In Brief
A nationalized bank conducted an e-auction of mortgaged property under the SARFAESI Act. The respondent successfully bid at Rs. 12.27 crore, deposited 25% as earnest money, but failed to pay the remaining 75% within the extended 90-day period despite clear notice. The bank forfeited the entire earnest money deposit and subsequently sold the property at a higher price. The High Court held that forfeiture must be limited to actual loss under the Indian Contract Act, 1872. The Supreme Court reversed this, holding that Rule 9(5) of the SARFAESI Rules provides for statutory forfeiture independent of general contract law principles. Being a special enactment, the SARFAESI Act is not subject to Section 73-74 of the Contract Act. Forfeiture of earnest money is not a penalty but security for performance. The Court rejected arguments that subsequent sales at higher prices or general financial difficulties constitute grounds for relief. Only genuine exceptional circumstances (such as pandemic) warrant intervention. The judgment upholds the statutory right of banks to forfeit deposits as a mechanism to ensure swift debt recovery and prevent gaming of auctions.
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