Date of Decision: 24.01.2020 R. S. KULHARI, CHAIRPERSON

1. Both these appeals have been preferred under section 18 of the Securitization and Reconstruction of Financial Assets

2 of 13 and Enforcement of the Security Interest Act, 2002 (hereinafter referred to as The SARFAESI Act) against a common order dated 22.09.2016 passed by the DRT, Allahabad, whereby the S.As. filed by the borrowers and the auction purchaser were disposed off. The issues involved in both the appeals are also interlinked, hence are being decided by this common order.

2. The essential facts of the matter are, that the State Bank of India (Appellant in Appeal Sr. No. 282/2016) granted a housing loan to the borrower-Mr. Anil Shukla. The loan was secured by mortgage of immovable property being part of house no. 317/211-A, Rasoolabad, Sadar, Allahabad. Since the borrower did not adhere to the repayment plan, hence the Bank classified the account as NPA and issued demand notice dated 19.08.2008 under section 13(2) of the SARFAESI Act, 2002 demanding a sum of Rs. 3,78,350.02. Thereafter, the possession notice dated 30.07.2015 was issued under section 13(4) of the SARFAESI Act, 2002.

3. The respondent-Borrower challenged the possession notice dated 30.07.2015 by filing the S.A. No. 259 of 2015. During the pendency of the said S.A., the Bank issued auction sale notice dated 26.08.2015, scheduling the auction on 29.09.2015. The said notice was also challenged by the respondent-Borrower by amending the aforesaid S.A. The Tribunal below vide order dated 28.09.2015 dismissed the securitization application filed by the respondents.

4. It transpires that in response to the sale dated 29.09.2015, one bid of Rs. 18,78,000/- was received from Dr. Santosh Kumar Gupta (appellant of appeal no. 282/2016), who was declared as successful bidder. Against the bid amount, an amount of Rs. 4,69,800/-

3 of 13 being 25% of the bid was deposited by the auction purchaser, but the remaining 75% amount was not deposited within 15 days, therefore, the said amount was forfeited by the appellant-Bank and conveyed to the appellant-Auction Purchaser vide letter dated 15.10.2015.

5. The auction purchaser challenged the letter dated 15.10.2015 issued by the appellant-Bank by filing the S.A. No. 380 of 2015 on 18.11.2015, seeking relief as under:- (A) Issue order or direction setting aside the impugned order/letter dated 15.10.2015 for forfeiture of 25% of bid amount deposited (including EMD) amounting to Rs. 4,69,800/- exercising power under rule 9(5) of the Rules 2002 read with section 13(4) of the SARFAESI Act. (B) Issue order or direction setting aside the impugned Sale Notice dated 26.08.2015 issued by the authorized officer, State Bank of India SARB Allahabad and consequent sale conducted on 29.10.2015. (C) Issue order or direction commanding the respondent to return the entire 25% amount deposited (including EMD) amounting to Rs. 4,69,800/- in pursuance to auction dated 29.09.2015 with 18% interest.

6. During the pendency of the aforesaid S.A., the appellant- Bank issued another auction sale notice dated 20.01.2016, against which one bid of Rs. 18.78 lacs was received from Shri Anil Kumar Tripathi, who has deposited Rs. 1,86,800/- on 08.02.2016 and Rs. 4,70,000/- on 29.02.2016 (total Rs. 6,56,800) but thereafter the remaining amount could not be deposited by the auction purchaser, therefore, the appellant-Bank forfeited 25% amount i.e. Rs. 4,69,500/- and balance amount of Rs. 1,87,300/- was returned through cheque to the auction purchaser vide letter dated 18.03.2016.

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7. It is averred that the appellant-Bank had filed a recovery suit bearing no. 475 of 2010 for a decree of Rs. 5,61,534.02 alongwith pendentelite and future interest @ 8% per annum with monthly rests alongwith costs and expenses. The said suit was ex-parte decreed by the additional District Judge, Court No. 14, Allahabad vide ex- parte decree dated 05.11.2011 in favour of the Bank against the borrower.

