1. The facts leading to the writ petition are that, a sale notice dated February 9, 2013, was published in the Ananda Bazar Patrika and Times of India in exercise of powers under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (herein after referred to as the said Act) by the Bank of Baroda, the respondent No.1 herein and the petitioner company desired to purchase the property comprising of all that piece and parcel of land measuring an area of 3.75 Cottahs (more or less) along with a single storied incomplete building having a total built up area of 558 sq.ft. standing thereon in Holding No.27 Nazrul Sarani (UB), Mouza - Badra, JL No.- 9, Dag No.295, 285, Khatian No.342/333, Touzi No. - 1163, P.S. - Dumdum, Ward No.1 (hereinafter referred to as the said property). The date of sale was March 12, 2013. The reserve price was Rs.18,32,000/-.
The petitioner submitted its bid on March 11, 2013, along with an amount of Rs.5 lakhs as earnest money. The petitioner was declared as the highest bidder having quoted a sum of Rs.21,22,000/. The petitioner was informed by a letter dated March 14, 2013, that the sale would be confirmed subject to the final order/outcome of SA.No.271 of 2013, pending before the Debt Recovery Tribunal-II. The petitioner was advised to deposit 25 % of the sale amount, less the earnest money that is Rs.5,33,500 - 5,00,000 = Rs, 30,000/- immediately, and the balance amount of Rs. 5,99,000/- was required to be paid, as per the said notice within 15 days from the date of receiving the confirmation letter which would be issued, according to the Respondent No.1, subject to the final order of SA No.271 of 2013. Before the above notice was issued by the respondent No.1, the petitioner deposited a demand draft dated March 13, 2013 with the bank for an amount of Rs.30,000/-. Thereafter, the petitioner deposited another demand draft on April 4, 2013 for an amount of Rs.15,92,500/- as full and final payment for the property. Even after deposit of the demand draft, the bank did not confirm the sale by issuing a sale certificate in favour of the petitioner.
2. Facts reveal that the property was owned by one Diptesh Chand and Sandhya Chand who were the borrowers. The said borrowers preferred an application under Section 17 of the said Act, and the said application was moved before the Learned Debt Recovery Tribunal-II Kolkata on March 12, 2013. The Learned tribunal was pleased to direct the respondent No.1, not to confirm the sale till the next hearing before the Tribunal. The bid for the said property took place at the Salt lake Branch of the respondent No.1, bank at 1.00 p.m. on March 12, 2013, that is, on the date when the matter was moved before the Tribunal. At the time of publication of the sale notice there was no litigation pending in respect of the said property. Aggrieved by the inaction on the part of the bank in confirming the sale, even after payment of the purchase amount by way of bank drafts, the petitioner wrote a letter to the authorized officer of the bank dated May 15, 2013, requesting the authority to handover physical possession, site plan, Khazna papers, original conveyance deed and sale certificate to its director, Mr. Amit Choudhury. By a letter dated January 17, 2018, the bank requested the petitioner to prepare itself for the sale of the said property, as the borrowers were not willing to pursue the matter before the Tribunal any further. Thereafter, again by a notice dated January 30, 2018, the petitioner requested the said bank to complete the sale proceeding and handover final possession of the said property. The petitioner deposited the requisite documents on February 9, 2018. By a letter dated March 12, 2018, the Chief Manager of the said bank returned all the banker's cheques (demand drafts) which had been deposited by the petitioner and all of which had become invalid by lapse of time, namely, i. No. 030053, Dt:25.06.2013, Amt:Rs.30,000/-, IndusInd Bank ii. No. 030017, Dt:25.06.2013, Amt:Rs.5,00,000/-, IndusInd Bank iii. No.030487, Dt:25.06.2013, Amt:Rs.15,91,000/-, IndusInd Bank iv. No.430293, Dt:21.06.2013, Amt:Rs.500/-, IndusInd Bank
3. The bank returned the banker's cheques on the ground that the sale of the property having been stayed by the Tribunal, the bank could not proceed with the same. The petitioner by a demand of justice issued by its learned advocate dated June 15, 2018, demanded payment of a sum of Rs.18,92,464/- being the total interest calculated at the rate of 18% per annum on the principal amount in respect of which the drafts has been deposited and were lying with the bank from March 11, 2013 to March 12, 2018. The bank did not pay any heed to the said demand. The amount of simple interest as calculated by the petitioner was as hereunder:-
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4. This writ petition has been filed with a prayer for issuance of a writ of Mandamus directing the respondent No.1, Bank to pay the petitioner an amount of Rs.18,92,464/-, being the accrued simple interest calculated at 18% per annum on the principal amount deposited with the bank through demand drafts and lying with the Bank from March 11, 2013 to March 12, 2018 along with further interest at the rate of 18% per annum on and from March 13, 2018 till the date of actual payment.
