2023 (4) TMI 1232 - SC - Indian Laws

Validity of forfeiture order - power of forfeiture was exercised by the Authorized Officer in an arbitrary manner or not - HELD THAT - Whenever a challenge is laid to an order of forfeiture made by an authorized officer Under Sub-rule (5) of Rule 9 of the Rules by a bidder, who has failed to deposit the entire sale price within ninety days, the tribunals/courts ought to be extremely reluctant to interfere unless, of course, a very exceptional case for interference is set up. What would constitute a very exceptional case, however, must be determined by the tribunals/courts on the facts of each case and by recording cogent reasons for the conclusion reached. Insofar as challenge to an order of forfeiture that is made upon rejection of an application for extension of time prior to expiry of ninety days and within the stipulated period is concerned, the scrutiny could be a bit more intrusive for ascertaining whether any patent arbitrariness or unreasonableness in the decision- making process has had the effect of vitiating the order under challenge - In any event, the underlying principle of least intervention by tribunals/courts and the overarching objective of the SARFAESI Act duly complimented by the Rules, which are geared towards efficient and speedy recovery of debts, together with the interpretation of the relevant laws by this Court should not be lost sight of. Losing sight thereof may not be in the larger interest of the nation and susceptible to interference. In the present case, undisputedly, payment of 25% of the sale price was made by the contesting Respondent on 15th September, 2017; hence Sub-rule (3) of Rule 9 stood complied with. The contesting Respondent was notified to deposit the balance 75% of the sale price by 29th September, 2017. Admittedly, he could not or did not so deposit till 27th September, 2017, whereupon he prayed for extension of time by 25 days by his request letter of even date, i.e., 27th September, 2017. The Authorized Officer responded favourably and extended the time for deposit by 25 days as prayed by the contesting Respondent, i.e., till 23rd October, 2017. Extension of time till 23rd October, 2017, therefore, was by mutual agreement - a course of action permitted by Sub-rule (4). On 20th October, 2017, the contesting Respondent made a further request for extension of time by 15 days citing pendency of proceedings at the instance of Stallion before the DRT - The contesting Respondent not having deposited the balance amount of sale price by 23rd October, 2018, the mutual agreement for extension of time, thus, lapsed with effect from 24th October, 2017. This resulted in the order of forfeiture being passed by the Authorized Officer in terms of Sub-rule (5). The transaction fell through by reason of the default or failure of the contesting Respondent to deposit 75% of the sale price by 23rd October, 2017, as per the terms of Rule 9(4). On facts, it is found that the contesting Respondent was arranging for funds when he received the summons from the DRT on 10th October, 2017. It is, therefore, clear that at least till that date, the contesting Respondent was lacking in financial resources to make payment of the entire sale price. Although it is not always necessary for an auction purchaser to arrange for funds and be ready to pay the entire sale price within 15 days of confirmation of sale, since extension of time is contemplated in Rule 9, it is beyond our comprehension why the contesting Respondent while applying for an extension of time on 27th September, 2017 sought for only 25 days' time and not for more time, at least up to the entire period of ninety days, being the maximum time that he could have asked for and made available to him in terms of Rule 9(4). He had also moved the DRT for extension of time, which was not granted. Also, the terms of the auction notice made it clear that the auction sale would be conducted in terms of the provisions contained in the SARFAESI Act. All prospective bidders were, therefore, put on guard as to what could follow in case of a default or neglect. Notwithstanding the proceedings that were initiated before the DRT by Stallion of which the contesting Respondent became aware on 10th October, 2017, nothing prevented him from making full payment of the balance amount and have the sale certificate issued in his favour. It can be inferred from the facts and circumstances that the contesting Respondent was seeking to buy time - While dealing with a case covered by Rule 9 of the Rules, an order of forfeiture of sale price should not be lightly interfered. The contesting Respondent was not genuinely interested in proceeding with his part of his obligations and we see no arbitrariness in the action of the Authorized Officer in forfeiting Rs. 30,75,000/- being 25% of the sale price. Whether the High Court was justified in its interference with the forfeiture order on the ground assigned in the impugned judgment and order? - HELD THAT - The High Court to have committed an error of law in directing refund on the ground that the Bank should not be permitted to enrich by forfeiting the amount from the writ Petitioner . It is not a question of the Bank's enrichment or deriving any undue advantage that the Court was really concerned with. It seems to have posed a wrong question for being answered. When does an enrichment or unjust enrichment occur? - HELD THAT - In SAHAKARI KHAND UDYOG MANDAL LTD. VERSUS COMMISSIONER OF C. EX. CUS. 2005 (3) TMI 116 - SUPREME COURT , this Court had the occasion to reiterate that unjust enrichment means retention of a benefit by a person that is unjust or inequitable. Unjust enrichment occurs when a person retains money 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 at the expense of another. A right of recovery under the doctrine of unjust enrichment arises where retention of a benefit is considered contrary to justice or against equity. Yet again, in INDIAN COUNCIL FOR ENVIRO-LEGAL ACTION VERSUS UNION OF INDIA OTHERS 2011 (7) TMI 1109 - SUPREME COURT , this Court held that a person is enriched if he has received a benefit, and he is unjustly enriched if retention of the benefit would be unjust. The High Court failed to bear in mind the settled principle of law that the power of judicial review of a writ court will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes, unless a clear-cut case of arbitrariness or mala fides or bias or irrationality is made out. On the pleadings, this was not one such case where the High Court should have interfered. The question under consideration can also be addressed from a different perspective. In the present case, the Authorized Officer had adhered to the statutory rules. If by such adherence any amount is required to be forfeited as a consequence, the same cannot be scrutinized wearing the glasses of misplaced sympathy. Law is well settled that a result flowing from a statutory provision is never an evil and that a court has no power to ignore that provision to relieve what it considers a distress resulting from its operation. The statute must, of course, be given effect to whether a court likes the result or not - the second question answered by holding that the High Court was not justified in exercising writ jurisdiction and directing a refund of 25% of the sale price. The order of the High Court stands set aside - appeal allowed.

