SC Sets Aside HC Order Limiting SARFAESI Earnest Money Forfeiture

Authorised Officer Vs Shanmugavelu (Supreme Court of India)

The Supreme Court considered appeals filed by a nationalised bank against a common judgment of the Madras High Court concerning forfeiture of the earnest money deposit (EMD) paid by the successful auction purchaser in an e-auction conducted under the SARFAESI Act. The bank had auctioned a secured asset after the borrower was classified as a non-performing asset and measures were taken under Section 13(4) of the SARFAESI Act. The respondent emerged as the highest bidder at Rs.12.27 crore and deposited 25% of the bid amount amounting to Rs.3,06,75,000. The sale was confirmed subject to payment of the balance consideration within the prescribed period, failing which the deposited amount was liable to be forfeited.

On the respondent’s request, the bank granted an extension of three months under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002, while making it clear that no further extension would be granted. After the respondent failed to pay the balance amount even within the extended period, despite seeking additional extensions, the bank cancelled the sale and forfeited the deposited amount under Rule 9(5). Thereafter, the secured asset was re-auctioned and sold at a higher price of Rs.14.76 crore.