8. The appellant-Bank once again proceeded for auction sale by issuing the sale notice dated 16.06.2016, which was published in two newspapers on 21.06.2016. The said auction sale notice was challenged by the respondents- Borrower by filing the S.A. No. 245 of 2016 requesting therein that the entire recovery proceedings of the Bank be set aside restraining the bank from auctioning and taking physical possession of the property in question.

9. The Tribunal below vide impugned order dismissed the S.A. No. 380 of 2015 filed by the auction purchaser and disposed off the S.A. filed by the borrowers with the observations that the borrower is entitled to the benefit of forfeited amount after deduction of the actual expenses. Being aggrieved by the said order, the Appeal Sr. No. 282/2016 was filed by the Bank and the Appeal Sr. No. 29/2017 was filed by the auction purchaser of S.A. No. 380/2015. However, the second auction purchaser is not party to the proceedings.

10. Learned counsel Shri S. K. Pandey appearing on behalf of the auction purchaser-Dr. Santosh Kumar Gupta submitted that the Bank had auctioned the property concealing the fact that the construction was raised over the land owned by the state and without approval of the Allahabad Development Authority, therefore, such property was not liable to be auctioned. Further, the Bank has misguided by

5 of 13 mentioning in sale notice that the earnest money shall be adjusted towards 25% of the sale price, therefore, due to all these defects, the appellant-auction purchaser refrained from depositing 75% of the sale price and withdrew his step to proceed forward. In such a situation, the Bank was not entitled for forfeiture of the deposited amount. In support of the contention, the learned counsel has referred to a judgment passed by the Honble Supreme Court in Haryana Financial Corporation and another Vs. Rajesh Gupta, (2010) 1 SCC 655.

11. The second limb of the arguments was that a period of 15 days for deposit of 75% amount of the sale price commences from the date of confirmation of sale, which is required to be confirmed by the Secured Creditor under Rule 9(2) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as The Rules 2002) and no forfeiture can be made, unless the sale is confirmed. In the instant case, the Bank has not confirmed the sale and without any information forfeited the amount vide letter dated 15.10.2015. Hence, the said letter is liable to be set aside and the Bank be directed to refund the deposited amount. In support of this contention, the learned counsel has relied upon a judgment passed by the Honble Supreme Court in Civil Appeal No. 3156 of 2018- Rakesh Birani (D) through LRS. Vs. Prem Narain Sehgal and Anr., decided on 21.03.2018.

12. On the other hand, the learned counsel for the respondent-Borrower Shri S. K. Gupta contended that the auction purchaser had to deposit the remaining amount within 15 days from the date of auction, which he has failed to comply with and further, he has accepted this fact in his letter dated 16.10.2015, therefore, no separate order was required for confirmation of sale. The learned

6 of 13 counsel further contended that the DRT has rightly held that the benefit of the forfeited amount be given to the borrower after deducting the expenses incurred by the Bank. Therefore, both the appeals are liable to be dismissed. In support of the contention, the learned counsel relied upon a judgment passed by the Honble Madras High Court in The Authorized Officer, Indian Bank Vs. Tetrahedron Ltd., 2013(1) CTC 353.

13. However, the learned counsel Shri P. K. Gupta appearing on behalf of the secured creditor (Bank) supports the impugned judgment to the extent that the Tribunal below has rightly held the forfeiture as proper one, but his contention was that the amount so forfeited should not be credited in the loan account of the borrower and instead, it should go to the profit account of the Bank. Considering this aspect, Rule 9(5) of the Rules, 2002 has been suitably amended w.e.f. 04.11.2016, whereby the term to the secured creditor has been inserted so as to give the benefit of the forfeited amount. Therefore, the amount forfeited by the Bank for the first auction in favour of the appellant-Dr. Santosh Kumar Gupta as well as for the second auction in favour of the auction purchaser-Anil Kumar Tripathi, be ordered to be appropriated by the bank.