5. The unreasonable and arbitrary action of the bank in returning the invalid drafts/banker's cheques without issuing the letter of confirmation of the sale and further inaction of the bank in paying the interest as claimed by the petitioner, has compelled the petitioner to file this writ petition.
6. It was urged on behalf of the petitioner, that at the time of auction and issuance of the sale notice on February 9, 2013, the encumbrance about the litigation had not been mentioned by the bank. The entire purchase amount of Rs.21,22,000/- by way of demand drafts/banker's cheques had been received by the bank. The bank had enjoyed such amount. The bank kept quiet for five (5) years after receiving the money and then returned the invalid drafts/banker's cheques. Thus, the respondent No.1, bank was liable to pay the interest accrued thereon as per the calculation made by the petitioner. The petitioner had been requesting the said bank time and again to deliver vacant possession of the said property with the hope that the sale would be completed. Suddenly, by a letter dated March 12, 2018, the invalid banker's cheques/demand drafts were returned to the petitioner without any interest. The learned advocate for the petitioner vehemently argued that the bank was liable to pay interest having held the money for those five (5) years without delivering the property to the petitioner. In support of his contention the learned advocate for the petitioner relied on the following decisions, namely, Motors and Investments vs. New Bank of India reported in 1997 (11) SCC 271, World Tel Inc. and Another vs. Union of India and Others reported in (2001) 10 SCC 513, Mathew Varghese vs. M. Amritha Kumar and Others reported in (2014) 5 SCC 610, V. Sambandan vs. The Punjab National Bank in Writ Appeal No.530 of 2010, S. Sanmuganathan vs. The Authorized Officer, Indian Overseas Bank in W.P.No.39199 of 2016, State Bank of India & Ors. vs. K. D. Fabrics Private Limited & Anr. in arising out of W. P.660 of 2017.
7. It was urged on behalf of the respondent No. 1, bank that the sale notice stipulated that the sale was on as is, where is, whatever is, basis and that the sale of the asset would be subject to confirmation of sale by the secured creditor. The borrowers filed an application under Section 17 of the said Act, which was moved before the Debt Recovery Tribunal-II Kolkata on March 12, 2013. By an order passed by the Tribunal, the respondent No.1, bank was directed not to confirm the sale. The bank informed the petitioner about the order of the Tribunal and the proceeding with respect to the said property on March 14, 2013. Although, the petitioner was called upon to pay the balance amount of 25% of the purchase money, the petitioner was instructed that the balance amount of the consideration of Rs.15,91,000/- was to be paid within 15 days from the date of receipt of the letter of confirmation of the sale, which would be issued by the bank subject to the final decision of the Tribunal in the proceeding before it. The respondent No.1 had not demanded the balance 75% of the amount and also did not encash the banker's cheques issued by the petitioner amounting to 25% of the purchase money, that is, Rs.5,30,500/-. These facts were well within the knowledge of the petitioner. The petitioner had also written a letter asking the bank about the pending litigation on July 7, 2014 and by a letter of even date, the Chief Manager of the said bank informed the petitioner about the details of the litigation. The petitioner on its own volition submitted the demand drafts of Rs.15,91,500/- on April 4, 2013 at the receiving section of the bank which was received without prejudice. The petitioner having knowledge of the pending litigation and details thereof, failed to take any steps before the Tribunal and instead called upon the bank to confirm the sale. The letter of the petitioner was duly replied to by the Bank on March 12, 2018 and the invalid banker's cheques/demand drafts which were deposited by the petitioner were returned by the bank. The bank also expressed its inability to proceed with the sale due to the order of the Tribunal. According to the respondent No.1 bank, as the banker's cheques had not been encashed due to the restraint order issued by the Tribunal, the same had become invalid after three (3) months from their issuance and the respondent No.1 bank was not liable to pay any amount of interest as claimed by the petitioner. It was contended that as the bank had not enjoyed the money, the question of payment of interest did not arise.
