard to the conduct of the contestingrespondent. When two options are legally open to be exercisedin given set of facts and circumstances and one option isexercised, which does not appear to be wholly unreasonable, it isnot for the writ court to find fault on the specious ground that thesecured creditor has not suffered any financial loss. That suchBcreditor had not suffered financial loss cannot be the soledeterminative factor in view of the special law that the SARFAESIAct is. Efforts made by recalcitrant borrowers to stall saleproceedings at any costs is not uncommon. Many time, when asale does not fructify because of an injunction, the time takenand efforts made together with costs incurred by the securedCcreditor to put up the secured asset (immovable property) forsale once again and close the transaction by itself may result inprejudicial affectation of its interest in enforcement of the securityinterest. While dealing with case covered by rule 9 of the Rules,an order of forfeiture of sale price should not be lightly interfered.DThe contesting respondent was not genuinely interested inproceeding with his part of his obligations and there is noarbitrariness in the action of the Authorized Officer in forfeitingRs. 30,75,000/– being 25% of the sale price. [Para 28][1088-D-H; 1089-A-B]1.9 The High Court committed an error of law in directingErefund on the ground that the Bank “should not be permitted toenrich by forfeiting the amount from the writ petitioner”. It is nota question of the Bank’s enrichment or deriving any undueadvantage that the Court was really concerned with. It seems tohave posed wrong question for being answered. [Para 30][1089-FC]

1.10 The Bank has not been enriched, much less unjustlyenriched, by reason of the impugned forfeiture. Receipt of 25%of the sale price by the Bank from the contesting respondentwas not the outcome of any private negotiation or arrangementbetween them. It was pursuant to public auction, involving aGprocess of offer and acceptance, and it was in terms of statutoryprovisions contained in the Rules, particularly rule 9(3), thatmoney changed hands for definite purpose. Receipt of 25% ofthe sale price does not constitute benefit, fortiori, retentionthereof by forfeiture cannot be termed unjust or inequitable, soHas to attract the doctrine of unjust enrichment. The Bank, as

secured creditor, is entitled in law to enforce the security interestand in the process to initiate all such steps and take all suchmeasures for protection of public interest by recovering the publicmoney, lent to borrower and who has squandered it, in mannerauthorized by law. The contesting respondent participated in theauction well and truly aware of the risk of having 25% of the saleprice forfeited in case of any default or failure on his part to makepayment of the balance amount of the sale price. Question of theBank being enriched by forfeiture, which is in the nature of astatutory penalty, does not and cannot therefore arise in thecircumstances. [Para 35][1090-B-F]

1.11 The High Court failed to bear in mind that the powerof judicial review of writ court will not be permitted to be invokedto protect private interest at the cost of public interest, or todecide contractual disputes, unless clear–cut case ofarbitrariness or mala fides or bias or irrationality is made out. Onthe pleadings, this was not one such case where the High Courtshould have interfered. [Para 36][1090-F-G]

1.12 In the present case, the Authorized Officer hadadhered to the statutory rules. If by such adherence any amountis required to be forfeited as consequence, the same cannot bescrutinized wearing the glasses of misplaced sympathy. [Para37][1090-H; 1091-A]

1.13 There being no enrichment of the Bank by reason ofthe forfeiture. The High Court was not justified in exercisingwrit jurisdiction and directing refund of 25% of the sale price.The impugned judgment and order of the High Court is set aside.[Para 38][1091-A]

Alisha Khan vs Indian Bank (Allahabad Bank) 2021SCC OnLine SC 3340 ; Agarwal Tracom Private Ltdvs Punjab National Bank and Ors (2018) 1 SCC 626 :[2017] 11 SCR 164 ; R.S. Joshi vs Ajit Mills Ltd (1977)4 SCC 98 : [1978] 1 SCR 338 ; BankuraMunicipalityvs Lalji Raja & Sons AIR 1953 SC 248 : [1953] SCR767 ; Mardia Chemicals vs Union of India (2004) 4SCC 311 : [2004] 3 SCR 982; Mahabir Kishore vs.State of Madhya Pradesh (1989) 4 SCC 1 : [1989] 3SCR 596; Sahakari Khand Udyog Mandal Ltd. vs.CCE

A& Customs (2005) 3 SCC 738 : [2005] 2 SCR 606;Indian Council for Enviro Legal Action vs. Union ofIndia (2011) 8 SCC 161 : [2011] 9 SCR 146 ; MartinBurn Ltd vs The Corporation of Calcutta (1966) 1 SCR543 –referred to.

BBlack’s Law Dictionary – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No.2545of 2023.

EFrom the Judgment and Order dated 27.03.2018 of the High Courtof Judicature at Madras in WP No.4519 of 2018.

Sanjay Kapur, Ms. Megha Karnwal, Surya Prakash, Mrs. ShubhraKapur, Ms. Mahima Kapur, Advs. for the Appellant.

V. K. Shukla, Sr. Adv., G. Balaji, Adv. for the Respondents.

The Judgment of the Court was delivered by

DIPANKAR DATTA, J.