14. I have considered the rival contentions of the learned counsels for the parties and perused the record.

15. The undisputed facts of the matter are that the Bank auctioned the property in favour of the appellant-Dr. Santosh Kumar Gupta on 29.09.2015, who had deposited 25% of the sale price including the earnest money on the same day. However, the remaining 75% of the sale price was not deposited within 15 days from the date of auction. Similarly, the second auction was held on 29.02.2016 and

7 of 13 25% of the sale price was deposited by the auction purchaser, but he had also failed to deposit 75% within time, hence, 25% amount so deposited was forfeited. However, the second auction purchaser-Mr. Anil Kumar Tripathi has not challenged the forfeiture nor has been arrayed as party in these appeals. The DRT has found no infirmity in forfeiture of the amount of appellant-Dr. Santosh Kumar Gupta and has also observed that the benefit of this amount be given to the borrower after deducting the expenses etc. In these circumstances, the following questions are to be considered for adjudication of these appeals:- A. Who is entitled to the forfeited amount, whether the secured creditor or the borrower? B. Whether the Bank has rightly forfeited 25% amount deposited by the appellant-auction purchaser Dr. Santosh Kumar Gupta? C. Result of the appeals. Point-A:

i. It is pertinent to mention that Rule 9(5) of the Rules, 2002 provides for forfeiture of the deposit on account of default committed by the auction purchaser in payment within the period mentioned in sub-rule (4) of Rule 9 of the Rules, 2002. The term to the secured creditor was inserted w.e.f. 04.11.2016, which cannot be said to be clarificatory in nature, so no retrospective effect can be given to this insertion/amendment made in the Rule 9(5) of the Rules, 2002. Both the sales have been held before this amendment on 29.09.2015 and 29.02.2016, therefore, the provision as prevalent at that time is

8 of 13 applicable, wherefor the Rule was silent, as to whom the benefit of this amount be given.

ii. In this regard, section 13(7) of the SARFAESI Act, 2002 provides that all the costs, charges and expenses etc. incurred by the secured creditor in taking any action against the borrower under section 13(4) of the said Act shall be recoverable from the borrower and if any amount is received in the process, then firstly, such costs and charges be adjusted and then be appropriated in discharging of the dues of the secured creditor and residue, if any, be paid to the person entitled thereto. It is thus, obvious that if any amount is received by the secured creditor, then charges incurred towards process are to be adjusted first, meaning thereby, after deduction of this amount, the remaining amount goes to the credit of loan account. Thus, the DRT has rightly held that the borrower is entitled to get the benefit of forfeited amount after deduction of the charges. This view is fortified by the principle laid down by the Honble Madras High Court in The Authorized Officer, Indian Bank Vs. Tetrahedron Ltd. (Supra), which is squarely applicable on the facts of the present matter. Therefore, it is held that prior to the amendment dated 04.11.2016, the benefit of the forfeited amount is required to be given to the borrower after deducting costs and expenses etc. incurred by the secured creditor. Point-B:

i. Admittedly, the auction purchaser-Dr. Santosh Kumar Gupta deposited 25% amount of the sale price on the same day as per condition of the sale notice and has not deposited the remaining 75% within 15 days from

9 of 13 the date of auction. The amount was forfeited by the Bank vide letter dated 15.10.2015 stating that the auction purchaser had failed to deposit the remaining amount within 15 days from the date of auction. The said letter was dispatched on 19.10.2015 by the Registered Post and before that, the auction purchaser has submitted a letter dated 16.10.2015 to the Bank expressing inability to deposit 75% amount due to the facts narrated therein and ultimately, prayed for cancellation of sale and refund of deposited amount.

ii. The contention that the Bank has concealed the material fact about the alleged clouds over the property, is devoid of force. The auction purchaser has failed to bring on record any material to suggest that the construction has been raised over the state land or any proof that the permission required for construction was not taken from competent authority. So, such objection cannot be allowed to be taken at the belated stage. On the contrary, the Bank has provided an opportunity to inspect the site, therefore, it was incumbent upon the auction purchaser to verify the title of the property as well as about the other details pertaining thereto. The property was sold on as is where is basis, therefore, it cannot be said that the Bank has concealed any material fact having any bearing on the auction of the property.

iii. There is no dispute on the proposition as laid down by the Honble Supreme Court in Haryana Financial Corporation Vs. Rajesh Gupta (Supra) that if the seller fails to disclose about the material defect in the property, then the forfeiture cannot be sustained. However, it does not render any assistance to the auction purchaser, because in that case, the

10 of 13 corporation has not disclosed the defect about non- existence of independent three karma passage to the property. Hence, it was found to be non-disclosure of the material fact, but in the instant case, there was no material defect in the property to be disclosed in the sale notice. Therefore, the appellant is not entitled for any relief on this count.