8. Heard the parties. As per the sale notice, the petitioner submitted its bid on March 11, 2013. Admittedly on the date of the publication of the sale notice, that is, February 9, 2013, there was no litigation pending in respect of the said property. The Debt Recovery Tribunal was moved by the borrower on March 12, 2013, that is, on the date of auction. The tribunal passed an order on the same date, restraining the bank from confirming the sale. Such restraint order was extended by the Tribunal and the bank was unable to proceed with the sale or handover vacant possession of the property to the petitioner. The petitioner was accepted as the highest bidder by the bank. By a notice dated March 14, 2013, the petitioner was asked to pay 25% of the sale amount, less the earnest money already deposited by the petitioner and was also informed that the remaining 75% of the amount would become payable within fifteen (15) days from receipt of the sale certificate, which would be issued subject to the final outcome of SA No.271 of 2013 pending before the Debt Recovery Tribunal-II. The bank did not call upon the petitioner to pay the remaining of 75% of the sale price. The petitioner on its own accord deposited the banker's cheques for the remaining 75% on April 4, 2013. The bank did not encash them.
9. The bank by a letter dated March 12, 2018, returned the invalid banker's cheques/demand drafts to the petitioner and expressed its inability to proceed with the sale. Admittedly, the demand drafts/banker's cheques were valid only for three (3) months. The bank in not having encashed the drafts/banker's cheques, did not enjoy the money of the petitioner nor did the bank utilize the said money. The drafts/banker's cheques also became invalid after three (3) months and the bank did not ask for revalidation of the same. When the bank had not utilized the money by encashing the demand drafts/the banker's cheques, the question of payment of interest, in my opinion, without there being any claim for refund of the principal amount does not arise. Moreover, the bank had clearly indicated to the petitioner on March 14, 2013 that the remaining 75% of the amount would be payable after the confirmation of the sale and that the confirmation letter would be issued only after the proceedings before the Tribunal had come to an end. The petitioner was well aware of the position but voluntarily deposited the drafts/banker's cheques. Thus, taking a chance at its own risk. The petitioner also did not take any steps before the Tribunal in the pending litigation. As there was no confirmation of sale, the petitioner was not required to deposit the banker's cheques/demand drafts in terms of Rule 9 (5) of the Security Interest (Enforcement Rules) 2002. The rules provide that, only upon confirmation of sale, if the balance purchase price was not paid within fifteen (15) days of such confirmation, the deposit of 25% made by the petitioner would have been forfeited. In the instant case, there was no confirmation of sale, the petitioner was informed by the bank within two (2) days from the date of auction that the letter of confirmation would be issued only after the final decision of the tribunal and the petitioner would be required to make the remaining payment of 75% of the purchase amount within fifteen (15) days from the receipt of the letter confirming sale. Moreover, due to the pending litigation, the bank did not encash the demand drafts/banker's cheques and those became invalid after three (3) months from their respective dates of issuance. Once, the principal amount was not encashed by the bank and used by the bank, the question of payment of interest does not arise. The bank was not under any statutory or contractual obligation to pay the interest. If the petitioner was aggrieved by the failure of the bank to perform its obligation arising out of the sale notice after accepting the bid of the petitioner along with the earnest money as also for withholding the invalid demand drafts, the remedy of the petitioner would be in a civil suit. The petitioner could have also asked IndusInd bank to cancel the demand drafts and remit the money to his account.
10. In the decision of K. D. Fabrics Private Limited & Anr. (supra), the Hon'ble Division Bench of this Court held that once the bank was directed by the Tribunal, while disposing of an application under Section 17 of the said Act, to refund the amount received by the bank from the auction purchaser along with interest, the bank should have complied with the order of the Tribunal. The Hon'ble Division Bench held, that when the bank failed to discharge its obligation as per terms of the auction sale, the bank on its own should have offered to refund the amount to the auction purchaser who was not only deprived of the enjoyment of the property but was prevented from utilizing the money which was deposited with the bank, for purchasing other property. The facts of the case are completely different from the instant case. In this case, the bank had neither encashed the demand drafts/banker's cheques nor utilized the money of the petitioner. The bank did not demand 75% of the bid money and had intimated the petitioner about the pending litigation when the 25% of the bid money was demanded from the petitioner as the successful bidder. At that juncture the petitioner had the choice to cancel the demand drafts and not pay the balance 75%.