Leave granted.

G2. The Authorized Officer (for brevity “the Authorized Officer”,hereafter) of the State Bank of India, Stressed Asset ManagementBranch, Coimbatore, Tamil Nadu (for brevity “the Bank”, hereafter)has impugned the judgment and order dated 27[th] March, 2018 of theMadras High Court allowing writ petition (W.P. No.4519 of 2018)instituted by the contesting respondent herein.H

C. NATARAJAN & ANR.[DIPANKAR DATTA, J.]

3. The facts leading to institution of the writ petition, as recordedin the impugned judgment and order, are noticed hereunder:

a. Default was committed by M/s Stallion Knitwear India PrivateLimited (for brevity “Stallion”, hereafter) in discharging its debtsto the Bank. Consequent upon classification of its account as non-performing asset, the Authorized Officer had taken possession ofthe secured asset (being the plant and machinery of Stallion) as ameasure under section 13(4) of the Securitization andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 (for brevity “the SARFAESI Act”, hereafter).Thereafter, e-auction notice dated 22[nd] August, 2007 was issuedby the Authorized Officer putting up the plant and machinery ofStallion for sale. The contesting respondent had participated inthe e-auction held on 15[th] September, 2017 by depositing requisiteearnest money. Having quoted sum of Rs. 1,23,00,000/-, whichexceeded the reserve price by Rs. 1,00,000/-, he was declaredthe highest bidder. Inclusive of the earnest money deposit, thepetitioner paid Rs. 30,75,000/- towards 25% of the sale price byRTGS on 15[th] September, 2017 itself, and was under advice topay the balance 75% thereof, i.e., Rs. 92,25,000/-, on or before29[th] September, 2017.

b. The contesting respondent failed to arrange requisite funds andby request letter dated 27[th] September, 2017, sought for extensionof time to pay the balance of amount within 25 days. Acceding tosuch request, the Authorized Officer, on the following day, extendedthe time for payment till 23[rd] October, 2017. Two weeks prior tothe extended last date for making payment of the balance amount,the contesting respondent received summons dated 10[th] October,2017 from the Debt Recovery Tribunal, Coimbatore (for brevity“the DRT”, hereafter), intimating him that Stallion having filed anapplication under section 17 of the SARFAESI Act had appliedfor interim relief, which was set down for hearing on 6[th] November,2017. Having learnt of pendency of proceedings before the DRT,the contesting respondent met the Authorized Officer who assuredthe contesting respondent of appropriate care to be taken to contestsuch proceedings. Hearing such assurance and while referring tothe summons received from the DRT, the contesting respondentby his letter dated 20[th] October, 2017 prayed for further extension

of time by 15 days to pay the balance amount. The request of thecontesting respondent was rejected by the Authorized Officer byhis letter dated 21[st] October, 2017 and the contesting respondentwas advised to make payment of the balance amount on or before23[rd] October, 2017. Since the contesting respondent did not paythe balance amount of the sale price by 23[rd] October, 2017, theAuthorized Officer sent letter dated 24[th] October, 2017 to thecontesting respondent informing him that the e-auction sale heldon 15[th] September, 2017, which was concluded in his favour, standscancelled and that the amount of Rs. 30,75,000/- paid by himforfeited.c. The contesting respondent, seeking to intervene in theproceedings before the DRT, had applied for advancement of thedate of hearing of the application under section 17. He also appliedfor extension of time to deposit the balance amount till the disposalof the interim application filed before the DRT by Stallion. DRTadvanced the hearing date from 6[th] November, 2017 to31[st] October, 2017. An order dated 31[st] October, 2017 was alsopassed directing the Authorized Officer to maintain status quoand while calling for counter-affidavits, the case was posted to28[th] November, 2017.

d. The order of status quo passed by the DRT was challenged bythe Authorized Officer in an appeal carried before the DebtsRecovery Appellate Tribunal, Chennai (for brevity “the DRAT”,hereafter). On 12[th] December, 2017, the DRAT permitted theAuthorized Officer to proceed with fresh auction without, however,vacating the order of status quo passed earlier.

e. Availing the liberty granted by the DRAT, the Authorized Officerissued fresh e-auction notice dated 15[th] December, 2017, fixing5[th] January, 2018 as the date of auction. The contesting respondenthaving come to learn of such notice filed an interim applicationbefore the DRT seeking stay of the auction; however, by an orderdated 3[rd] January, 2018, the DRT dismissed the application relyingon the interim order of the DRAT dated 12[th] December, 2017 butgranted liberty to the contesting respondent to participate in the e-auction proposed to be held on 5[th] January, 2018. The auction,however, could not be held on 5[th] January 2018 for want of adequatenumber of bidders.

4. It was, at this stage, that the contesting respondent invoked thewrit jurisdiction of the High Court seeking refund of the forfeited amountof Rs. 30,75,000/-, by challenging the letter dated 24[th] October, 2017 ofthe Authorized Officer.

5. During the pendency of the writ proceedings before the HighCourt, the secured asset was once again put up for sale by auction andwas sold for 1,23,00,000/-.

