Forfeited amount returned to successful bidder in auction

technical head

I have learnt a lot from perusing these forums from the past few years. 

I have reason to believe that my bank had acted in an arbitrary manner with respect to my loan account.  The various such arbitrary and downright unethical actions, and its consequences I would detail on a separate post.  Here is one situation that I would be grateful for any input from the learned forum members:

 

1.  The Bank went ahead and auctioned my property without notice under 8(6).  There was a successful bidder who deposited the required 25% with a written undertaking to the bank that he is fully cognizant of the fact that the sale confirmation is subject to the result of my SA pending before the DRT.

2.  I had appealed the decision of the DRT (They passed an order requiring me to pay off the entire outstanding amount before setting aside the sale).  I have moved the DRAT where the case was pending for a few months.  The bidder had filed an implead petition before the DRAT which is yet to be acted upon.

3.  In the meantime, for unknown reasons, the Bank went ahead and returned the 25% money of the successful bidder, and the bidder exited the Sarfaesi process.

4.  The bank has claimed that since the bidder has left, the application before the DRAT was infructuous, and the case has been reverted to the DRT for disposal on merits.

My doubts on the above:

1.  Can the Bank act in such an arbitrary manner without direction from the DRAT/DRT and return the money to the bidder?  Especially during a period when there was a stay in effect from the the DRAT?

2.  Is it legit if I were to file an IA with the DRT to require the bank to recall the money from the former successful bidder?

3.  I was reading about a Madras High Court judgement ""The Authorised Officer vs M/S. Tetrahedron Ltd on 20 December, 2012" Wherein the Hon'ble judge had found that forfeited amount needed to be adjusted against the outstanding dues from the borrower.  Relating it to my situation, is the amount given away to the bidder by the Bank forfeited money?  If so, is this something that can be adjusted against my outstanding loan?  

Thank you very much in advance for your valued inputs.  

 
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Advocate

In the instant case, the 25% remitted by the auction purchaser is not forfeiture, since bank could not confirm the sales due to challenge by borrower in DRT & DRAT and hence the purchaser could not remit balance bid amount for issue of sale certificate. Hence the bank is justified with return of 25% deposit to the bidder. Since it was not forfeiture bank cannot withheld the money towards dues of borrower. 


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technical head

Thank you Raju sir for your response.  No Sarfaesi expert am I, or a lawyer for that matter.  However I read both the Act as well as the Enforcement rules and it does not speak about the Bank having the power to just release funds when the bidder himself had given an undertaking that he is aware that the sale confirmation is dependent on the outcome of the DRT SA.  There is a stay in place at DRAT.  I wonder how the Bank can arbitrarily release the deposit without either the stay being vacated, or at least a direction from the DRAT?  Is there anything in the Act that I am not missing, or is there anything like (say) the Income Tax Rules which is the template for auctions, that bestows powers on the Authorized Officer powers to do how he pleases?  This particular Bank had indulged in a lot of irregularities with respect to my loan account, which would see the light of day during the disposal of the SA.  This is why I am very leery of any action taken by the Bank that in my feeble attempt at reading the law, does not find legitimacy.  Again, I would like to stress my intent is not to unfairly benefit from any potential mistake by the Bank.  This AGM had visited untold misery on us.  For instance, the property in question is worth 6 times the outstanding amount.  The man wanted us to sell it away to a builder from the get go, then tried to induce us to enter into a joint development, and finally sell it away for half its value.  All because I am an retired NRI, and the man's mistaken notion that I am well off!  Just one floor of the property would have more than extinguished the outstanding loan amount.  He wanted to help his buddy, and thus the whole property was auctioned off.  

Apologize for the rambling.  

 

Thanks again.  

 
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Dear Mr. Sastibrata,

According to Rule 9(2) of S.I.(E) Rules the sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor. Cancellation of the sale before or after confirmation of sale is condition precedent for forfeiture of the deposit amount (i.e.the entire 25%). According to Rule 9(4) of S.I.(E) Rules the balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties. According to Rule 9(5) in default of payment within the period mentioned in sub-rule 9(4), the deposit (i.e.the entire 25%) shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold. In the present case successful purchaser deposited the 25% of the bid amount with a written undertaking to the bank that he is fully aware of the fact that the sale confirmation is subject to the result of the SA pending before the DRT. During pendency of the appeal before the DRAT the borrower had taken back the 25% of the amount from the bank. Therefore it should be construed that, cancellation took place before the stage of confirmation of sale in favour of the purchaser. The bank was not in order in releasing the deposit amount to the purchaser who acted in contravention of his own letter of undertaking. Thus I reiterate that, release of the 25% of the bid amount to the purchaser amounted to cancellation of sale before confirmation. The amount of 25% ought to have been forfeited instead of release to the purchaser as the purchaser did not give any scope to the bank for confirmation of sale in spite of his the said undertaking. Therefore the bank should recall the amount so released and retain it until finalisation of the SA by DRT. In the alternative the bank itself provide for it since the action of the bank deprived the borrower’s right to get the benefit of credit of such amount which could have been forfeited in normal course according to the dicta of Madras High Court’s Judgment in Tetrahedron Vs. Indian Bank (cited in the query) and according to S.I.(E) Rules.