11. In the decision of Motors and Investors (supra), the Hon'ble Apex Court held that, when the appellant before the Apex Court had deposited the money with the bank pursuant to an auction, and upon the said auction having been set aside by a court, the auction purchaser should be compensated by the bank by way of refund of the principal amount together with interest at the rate of 18% per annum on the amount deposited. In this case also the facts were distinguishable.
12. In the decision of Mathew Verghese (supra), the Hon'ble Apex Court had directed that the appellant before it, being the auction purchaser, be refunded 25% of the purchase amount deposited with the bank along with interest at the rate of 18% when the auction sale had been set aside.
13. In the decision of the High Court of Madras in V. Sambandan (supra), the refund of the principal amount with interest at the rate of 9% was directed in view of the fact that the sale notice did not mention the encumbrance although, the bank was aware of the same and as such forfeiture of the amount which has been deposited by the auction purchaser at the time of auction was set aside. The Division Bench of the High Court at Madras held as follows:
" 60. On the facts and circumstances of the case, the Bank may be right in contending that physical possession need not be taken before bringing the mortgaged property for auction, but they cannot shirk their duty to hand over possession to the auction purchaser. If the bank was not in a position to take physical possession, before sale, then recourse ought to have been taken under Section 14 of the Act and under the scheme of the Act, the Bank cannot be permitted to contend that there is no statutory obligation, on its part, to put the auction purchaser in possession.
61. Ordinarily, a sale is completed, on receipt of the entire sale consideration and handing over possession. But if encumbrance is specifically mentioned in the sale notice and if the auction purchaser with eyes open, had purchased the property, then there could be a cause to contend that it is the purchaser, who had taken the risk. While issuing a sale notice, it is the duty of the Bank to mention all the encumbrances in the property. The condition, "as is where is" or "as is what is" may indicate that when the property is sold, everything is not clear. But at the same time, the purchaser cannot be expected to know that the property sold was already mortgaged to another bank, viz., Nedungadi Bank and that there was a decree in O.S.No.328 of 1999, dated 10.07.2000, on the file of Subordinate Judge, Poonamallee.
62. Though the appellant has taken a demand draft dated 02.09.2009 in favour of Punjab National Bank, the respondent herein and also sent a telegram that he was ready to hand over the draft, subject to the bank handing over vacant possession of the property and time for remittance was granted up to 22.02.2009, bank has stuck to its stand of 'as is where is' or 'as is what is' condition and not committed to hand over physical and vacant possession of the auctioned property, which in our view is contrary to the scheme of the Act. In the light of the above discussion and decisions, forfeiture of the amount is erroneous. Appellant has made out a case for interference.
63. In the result, order made in W.P.No.19557 of 2009, dated 28.10.2009, is set aside. The respondent bank is directed to refund, a sum of Rs.3,30,000/- to the appellant, with interest at the rate of 9% per annum, within a period of four weeks, from the date of receipt of a copy of this order."
14. In the decision of S. Shanmuganathan (supra) a Division Bench of the Madras High Court held as follows:-
"31. The representation that the property is free from encumbrance and that he would get vacant possession soon made the petitioner to take part in the auction and to submit his bid. Even according to the Bank, details of litigations were not disclosed in the auction notification in spite of clear knowledge. The petitioner with a fond hope that he would be in a position to enjoy the property made his offer which was accepted by the bank. The petitioner deposited the amount way back on 24.07.2008. The bank was expected to put the petitioner in vacant possession of the property within a reasonable time. Even after a period of nine years, the bank is not in a position to deliver vacant possession. The secured asset is now in the midst of civil litigations. There is also a criminal case in respect of the mortgage relating to the secured asset. The petitioner waited all these years. It was only when he was convinced that the chances of culmination of litigation is very remote, the petitioner made a request to the bank to refund the amount. The bank instead of admitting its mistake in not disclosing the encumbrances, and litigations, dragged the petitioner from pillar to post and finally prompted him to approach this court. In view of the background facts, the bank is liable to refund the sale consideration to the petitioner.
32. The other question is as to whether the petitioner is entitled to interest.
33. The petitioner deposited the sale consideration on 24.07.2008. The bank retained the money all these years without delivering the property to the petitioner. The bank is therefore liable to pay interest to the petitioner.