6. The High Court, upon hearing the parties, was of the view thatthe Authorized Officer having sold the secured assets for the very samevalue of Rs. 1,23,00,000/- to another auction purchaser, which was thesame amount quoted by the contesting respondent, the Bank “shouldnot be permitted to enrich by forfeiting the amount from the writpetitioner and simultaneously appropriate the sale proceeds fromthe highest bidder in the auction sale notice dated 15.12.2017”.Consequently, the High Court directed refund of the amount of Rs.30,75,000/- within 4 weeks with interest @ 9% per annum on the amountto be refunded till refund is effected.7. Appearing in support of the appeal, counsel for the AuthorizedOfficer contended that the High Court committed gross error in orderinga refund of Rs. 30,75,000/- to the contesting respondent. According tohim, the contesting respondent by his letter dated 27[th] September, 2017had prayed for extension of 25 days’ time to deposit the balance amountof sale price and upon grant of such prayer, time was allowed till 23[rd]October, 2017; however, the contesting respondent did not make paymentwithin the extended date by raising the bogey of pendency of proceedingsbefore the DRT, at the instance of Stallion. He further contended thatprior to 31[st] October, 2017, no order of stay passed by the DRT wassubsisting and there was absolutely no reason for the contestingrespondent, if he was genuinely interested in closing the deal, to depositthe balance amount of sale price while at the same time reserving hisright to claim the entire amount deposited, if the sale did not fructify. Itwas also contended that the contesting respondent had applied forextension of time to deposit the balance amount before the DRT, but noorder was passed on his application and the Authorized Officer, perceivingthat the contesting respondent was seeking to delay matters, rightlyproceeded to forfeit the amount of Rs. 30,75,000/. He, accordingly,submitted that the impugned judgment and order of the High Court isunsustainable in law and, hence, deserves to be set aside.

A8. Per contra, counsel for the contesting respondent sought toimpress upon us that the order directing refund was passed on aconcession made by counsel for the first respondent before the HighCourt, i.e., the Authorized Officer; hence, the appeal was notmaintainable. In the alternative, he contended that the Bank having soldthe secured asset through subsequent auction which fetched Rs.B1,23,00,000/-, i.e., the same price at which the contesting respondentintended to purchase the immovable property, it cannot be the case ofthe Authorized Officer or, for that matter, the Bank that the latter hassuffered any financial loss. He further contended that although notassigned as specific ground for interference, bare reading of theCimpugned judgment and order would reveal that the direction for refundwas made bearing in mind such circumstance that the Bank did notsuffer any loss. He also contended that there has to be an overallconsideration of the facts and circumstances obtaining in the case whichled the contesting respondent to reasonably believe that pendency ofproceedings before the DRT at the instance of Stallion would result inDthe entire sale price, if deposited, being blocked. In such view of thematter, the Authorized Officer without proper consideration of the entirefacts and circumstances proceeded to forfeit the amount deposited. Since,there has been patent arbitrariness on the part of the Authorized Officerin not acceding to the request of the contesting respondent to extend theEtime further, the High Court was justified in its interference with theorder of forfeiture and rightly directed refund. It was, thus, prayed thatthe appeal be dismissed.9. We have heard counsel for the parties and perused the materialson record.F

10. At the outset, we reject the contention of the contestingrespondent that the High Court, based on concession of counsel for theAuthorized Officer, proceeded to pass the order for refund. Afterreferring to the applicable statutory provisions, the said counsel submittedbefore the Court that the interest of the Authorized Officer should beGtaken care of. Such submission does not, in our considered view, amountto any concession rendering the appeal not maintainable.

11. Two legal questions now arise for consideration:

(i)Whether the power of forfeiture was exercised by theAuthorized Officer in an arbitrary manner?H

(ii)Whether the High Court was justified in its interferencewith the forfeiture order on the ground assigned in theimpugned judgment and order?

12. Sale of secured asset, which is an immovable property, isregulated by rule 9 of the Security Interest (Enforcement) Rules, 2002(for brevity “the Rules”, hereafter). Sub-rules (2), (3), (4) and (5) thereofare relevant for answering the first question. The same read as under:

“(2) The sale shall be confirmed in favour of thepurchaser who has offered the highest sale price in his bid ortender or quotation or offer to the authorised officer andshall be subject to confirmation by the secured creditor:

Provided that no sale under this rule shall be confirmed,if the amount offered by sale price is less than the reserveprice, specified under sub-rule (5) of rule 8:

Provided further that if the authorised officer fails toobtain price higher than the reserve price, he may, with theconsent of the borrower and the secured creditor effect thesale at such price.

(3) On every sale of immovable property, the purchaser shallimmediately, i.e., on the same day or not later than nextworking day, as the case may be, pay deposit of twenty-fiveper cent of the amount of the sale price, which is inclusive ofearnest money deposited, if any, to the authorised officerconducting the sale and in default of such deposit, theproperty shall be sold again.