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technical head

Dear respected Ramachary sir,

Your words are music to my ears!  Not because I believe that I am going to unduly enrich myself at the public expense, but because I would have an additional opportunity to make this slimy AGM skirm for doing what he did.  

You say that "Thus I reiterate that, release of the 25% of the bid amount to the purchaser amounted to cancellation of sale before confirmation."Does this mean that should the sale have been cancelled before confirmation, then the successful bidder has every right to take back his initial deposit!  I am shocked that the Authorized Officer has been vested with absolute powers wherein he can on a whim let go of a successful bidder, even while an SA is pending before the DRT, the bidder has given a written undertaking that he is aware of the same and the fact that confirmation is dependent on the outcome of the SA, and a stay is in effect at the DRAT!  

 
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Cancellation of the sale can be presumed from the fact that, the release of the 25% deposit amount was at the instance of the purchaser. The right step the bank could take is while cancelling the sale, the bank ought to have forfeited amount for crediting it to the loan account of the borrower as afore said instead of releasing it to the purchaser contrary to the undertaking given by him to the bank.. You may approach any senior expert in the matter to find out whether my opinion is correct or not and act upon such opinion of the expert without further reference to me. Thank you.


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technical head

Thank you Ramachary sir for your input.  I will do as per your advice.  I will post the results of my case in this thread at an appropriate time.  

There does not appear to be any kind of process or rule that dictates how an Authorized Officer ought to perform, when there is a deposit from a successful bidder in an Sarfaesi auction, as well an undertaking from the successful bidder that he is aware of the pending SA in DRT.  There does not appear to be any case law to support this action by the AO either, in unilaterally returning the deposit amount to the bidder and allowing him to go Scott free, during a period where there was a stay in effect, and then proclaim to the DRAT that since the bidder had left the process the case in DRAT had become infructious and needed to be restored to the DRT for hearing on merits.  

Sarfaesi action itself is pretty draconian on the middle class borrowers, especially when a behemoth of a Bank, represented by a shady Authorized Officer, indulges in actions that are geared to intimidate the borrower and demonstrate to him the absolute power he has over the borrower and the utter contempt he has for the rule of law and our Tribunals.  The whole experience had initially made me feel helpless and vulnerable until I came across some good counsel, as well as stumbled upon this forum and started sharing my experience.  

Thanks again sir for your words of wisdom. 

 
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Consultant & Legal Analyst

1) You have not stated, stay for what? Earnest money is deposited just to get qualified for bidding. Wiining or losing has no relevance to the earnest money. So stay has no effect on refund or forfieture of E.M. However, it is not the action of the bank, but the decision of DRAT relevant in your appeal case.  If you have any objection to the request of the bank, you can file objection with the DRAT.

 

2) Your second question has no relevance with reference to your case and the refund of EM to the successful bidder. The EM has to be refunded to the bidder, if the bid is not accepted/honoured by some reason. You have no concern with the EM or bid of the bidder.

 

3) The EM in the present case cannot be treated as forfieted. Forfieture of EM can be made only where the bidder does not turn up to accept and comply with the contract terms. Moreover, even if the EM is forfieted that becomes the part of the revenue of the bank, not the debtor. So, the question of adjustment of the bidder's amount against your loan dues is quite illegal in any case.


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technical head

Thank you Dhingra sir, for responding to my queries:

1.  There was a stay in place when we had appealed to the DRAT to set aside the auction.  The successful bidder had also put in a petition to implead himself in the case.  In the meantime, while the appeal in the DRAT is yet to be decided, the Bank had returned to the successful bidder the 25% initial deposit that was collected by the Bank.  The entire exercise, appealing to DRAT, etc, was made infructous by the Bank, by their unilateral action in simply returning the initial deposit amount to the successful bidder.

2.  My question was not with respect to the EMD, which is bound to be returned to a bidder if he was not the winning bidder.  My query was pertaining to the 25% amount that was taken as deposit by the Bank from the winning bidder, for having successfully bid in the auction.  Said bidder also gave an undertaking to the Bank that he is well aware of the SA pending before the DRT, and that Sale Confirmation is contingent to the outcome of the SA.  How then could the bank, after so many months of the litigation process, just return the 25% initial amount to the bidder and allow him to walk away?  

3.  Again, my query is not with respect to EMD; rather it is with respect to the initial 25% paid to the bank by the successful bidder.  The contract term, that the bidder signed on to, was for the remaining 75% to be paid upon sale confirmation, upon resolution of the SA pending before the DRT.  My contention is that the Bank colluded with the bidder in releasing the said amount, without following the rules of the auction, Security Interest (Enforcement) Rules, or the IT rules, or any direction from the DRAT /DRT  in returning his 25% deposit.  Kindly peruse A/O vs Tetrahedron judgement referred to in my original post, where the Hon'ble High Court of Madras has held that monies forfeited by Sarfaesi action ought to be credited towards the account of the borrower.  (In my case there is a successful bidder who just wanted to leave the process, and the Bank instead of holding his deposit in forfeit, just handed over the money to him to go Scott free.  At least had they advertized the fact that successful bidders may leave anytime they want, perhaps they would have gotten a much larger sample of bidders and a higher successful bid)

Thanks again for your useful input.  

 
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Advocate High Court

agree with Ramachary ji and Dhingra ji

 
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