iv. However, the contention that the sale was not confirmed by the secured creditor, is of paramount consideration. Rule 9(2) of the Rules, 2002 envisages that the sale shall be confirmed in favour of the auction purchaser subject to confirmation by the secured creditor. Obviously, the Authorized Officer cannot be treated as the secured creditor nor it can be said that just by declaring the successful bidder or the highest bidder, the sale would be treated as confirmed. Rule 9(4) of the Rules, 2002 further clarifies this aspect, whereby the purchaser is required to pay the balance amount on or before 15th day of the confirmation of sale. If these conditions are complied with, then the secured creditor may invoke the provision of Rule 9(5) of the Rules, 2002 forfeiting the deposited amount.

v. In the present case, the sale notice dated 26.08.2015 stipulates the condition (9) as under:- izkf/kd`r vf/kdkjh }kjk fcdzh dh iqfV djus ds mijkUr dzsrk dks fcdzh dh jkfk dk ksk 75 izfrkr 15 fnu ;k mlls igys Hkqxrku djuk gksxk cSad dk;Z vof/k esa. The language used in the above condition demonstrates that the purchaser was required to deposit the amount after confirmation of sale (fcdzh

11 of 13 dh iqfV). The Bank has failed to demonstrate that the sale held on 29.09.2015 in favour of the auction purchaser was ever confirmed by the secured creditor or the same was conveyed by the secured creditor through Authorized Officer at any point of time before forfeiture of the amount. The amount was forfeited by letter dated 15.10.2015, in which only the reason for forfeiture was stated to be non-deposit of amount within 15 days from the date of auction and not from the date of confirmation of sale. Thus, the forfeiture was made in utter violation of the provision of the Rules and such order is not sustainable in the eye of law.

vi. The Honble Supreme Court has laid down in Rakesh Birani (D) through LRS. Vs. Prem Narain Sehgal (Supra) that there cannot be any forfeiture of the amount of 25% in deposit, until and unless the sale is confirmed by the secured creditor. The principle laid down in this judgment covers the controversy of the present matter.

vii. The contention that the auction purchaser has written the letter dated 16.10.2015 to the bank for not depositing 75% amount and praying for refund of amount, is of no consequence qua the forfeiture of amount for the reason that the Bank has forfeited the amount a day before this letter on 15.10.2015. So at the time of forfeiting the amount on 15.10.2015, the letter dated 16.10.2015 written by the borrower was not before the Bank for consideration nor any reference of such facts mentioned in the letter dated 16.10.2015 has been made in the letter dated 15.10.2015. Nevertheless, the facts narrated by the auction purchaser may be taken into account, while

12 of 13 considering the issue of entitlement of any interest or compensation etc. on the deposited amount, but in any case, the Bank was not entitled for forfeiture of the amount, therefore, the amount is liable to be returned to the auction purchaser and the borrower cannot be given any benefit of this amount. Point-C:

i. In the result, the order passed by the DRT in S.A. No. 380/2015 is modified and the appeal Sr. No. 29/2017 filed by the auction purchaser-Dr. Santosh Kumar Gupta is allowed to the extent that the forfeiture vide letter dated 15.10.2015 by the secured creditor was invalid and the Bank shall refund the deposited amount after deducting the expenses and costs etc. incurred by the Bank in the process of auction sale held on 29.09.2015 and shall not charge any expenses/cost from the borrower with regard to this sale. Further, the auction purchaser has himself intended not to deposit 75% amount and requested to return the deposited amount, hence the auction purchaser-Dr. Santosh Kumar Gupta is not entitled for any compensation or interest on the amount and instead, the Bank would deduct the costs and expenses from this amount as stated hereinabove.

ii. The Appeal Sr. No. 282/2016 filed by the Bank stands dismissed. The Bank is directed to refund the amount to the auction purchaser-Dr. Santosh Kumar Gupta within a month from today after deducting the costs and expenses etc. incurred during the process of auction and is free to proceed further in accordance with law against the borrower for remaining dues, if any, after giving the benefit of forfeited amount (less charges) of Anil Kumar Tripathi in the loan account.

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iii. No order as to costs.