Lincoln Education Academy vs Union Bank Of India & Ors.

Moushumi Bhattacharya, J

The petitioner is the auction purchaser of a property which featured in at least two sale notices published by the respondent Union Bank of India. The first sale notice is not part of records but the second sale notice of 4th March, 2023, which admittedly is almost identical in substance to the first, is part of records. The only question which arises before the Court is whether the petitioner can be permitted to make the balance payment pursuant to being adjudged a highest bidder for the property beyond the timelines contemplated under Rule 9(4) and (5) of the Security Interest Enforcement (Rules), 2002.

Rule 9(3) requires a purchaser to deposit 25% of the amount of the sale price which includes earnest money in terms of the sale of immovable property on the same day or not later than the next working day. The petitioner admittedly paid this amount on 18th November, 2022. The issue is whether the petitioner can be permitted to pay the balance 75% after expiry of the timelines under Rule 9(4) which mandates that the balance amount shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale or such extended period as may be agreed upon in writing between the purchaser and the secured creditor but not exceeding three months. The petitioner has admittedly crossed the three months window by a considerable period of time.

According to learned counsel appearing for the petitioner, the petitioner was discouraged from paying the balance 75% in terms of Rule 9(4) of the 2002 Rules by several subsequent events.

On perusal of the documents brought to the Court and considering the submissions made on behalf of the parties, the first of such subsequent event is an order passed by the Debts Recovery Tribunal-III, Kolkata on 29th November, 2022 in an application filed by the alleged mortgagor challenging the sale notices published by the respondents on the ground that the property has been mortgaged. The orders directed the SARFAESI applicant to implead the auction purchaser( the petitioner before the Court) in the application and notice to be issued to the auction purchaser to enable it to participate in the proceedings. The order proceeds to restrain the auction purchaser/ petitioner herein not to create any third party interest in respect of the secured property. The facts thereafter show that the petitioner came to the Court for extension of time to pay the balance amount and be permitted to pay the same upon the DRT proceedings reaching a finality.

The second subsequent fact of relevance is a Judgment passed by a co-ordinate Bench on 22nd March, 2023 in a suit filed by the alleged mortgagor challenging the same notice for the property in question and for restraining respondents including the respondent Bank herein from giving any further effect to the mortgaged property. The property in question is the subject matter of the sale notice which is part of records.

Since the petitioner paid the 25% for the property on 18th November, 2022, the petitioner now says that the petitioner is no longer interested in paying the balance 75% and instead wants refund of 25% which amounts to approximate Rs. 4.16 crores.

The objection taken on behalf of the respondent Bank is that the petitioner should have gone before the DRT for this relief and that the petitioner has not pleaded or urged any points in earlier proceedings taken out by the petitioner. Counsel primarily relies on the strict timelines under Rule 9(4) of the 2002 Rules to object to the prayer for any extension of time to pay the balance amount and also for refund of the 25% already put in by the petitioner.

Although, Rule 9(4) provides for strict timelines followed by a provision in the nature of a default consequence under Rule 9(5) wherein the deposit put in by the purchaser shall be forfeited by the secured creditor and the property shall be resold along with the defaulting purchaser forfeiting all claims to the property, the construction of the Rule in this case would depend on the two significant and subsequent events which took place after the petitioner paid 25% of the deposit.

The order of the DRT put a fetter on the petitioner (described as a auction purchaser in the orders) in terms of the petitioner not being able to create third party rights in the said property. Naturally, a purchaser who has paid 25% of the purchase price in terms of Rule 9(3) would be discouraged or at least be indecisive in the matter of putting in the balance amount where the property has been put under some sort of restraint. The second factor, which was not gone into detail in the above paragraphs, is the judgment of the co-ordinate Bench in the suit filed by the alleged mortgagor.

The Judgment of 22nd March, 2023 holds in the final paragraphs that the property was mortgaged without the knowledge of the petitioners before the Court and with the connivance with the officials of the respondent No. 7. Significantly, the respondent No. 7 is the Respondent Bank before the Court in the present writ petition.

The Judgment further holds that the petitioners made out a prima facie case and are entitled to an order of injunction in terms of prayers (a), (c) and (d) of the master summons which includes an order restraining the respondents from giving any effect to the equitable mortgage of the property. Not only do the respondents in the suit include the present respondent before this Court, the subject matter of the suit is also the same property for which the petitioner paid 25% of the purchase price. Third, the sale notice published by the respondent bank on 4th March, 2023 clearly mentioned that the sale shall be subject to several pending litigation including CS 390 of 2014 in which the Judgment was passed by the co-ordinate Bench.

The three factors as stated above constitute sufficient reason for the petitioner/auction purchaser to step back, hesitate and prolong the period for making payment of the balance 75%. The Judgment passed by the co-ordinate Bench was finally nailed in the proverbial coffin on the property which may be taken as the credible reason for the petitioner not putting in the 75% of the purchase price.

The Court appreciates the predicament of the petitioner in having put in 25% in November, 2022 and seen the property mired in litigation and orders passed by the DRT. The petitioner’s reluctance in paying the balance 75% and instead wanting the 25% back is completely understandable.

WPA 4302 of 2023 along with all connected applications are hence allowed and disposed of by directing the respondent Union Bank of India to return the amount of Rs. 4,16,50,000/- to the petitioner within 10 weeks from today.

Learned counsel appearing for the respondent prays for stay of the operation of this order. Considering the relevant dates and the subsequent intervening events, the prayer for stay is considered and refused.

Urgent certified photocopy of this order, if applied for, be supplied to the parties expeditiously on compliance of usual legal formalities.