(4) The balance amount of purchase price payable shall bepaid by the purchaser to the authorised officer on or beforethe fifteenth day of confirmation of sale of the immovableproperty or such extended period as may be agreed upon inwriting between the purchaser and the secured creditor, inany case not exceeding three months.

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited [to the secured creditor]and the property shall be resold and the defaulting purchasershall forfeit all claim to the property or to any part of the sumfor which it may be subsequently sold.”

A13. Bare perusal of the aforesaid provisions reveals an ordainmentin sub-rule (4) that on mutual agreement, the time for making deposit ofthe balance amount of sale price can be extended for period notexceeding ninety days; but, extension beyond ninety days is notpermissible on any count. Since grant of extension for intermittent periodsso that the duration of such periods taken together does not exceedBninety days would suggest some element of discretion being reservedunto the authorized officer of secured creditor under sub-rule (5) ofrule 9. However, there can be no gainsaying that such discretion has tobe exercised reasonably and not on whims or caprice; at the same time,no auction purchaser can claim extension as matter of right and thatCtoo beyond the statutorily prescribed period. Whether or not case forextension does exist would depend upon the peculiar facts of each caseand no strait-jacket formula can ever be laid down therefor. If, however,circumstances are shown to exist where bidder is faced with such agrave disability that he has no other option but to seek extension of timeon genuine grounds so as not to exceed the stipulated period of ninetyDdays and the prayer is rejected without due consideration of all facts andcircumstances, refusal of the prayer for extension could afford groundfor judicial review of the decision-making process on valid ground(s).One such exceptional circumstance led to the decision in Alisha Khanvs Indian Bank (Allahabad Bank)[1], where this Court intervened andEgranted relief because, due to COVID complications, the appellant hadfailed to pay the balance amount.14. Sub-rule (5) of rule 9 does envisage forfeiture, should therebe default in payment of the balance amount of purchase price withinthe period mentioned in sub-rule (4). The power of forfeiture is, therefore,Fstatutorily conferred. It may also be noted in this connection that theexpress power conferred on secured creditor by sub-rule (5) of rule 9of the Rules to forfeit the initial deposit made by the bidder in case hecommits any default in paying installments of the sale price to the securedcreditor has been held by this Court in Agarwal Tracom Private Ltdvs Punjab National Bank and Ors.[2] to be an action which is part ofGthe measures specified in section 13(4) of the SARFAESI Act and,therefore, amenable to challenge on valid ground(s) in an applicationunder section 17(1) thereof.

1 2021 SCC OnLine SC 33402 (2018) 1 SCC 626H

15. Before we take our discussion forward, it is necessary toascertain the true character of the term ‘forfeiture’. Black’s LawDictionary, inter alia, explains ‘forfeiture’ as “the loss of right,privilege, or property because of crime, breach of obligation, orneglect of duty” or “something (esp. money or property) lost orconfiscated by this process; penalty”. It is also explained as “adestruction or deprivation of some estate or right because of thefailure to perform some obligation or condition contained in acontract”.

16. It is also found from the same dictionary that though penalty isusually referable to crime, penalty is sometimes imposed for civil wrongssuch as statutory penalty for statutory violation; especially, penaltyimposing automatic liability on wrongdoer for violation of the terms ofa statute without reference to any actual damage suffered.

17. Constitution Bench of this Court in R.S. Joshi vs AjitMills Ltd.[3] held that “(F)orfeiture, as judicially annotated, is apunishment annexed by law to some illegal act or negligence”. ThisCourt referred to its earlier decision in Bankura Municipality vs LaljiRaja & Sons[4] where it was observed:

“According to the dictionary meaning of the word ‘forfeiture’the loss or the deprivation of goods has got to be inconsequence of crime, offence or breach of engagement orhas to be by way of penalty of the transgression or apunishment for an offence. Unless the loss or deprivation ofthe goods is by way of penalty or punishment for crime,offence or breach of engagement it would not come withinthe definition of forfeiture”.

18. Having regard to the terms of rule 9, the notice for auctionconstitutes the ‘invitation to offer’; the bids submitted by the biddersconstitute the ‘offer’ and upon confirmation of sale in favour of thehighest bidder under sub-rule (2) of rule 9, the contract comes intoexistence. Once the contract comes into existence, the bidder is boundto honour the terms of the statute under which the auction is conductedand suffer consequences for breach, if any, as stipulated. Rule 9(5)legislatively lays down penal consequence. ‘Forfeiture’ referred to in

3 (1977) 4 SCC 98

4 AIR 1953 SC 248

Asub-rule (5) of rule 9, in the setting of the SARFAESI Act and the Rules,has to be construed as denoting penalty that the defaulting bidder mustsuffer should he fail to make payment of the entire sale price within theperiod allowed to him by the authorized officer of secured creditor.