Summary

Issues involved:
1. Whether the power of forfeiture was exercised by the Authorized Officer in an arbitrary manner?
2. Whether the High Court was justified in its interference with the forfeiture order on the ground assigned in the impugned judgment and order?

Summary:

Issue 1: Whether the power of forfeiture was exercised by the Authorized Officer in an arbitrary manner?

The Supreme Court examined the statutory provisions under Rule 9 of the Security Interest (Enforcement) Rules, 2002. It noted that the Authorized Officer has the discretion to extend the time for payment of the balance amount of sale price, but such discretion must be exercised reasonably. The Court emphasized that forfeiture, as per Rule 9(5), is a statutory penalty for failure to pay the balance amount within the stipulated time. The Court referred to the case of Agarwal Tracom Private Ltd. v. Punjab National Bank to highlight that forfeiture is part of the measures specified in Section 13(4) of the SARFAESI Act and is amenable to challenge on valid grounds. The Court also discussed the concept of forfeiture as a punishment for breach of obligation, citing Black's Law Dictionary and previous judgments. The Court concluded that the Authorized Officer's decision to forfeit the amount was neither arbitrary nor unreasonable, given the contesting Respondent's failure to pay the balance amount within the extended period.

Issue 2: Whether the High Court was justified in its interference with the forfeiture order on the ground assigned in the impugned judgment and order?

The Supreme Court found that the High Court erred in directing a refund on the ground that the Bank "should not be permitted to enrich by forfeiting the amount from the writ Petitioner." The Court clarified that the concept of unjust enrichment requires that the Bank must have received a benefit at the expense of the contesting Respondent, which was not the case here. The forfeiture was a statutory penalty, and the Bank was entitled to enforce the security interest. The Court emphasized that judicial review should not protect private interests at the cost of public interest unless there is clear arbitrariness or mala fide intent. The Court also noted that adherence to statutory rules, even if resulting in forfeiture, should not be scrutinized under misplaced sympathy. The Supreme Court held that the High Court was not justified in exercising writ jurisdiction to direct a refund and set aside the High Court's judgment and order.

Conclusion:

The Supreme Court allowed the appeal, setting aside the High Court's judgment and order, and held that the Authorized Officer's forfeiture of the amount was justified and not arbitrary. The Court emphasized the importance of adhering to statutory provisions and the limited scope of judicial interference in such matters.