Karnataka High Court Bank cannot seize more than 25% of the deposit made by an auction purchaser

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Published on: December 31, 2023 at 13:00 IST

The Karnataka High Court has clarified that banks cannot seize more than 25% of the deposit made by an auction purchaser failing to pay the remaining purchase amount within the stipulated timeframe.

In a directive, Justice K V Aravind ordered the State Bank of India to reimburse Rs. 10,00,000 along with applicable interest to Kalyanamurthy K within eight weeks.

The Court emphasized that the excess payment made by the petitioner, exceeding the 25% bid amount defined in Rule 9, cannot be considered a deposit enabling the bank to forfeit it. Any retention of this amount without legal authority would result in unjust enrichment, the court stated.

The petitioner sought a refund of Rs. 31,73,750, forfeited due to non-compliance with conditions in a Sale Notice dated 16.12.2021. Despite being declared the successful bidder and depositing 25% of the total amount as per auction terms, the petitioner requested extensions due to health issues and financial difficulties caused by the pandemic.

The bank argued that extensions were granted within the limits set by Rule 9 and defended the forfeiture, stating that subsequent higher sales of the property did not entitle the petitioner to a refund.

The bench underscored that the rules allow the secured creditor to extend payment deadlines by only three months, affirming the statutory power of forfeiture under Rule 9(5). It stated that the petitioner’s health condition was irrelevant in reviewing the forfeiture under the rule.

Consequently, the Court partially allowed the plea, recognizing only 25% as a deposit and not the amount exceeding this limit, thereby granting relief to the petitioner.

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