19. Though it is true that the power conferred by sub-rule (5) ofBrule 9 of the Rules ought not to be exercised indiscriminately withouthaving due regard to all relevant facts and circumstances, yet, the saidsub-rule ought also not be read in manner so as to render its existenceonly on paper. Drawing from our experience on the Bench, it can safelybe observed that in many case the borrowers themselves, seeking tofrustrate auction sales, use their own henchmen as intending purchasersCto participate in the auction but thereafter they do not choose to carryforward the transactions citing issues which are hardly tenable. Thisleads to auctions being aborted and issuance of fresh notices. Repetitionof such process of participation-withdrawal for couple of times ormore has the undesirable effect of rigging of the valuation of theDimmovable property. In such cases, the only perceivable loss sufferedby secured creditor would seem to be the extent of expenses incurredby it in putting up the immovable property for sale. However, what doesgenerally escape notice in the process is that it is the mischievous borrowerwho steals march over the secured creditor by managing to have ahighly valuable property purchased by one of its henchmen for song,Ethus getting such property freed from the clutches of mortgage and bydiluting the security cover which the secured creditor had for its loanexposure. Bearing in mind such stark reality, sub-rule (5) of rule 9 cannotbut be interpreted pragmatically to serve twin purposes — first, tofacilitate due enforcement of security interest by the secured creditor

F(one of the objects of the SARFAESI Act); and second, to prohibit wrongdoers from being benefitted by liberal construction thereof.

20. In terms of the Indian Contract Act, 1872 (for brevity “ContractAct”, hereafter), person can withdraw his offer before acceptance.However, once party expresses willingness to enter into contractualGrelationship subject to terms and conditions and makes an offer which isaccepted but thereafter commits breach of contract, he does so at hisown risk and peril and naturally has to suffer the consequences. We arenot oblivious of the terms of section 73 and section 74 of the ContractAct, being part of Chapter VI thereof titled “Of the Consequence ofBreach of Contract”. These sections, providing for compensation forHbreach of contract and for liquidated damages, have remained on thestatute book for generations and permit the party suffering the breach torecover such quantum of loss or damage from the party in breach.However, with changing times, the minds of people are also changing.The judiciary, keeping itself abreast of the changes that are bound tooccur in an evolving society, must interpret new laws that are brought inoperation to suit the situation appropriately. In the current era ofglobalization, the entire philosophy of society, mainly on the economicfront is making rapid strides towards changes. Unscrupulous people havebeen inventing newer modes and mechanisms for defrauding and lootingthe nation. It is in such scenario that provisions of enactments,particularly those provisions which have direct bearing on the economyof the nation, must receive such interpretation so that it not only fosterseconomic growth but is also in tune with the intention of the law-makersin introducing provision such as sub-rule (5) of rule 9, which thoughharsh in its operation, is intended to suppress the mischief and advancethe remedy. If indeed section 73 and section 74, which are part of thegeneral law of contract, were sufficient to cater to the remedy, the needto make sub-rule (5) of rule 9 as part of the Rules might not have arisen.Additionally, insertion of sub-rule (5) with such specificity regardingforfeiture must not have been thought of only for reiterating what isalready there. It was visualized by the law makers that there was needto arrest cases of deceptive manipulation of prices at the instance ofunscrupulous borrowers by thwarting sale processes and this was thetrigger for insertion of such provision with wide words conferringextensive powers of forfeiture. The purpose of such insertion must havealso been aimed at instilling sense of discipline in the intending purchaserswhile they proceed to participate in the auction-sale process. At the costof repetition, it must not be forgotten that the SARFAESI Act wasenacted because the general laws were not found to be workable andefficient enough to ensure liquidity of finances and flow of money essentialfor any healthy and growth-oriented economy. The decision of this Courtin Mardia Chemicals vs Union of India[5], while outlawing only partof the SARFAESI Act and upholding the rest, has traced the history ofthis legislation and the objects that Parliament had in mind in sufficientdetail. Apart from the law laid down in such decision, these are the otherrelevant considerations which ought to be borne in mind while examininga challenge to forfeiture order.

5 (2004) 4 SCC 311

DEF

A21. There is one other aspect which is, more often than not, glossedover. In terms of sub-rule (5) of rule 9, generally, forfeiture would befollowed by an exercise to resell the immovable property. On the datean order of forfeiture is in contemplation of the authorized officer of thesecured creditor for breach committed by the bidder, factually, the positionis quite uncertain for the former in that there is neither any guarantee ofBhis receiving bids pursuant to future sale, much to the satisfaction ofthe secured creditor, nor is there any gauge to measure the likely loss tobe suffered by it (secured creditor) if no bidders were interested topurchase the immovable property. Since the extent of loss cannot beimmediately foreseen or calculated, such officers may not have anyCoption but to order forfeiture of the amount deposited by the defaultingbidder in an attempt to recover as much money as possible so as toreduce the secured debt. That the immovable property is later sold atthe same price or at price higher than the one which was offered bythe party suffering the forfeiture is not an eventuality that occurs in eachand every case. Sections 73 and 74 of the Contract Act would not,Dtherefore, be sufficient to take care of the interest of the secured creditorin such case and that also seems to be another reason for bringing inthe provision for forfeiture in rule 9. Ordinarily, therefore, validity of anorder of forfeiture must be judged considering the circumstances thatwere prevailing on the date it was made and not based on superveningEevents.