34. In Ambalavanan vs. Canara Bank (order dated 01.04.2016 in Review Application (Writ) No.302 of 2015) a Division Bench of this court considered the question regarding payment of interest. The Division Bench made the following observation, while directing payment of interest to the purchaser of a secured asset:-
9. The Bank issued the sale notice to auction the property mortgaged by the first respondent. The applicant participated in the auction. The bid submitted by the applicant was accepted by the Bank and the sale was confirmed in his name. The applicant paid a sum of Rs.65,07,000/- to the Bank. The amount was deposited on 27 August 2010. The sale was subsequently set aside by this Court. The Bank refunded the amount deposited by the applicant. However, interest was not paid. The Bank cannot be heard to say that the purchaser of the property is not entitled to interest. The money was deposited with the Bank. The Bank was having the money throughout the proceedings. The Bank utilized the money. The Bank charges different rates for different transactions. The Bank is charging 14% for mortgage loans. There are other transactions wherein the Bank charges even 18% interest per annum. Such being the factual position, the Bank cannot be heard to say that the applicant has to be satisfied only with the principal amount. We are of the view that the Bank having kept the amount for years together, is bound to pay interest to the applicant.
35. The petitioner is entitled to interest which we fix at 12% per annum.
36. We direct the bank to refund the sale consideration viz. Rs.62,00,000/- (Rupees Sixty Two Lakhs only) to the petitioner with interest at the rate of 12 % per annum, calculated from 24.7.2008 within a period of four weeks from the date of receipt or production of a copy of this order. The bank is given liberty to cancel the sale certificate."
15. The facts in all the cases relied upon by the learned advocate for the petitioner are distinct and distinguishable. In this case, the petitioner was informed about the encumbrance within two (2) days from the auction and the balance 75% of the purchase amount was never demanded by the bank. The demand drafts/banker's cheques containing 25% of the purchase money (including earnest money) as also the balance 75% were never encashed by the bank. There is also no claim for refund of the principal amount.
16. Clearly, all these cases mentioned herein above stand on a different footing. The bank had neither failed to notify the pre-existing encumbrance in the sale notice nor had the bank enjoyed the principal amount deposited by the petitioner. None of the de
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mand drafts/banker's cheques had been enchased by the bank. Only in such cases when the principal amount had been deposited and the bank had utilized the money, the courts have directed refund of the principal amount along with interest in the event of the bank's failure to handover vacant possession upon registering the sale certificate. In the case, before this court, the borrowers moved the Tribunal on the date of auction. There was no encumbrance on the date of the issuance of the sale notice. The order restraining the bank from proceeding with the sale was passed by the Tribunal on the date of the auction. The auction was held at 1 p.m. on March 12, 2013 and the order of the Tribunal was passed on the same date. On March 14, 2013, itself the bank informed the petitioner that the 25% of the bid money should be paid by demand draft but the balance amount of 75% would become payable within fifteen (15) days from confirmation of the sale and the sale would be confirmed only upon the final decision of the Tribunal. Thereafter, the bank did not demand the payment of the balance amount. The petitioner had the choice to withdraw from the transaction. The petitioner on its own volition deposited the balance amount. They became invalid after three (3) months. The petitioner had the option to apply to the issuing bank (Induslnd) for cancellation of the demand drafts between March 11, 2013 to March 12, 2018 on account of the failure of the bank to confirm the sale and handover the possession of the said property. The money did not pass on to the bank. However, if the petitioner was aggrieved by any breach of any obligation or promise on the part of the bank on account of the bank's failure to complete the sale of the property auctioned or for any monetary loss suffered on account of the bank having withheld the invalid drafts, the remedy of the petitioner was available in a civil suit. Under such circumstances, a direction for payment of interest without there being any claim for refund of the principal amount cannot be issued in the instant proceedings. The claim is misconceived and not tenable in law. Moreover, the petitioner waited in silence for a period of five (5) years and did not take any steps. The petitioner could have withdrawn from the transaction having been made aware of the pending litigation within two (2) days from the date of the auction. 17. Under such circumstances the writ petition is dismissed. 18. There will be, however, no order as to costs. Urgent photostat Certified Copy of this judgment, if applied for, be given to the parties, on priority basis.