2022 (2) TMI 1468 - HC - Indian Laws

Challenge to orders of Financial Institution regarding cancellation of sale of mortgaged property and forfeiture of earnest money due to failure to pay balance amount within stipulated timeline - Rule 9(3) of Security Interest (Enforcement) Rules, 2002 - HELD THAT - It is important to note that the respondent is undisputedly a public financial institution. Its interest would be clearly subserved if the controversy which forms the subject matter of the present writ petition is brought to a close and the petitioner called upon to furnish the balance amount constituting the bid which was submitted and the controversy consequently lent a hiatus. This would clearly balance the interest of the petitioner as well as the public financial institution. Regard must also be had to the fact that it is not the case of the FI that today, it would be in a position to fetch more than the bid submitted by the petitioner. In fact the tenor of the submissions addressed on its behalf was of closure being accorded without being bound by the peculiar and singular facts of this case being treated as a precedent. While the Court is conscious of the mandate of the particular statute, it must remain cognizant of the peculiar situation which came to prevail and constrained courts to even stop the march of the statute of limitation. These were times without parallel and require the Courts to formulate novel solutions in equity and to undertake an exercise to balance the interest of parties. The order dated 22 April 2021 of forfeiture of the earnest money deposited by the petitioner as well as the subsequent sale notice of 10 June 2021 are hereby quashed - Petition allowed.

Summary

Issues:
Challenge to orders of Financial Institution regarding cancellation of sale of mortgaged property and forfeiture of earnest money due to failure to pay balance amount within stipulated timeline under Rule 9(3) of Security Interest (Enforcement) Rules, 2002.

Analysis:
1. The petitioner challenged the Financial Institution's orders of 22 April and 10 June 2021, which canceled the sale of a mortgaged property and forfeited the earnest money due to failure to pay the balance amount within the specified timeline. The petitioner had submitted a bid for the property and deposited 10% of the bid amount as earnest money on 12 March 2021. The auction was conducted on 15 March 2021, with the petitioner's bid being the highest. However, due to a bank holiday and the Covid-19 pandemic, the petitioner could not deposit the balance amount by 17 March 2021 as required by Rule 9(3) of the Rules. The Financial Institution justified its actions based on the default of one day by the petitioner.

2. The Court considered the jurisdictional aspect raised by the respondent's counsel, contending that the petitioner should have availed the alternative remedy under Section 17 of the SARFAESI Act before approaching the Court under Article 226 of the Constitution. However, the Court found it inequitable to relegate the petitioner to pursue the alternative remedy at that stage, especially after exchanging pleadings. The Court also analyzed the imperative language of Rule 9(3) regarding the deposit requirement and the discretion provided under Rule 9(4) for payment arrangements.

3. The Court acknowledged the unprecedented situation caused by the Covid-19 pandemic and the impact it had on the petitioner's ability to comply with the deposit timelines. Referring to a previous judgment, the Court emphasized the need to dispense justice with equity considering the exceptional circumstances. The Court balanced the interests of the petitioner and the public financial institution, noting that the respondent did not claim to fetch a higher bid amount than the petitioner's offer.

4. The Court allowed the writ petition, quashing the orders of forfeiture and sale notice. The petitioner was directed to deposit the entire balance amount within a week, along with simple interest at 5% from 17 March 2021 until the deposit is made. The Financial Institution retained the right to approach the Court if the petitioner failed to adhere to the commitment. The Court's decision aimed to balance the interests of both parties and address the peculiar circumstances arising from the pandemic while upholding the statutory requirements.