22. Does sub-rule (5) of rule 9, which is part of delegatedlegislation, i.e., the Rules, have the effect of diluting section 73 and section74 of the Contract Act? We have considered it necessary to advert tothis question as it is one of general importance and are of the considered

Fopinion that the answer must be in the negative. While the Contract Actembodies the general law of contract, the SARFAESI Act is specialenactment, inter alia, for enforcement of security interest withoutintervention of court. Rule 9(5) providing for forfeiture is part of theRules, which have validly been framed in exercise of statutory powerconferred by section 38 of the SARFAESI Act. Law is well settled thatGrules, when validly framed, become part of the statute. Apart from thepresumption as to constitutionality of statute, the contesting respondentdid not mount any challenge to sub-rule (5) of rule 9 of the Rules. Theapplicability and enforcement of sub-rule (5) of rule 9 on its terms,therefore, has to be secured in appropriate cases.

23. That apart, significantly, section 35 of the SARFAESI Actmandates that the provisions thereof would have effect, notwithstandinganything inconsistent therewith contained in any other law for the timebeing in force or any other instrument having effect by virtue of anysuch law. At the same time, section 37 of the SARFAESI Act postulatesthat provisions thereof or the rules made thereunder shall be in additionto and not in derogation of the enumerated enactments or any other lawfor the time being in force. What is of importance is that the non-obstanteclause in section 35 of the SARFAESI Act is not subject to section 37thereof; however, plain reading of the latter provision would suggestthat rights, liabilities, obligations, remedies, etc. created/imposed/ providedby the SARFAESI Act and the Rules are preserved, irrespective ofwhat is provided in the stated enactments or any other law for the timebeing in force. The regime under the SARFAESI Act is altogetherdifferent and sections 35 and 37 are intended to extend cover to thesecured creditor if it abides by the governing law, which cannot be subjectto any other provision of general law like the Contract Act. Sincesection 35 overrides other laws in the same or related field and havingregard to the scheme of the SARFAESI Act and the dominant purposesought to be achieved, as noted above, none can and should be allowedto take the auctions conducted thereunder lightly. No court ought tocountenance bidder entering and exiting the process at his sweet willwithout any real intent to take it to fruition. The provisions of theSARFAESI Act as well as the Rules are to be interpreted positively andpurposefully in the context of given case to give meaning to sub- rule(5) of rule 9. Besides, we have no hesitation to hold that in case of anyseeming conflict or inconsistency between the general law, i.e., theContract Act and the special law, i.e., the SARFAESI Act, it is the latterthat would prevail.

24. The up-shot of the aforesaid discussion is that whenever achallenge is laid to an order of forfeiture made by an authorized officerunder sub-rule (5) of rule 9 of the Rules by bidder, who has failed todeposit the entire sale price within ninety days, the tribunals/courts oughtto be extremely reluctant to interfere unless, of course, very exceptionalcase for interference is set up. What would constitute very exceptionalcase, however, must be determined by the tribunals/courts on the factsof each case and by recording cogent reasons for the conclusion reached.Insofar as challenge to an order of forfeiture that is made upon rejectionof an application for extension of time prior to expiry of ninety days and

Awithin the stipulated period is concerned, the scrutiny could be bitmore intrusive for ascertaining whether any patent arbitrariness orunreasonableness in the decision- making process has had the effect ofvitiating the order under challenge. However, in course of such scrutiny,the tribunals/courts must be careful and cautious and direct their attentionto examine each case in some depth to locate whether there is likelihoodBof any hidden interest of the bidder to stall the sale to benefit the defaultingborrower and must, as of necessity, weed out claims of bidders whoinstead of genuine interest to participate in the auctions do so to rigprices with an agenda to withdraw from the fray post conclusion of thebidding process. In course of such determination, the tribunals/courtsCought not to be swayed only by supervening events like subsequentsale at higher price or at the same price offered by the defaultingbidder or that the secured creditor has not in the bargain suffered anyloss or by sentiments and should stay at distance since extendingsympathy, grace or compassion are outside the scope of the relevantlegislation. In any event, the underlying principle of least intervention byDtribunals/courts and the overarching objective of the SARFAESI Actduly complimented by the Rules, which are geared towards efficientand speedy recovery of debts, together with the interpretation of therelevant laws by this Court should not be lost sight of. Losing sight thereofmay not be in the larger interest of the nation and susceptible toEinterference.

25. In the present case, undisputedly, payment of 25% of the saleprice was made by the contesting respondent on 15[th] September, 2017;hence sub-rule (3) of rule 9 stood complied with. The contesting respondentwas notified to deposit the balance 75% of the sale price by 29[th]FSeptember, 2017. Admittedly, he could not or did not so deposit till 27[th]September, 2017, whereupon he prayed for extension of time by 25 daysby his request letter of even date, i.e., 27[th] September, 2017. TheAuthorized Officer responded favourably and extended the time fordeposit by 25 days as prayed by the contesting respondent, i.e., till 23[rd]October, 2017. Extension of time till 23[rd] October, 2017, therefore, wasGby mutual agreement – course of action permitted by sub-rule (4). On20[th] October, 2017, the contesting respondent made further requestfor extension of time by 15 days citing pendency of proceedings at theinstance of Stallion before the DRT. This request came to be rejected bythe Authorized Officer by his letter dated 21[st] October, 2017 referring toHabsence of any order of stay in operation and that the contesting

respondent was free to deposit the balance amount of sale price andtake possession of the auctioned immovable property. The contestingrespondent not having deposited the balance amount of sale price by23[rd] October, 2018, the mutual agreement for extension of time, thus,lapsed with effect from 24[th] October, 2017. This resulted in the order offorfeiture being passed by the Authorized Officer in terms of sub-rule(5).

26. We do not see reason to hold that there has either been anymanifest arbitrariness or unreasonableness, which warranted interdictionwith the order of forfeiture. The contesting respondent in terms of thestatutory ordainment was required to pay the balance amount of saleprice on or before 15 days of confirmation of sale. Days prior to expiryof such period, he prayed for an extension of 25 days. Such prayer wasgranted. Further prayer for extension was made ten days after receiptof summons from the DRT. The exact date on which the contestingrespondent applied before the DRT for extension of time as well as theexact terms of the order passed on such application, however, is notavailable on record. We shall proceed on the premise that the prayer forextension of time was not granted. The order of the Authorized Officerdated 24[th] October, 2017 forfeiting 25% of the sale price was also notchallenged by the contesting respondent before the DRT in anyindependent proceeding; on the contrary, after the DRAT grantedpermission to the Authorized Officer to conduct sale afresh by its orderdated 12[th] December, 2017 and pursuant whereto fresh e-auction noticewas issued on 18[th] December, 2017, the contesting respondent hadinstituted an independent application under section 17(1) of theSARFAESI Act before the DRT and had also filed I.A. No. 2542/2017

therein for interim stay of e-auction. The DRT by its order dated 3[rd]January, 2018 dismissed I.A. No. 2542/2017 relying upon the order ofthe DRAT dated 12[th] December, 2017, but permitted the contestingrespondent to participate in the e- auction to be held on 5[th] January, 2018which failed for want of bidders. It is then that the contesting respondentinstituted the writ petition before the High Court.

27. Under such circumstances, it has to be held that the transactionfell through by reason of the default or failure of the contesting respondentto deposit 75% of the sale price by 23[rd] October, 2017, as per the termsof rule 9(4). On facts, we find that the contesting respondent wasarranging for funds when he received the summons from the DRT on

A10[th] October, 2017. It is, therefore, clear that at least till that date, thecontesting respondent was lacking in financial resources to make paymentof the entire sale price. Although it is not always necessary for an auctionpurchaser to arrange for funds and be ready to pay the entire sale pricewithin 15 days of confirmation of sale, since extension of time iscontemplated in rule 9, it is beyond our comprehension why the contestingBrespondent while applying for an extension of time on 27[th] September,2017 sought for only 25 days’ time and not for more time, at least up tothe entire period of ninety days, being the maximum time that he couldhave asked for and made available to him in terms of rule 9(4). He hadalso moved the DRT for extension of time, which was not granted. TheCDRT, however, granted him liberty to participate in the auction to be heldon 5[th] January, 2018 but without waiving any condition. These arecircumstances which certainly are adverse to the contesting respondent.28. Also, the terms of the auction notice made it clear that theauction sale would be conducted in terms of the provisions contained inDthe SARFAESI Act. All prospective bidders were, therefore, put onguard as to what could follow in case of default or neglect.Notwithstanding the proceedings that were initiated before the DRT byStallion of which the contesting respondent became aware on 10[th]October, 2017, nothing prevented him from making full payment of thebalance amount and have the sale certificate issued in his favour. It canEbe inferred from the facts and circumstances that the contestingrespondent was seeking to buy time. Counsel for the contestingrespondent has not shown how the Authorized Officer acted in derogationof the statute. Indeed, it was open to the Authorized Officer to extendthe time further; equally, he was also free not to grant further extension

Fhaving regard to the conduct of the contesting respondent. When twooptions are legally open to be exercised in given set of facts andcircumstances and one option is exercised, which does not appear to bewholly unreasonable, it is not for the writ court to find fault on the speciousground that the secured creditor has not suffered any financial loss.

That such creditor had not suffered financial loss cannot be the soleGdeterminative factor in view of the special law that the SARFAESI Actis. As noted above, efforts made by recalcitrant borrowers to stall saleproceedings at any costs is not uncommon. Many time, when saledoes not fructify because of an injunction, the time taken and effortsmade together with costs incurred by the secured creditor to put up theHsecured asset (immovable property) for sale once again and close the

transaction by itself may result in prejudicial affectation of its interest inenforcement of the security interest. While dealing with case coveredby rule 9 of the Rules, an order of forfeiture of sale price should not belightly interfered. The contesting respondent was not genuinely interestedin proceeding with his part of his obligations and we see no arbitrarinessin the action of the Authorized Officer in forfeiting Rs. 30,75,000/- being25% of the sale price.

29. The first question is answered accordingly.

30. Moving on to the second question, we find the High Court tohave committed an error of law in directing refund on the ground thatthe Bank “should not be permitted to enrich by forfeiting the amountfrom the writ petitioner”. It is not question of the Bank’s enrichmentor deriving any undue advantage that the Court was really concernedwith. It seems to have posed wrong question for being answered.

31. The circumstances of the case make it imperative to considerthe question: when does an enrichment or unjust enrichment occur?

32. Mahabir Kishore vs. State of Madhya Pradesh[6] is adecision of this Court which traced various English decisions and ultimatelylaid down the requirements of unjust enrichment as follows:

“11. The principle of unjust enrichment requires: first, thatthe defendants has been ‘enriched’ by the receipt of ‘benefit’;secondly, that this enrichment is ‘at the expense of theplaintiffs’; and thirdly, that the retention of the enrichment beunjust. This justifies restitution. Enrichment may take the formof direct advantage to the recipient wealth such as by thereceipt of money or indirect one for instance where inevitableexpense has been saved.”

33. In Sahakari Khand Udyog Mandal Ltd. vs. CCE &Customs[7], this Court had the occasion to reiterate that unjustenrichment means retention of benefit by person that is unjustor inequitable. Unjust enrichment occurs when person retainsmoney or benefit which in justice, equity and good conscience,belongs to someone else. The doctrine of unjust enrichment,therefore, is that no person can be allowed to enrich inequitably atthe expense of another. right of recovery under the doctrine of6 (1989) 4 SCC 17 (2005) 3 SCC 738

Aunjust enrichment arises where retention of benefit is consideredcontrary to justice or against equity.

34. Yet again, in Indian Council for Enviro- Legal Action vs.Union of India[8], this Court held that person is enriched if he hasreceived benefit, and he is unjustly enriched if retention of the benefitBwould be unjust.

35. In the light of guidance provided by the above decisions, whatneeds to be ascertained first is whether the Bank received or derivedany benefit or advantage by forfeiture of 25% of the sale price. We donot think that the Bank has been enriched, much less unjustly enriched,Cby reason of the impugned forfeiture. Receipt of 25% of the sale priceby the Bank from the contesting respondent was not the outcome of anyprivate negotiation or arrangement between them. It was pursuant to apublic auction, involving process of offer and acceptance, and it was interms of statutory provisions contained in the Rules, particularly rule9(3), that money changed hands for definite purpose. Receipt of 25%Dof the sale price does not constitute benefit, fortiori, retention thereofby forfeiture cannot be termed unjust or inequitable, so as to attract thedoctrine of unjust enrichment. The Bank, as secured creditor, is entitledin law to enforce the security interest and in the process to initiate allsuch steps and take all such measures for protection of public interestEby recovering the public money, lent to borrower and who hassquandered it, in manner authorized by law. The contesting respondentparticipated in the auction well and truly aware of the risk of having25% of the sale price forfeited in case of any default or failure on hispart to make payment of the balance amount of the sale price. Questionof the Bank being enriched by forfeiture, which is in the nature of aFstatutory penalty, does not and cannot therefore arise in the circumstances.

36. The High Court, in our considered opinion, failed to bear inmind the settled principle of law that the power of judicial review of awrit court will not be permitted to be invoked to protect private interestat the cost of public interest, or to decide contractual disputes, unless aGclear-cut case of arbitrariness or mala fides or bias or irrationality ismade out. On the pleadings, this was not one such case where the HighCourt should have interfered.

37. The question under consideration can also be addressed froma different perspective. In the present case, the Authorized Officer hadH8 (2011) 8 SCC 161

adhered to the statutory rules. If by such adherence any amount isrequired to be forfeited as consequence, the same cannot be scrutinizedwearing the glasses of misplaced sympathy. Law is well settled that aresult flowing from statutory provision is never an evil and that courthas no power to ignore that provision to relieve what it considers distressresulting from its operation. The statute must, of course, be given effectto whether court likes the result or not. This is the statement of law inthe decision of this Court in Martin Burn Ltd vs The Corporation ofCalcutta[9].

38. There being no enrichment of the Bank by reason of theimpugned forfeiture, based on our reading of the aforesaid decisions, weanswer the second question by holding that the High Court was notjustified in exercising writ jurisdiction and directing refund of 25% ofthe sale price.

39. One of the points raised by counsel for the Authorized Officeris that the writ petition of the contesting respondent was not maintainablehaving regard to the alternative remedy available to him under section17(1) of the SARFAESI Act. The objection to the maintainability of thewrit petition has substance; but since we have examined the questionsarising for decision on its merits, relegating the contesting respondent tothe forum under section 17(1) of the SARFAESI Act would serve nouseful purpose.

40. For the reasons aforesaid, the impugned judgment and orderof the High Court stands set aside and the civil appeal stands allowed.Parties shall, however, bear their own costs.

Nidhi Jain(Assisted by : Tamana, LCRA)

Appeal allowed.

9 (1966) 1 SCR 543