In a significant ruling, the Allahabad High Court, comprising Justice Yogendra Kumar Srivastava and Justice Siddhartha Varma, has dismissed a writ petition filed by Anil Pathak and Another (Petitioners) against the State of U.P. and others (Respondents), including the concerned bank, seeking an extension of time to deposit the balance auction amount or a refund of their initial deposit. The court, while referring to settled legal principles, held that statutory provisions must be followed strictly, and no relaxation beyond the prescribed period could be granted.
The case, WRIT – C No. 2228 of 2025, was argued by Advocates Brijesh Kumar Kesharwani and Mamta Singh for the petitioners, while the respondents were represented by ASGI Anoop Tiwari, CSC Krishna Mohan Asthana, and Prakhar Shukla (holding the brief for Ramesh Kumar Shukla for the respondent-bank).
Background of the Case
The case revolved around a property (House No. 24, Awas Vikas Colony, Betiyahata, Gorakhpur), owned by Ujjwal Banka and Tushar Banka, which was mortgaged for a loan amounting to ₹1 crore plus an overdraft of ₹20 lakhs. Upon default in repayment, the respondent bank invoked provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, issuing a notice under Section 13(2) and subsequently a possession notice under Section 13(4). The property was then put up for auction, which was held on October 23, 2024.
The petitioners, being the highest bidders, were declared successful and deposited 25% of the auction amount (₹55,93,750/-) within the stipulated time. However, they failed to deposit the remaining 75% of the purchase price within 15 days, as required under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002.
Despite multiple extensions granted by the bank, the petitioners sought further relaxation beyond the statutory maximum period of three months, which the bank denied. The petitioners then approached the High Court seeking a further extension or a refund of their deposit.
Legal Issues Involved
1. Whether the petitioners were entitled to an extension beyond the statutory limit of 90 days under Rule 9(4) of the Security Interest (Enforcement) Rules, 2002?
2. Whether the refusal of the bank to grant additional time beyond three months was arbitrary?
3. Whether the petitioners could claim a refund of the deposited amount in case of non-payment of the balance auction price?
4. The scope of judicial intervention in SARFAESI proceedings concerning auction sales and defaults by bidders.
Court’s Observations and Ruling
The court meticulously examined the SARFAESI Act, 2002 and Rule 9 of the Security Interest (Enforcement) Rules, 2002, emphasizing that the statutory scheme does not permit extensions beyond the prescribed period of three months.
Referring to Rule 9(4), the court reiterated that the balance amount of the purchase price must be paid within 15 days from the confirmation of sale, with a maximum extension up to three months, if agreed upon in writing between the purchaser and the secured creditor. The court cited the Supreme Court’s decision in Union Bank of India v. Rajat Infrastructure (P) Ltd. (2023) 10 SCC 232, which clarified that even the Supreme Court’s plenary powers under Article 142 of the Constitution could not override statutory provisions.
In rejecting the petitioners’ claim, the court quoted Authorized Officer, State Bank of India vs. C. Natarajan (2024) 2 SCC 637, stating that the legislative intent behind the strict time limit was to prevent unscrupulous practices where borrowers or bidders manipulate the auction process to delay recovery of secured assets.
The court also observed:
“Liquidity of finances and flow of money is essential for any healthy and growth-oriented economy. The SARFAESI Act was enacted to ensure speedy recovery of debts, and allowing unlimited extensions would defeat its very purpose.”
Additionally, the court emphasized the principle laid down in Nazir Ahmad vs. King Emperor (AIR 1936 PC 253(2)), which states:
“When a statute requires a particular thing to be done in a particular manner, it must be done in that manner or not at all.”
Based on this principle, the court concluded that granting an extension beyond the three-month period stipulated under Rule 9(4) would be contrary to the statutory framework and, therefore, impermissible.
Regarding the forfeiture of the petitioners’ deposit, the court cited State Bank of India vs. C. Natarajan (2024) 2 SCC 637, which upheld the strict application of forfeiture provisions to prevent bid manipulation and undue delay in realization of bank dues.
Final Decision
The Allahabad High Court dismissed the writ petition, holding that:
The petitioners were granted extensions up to the maximum statutory limit of three months, and no further extension could be granted.
The bank acted in accordance with the law by refusing additional extensions.
The forfeiture of the deposit was valid, as the petitioners failed to comply with their payment obligations.
Judicial intervention in auction proceedings under SARFAESI should be minimal to prevent misuse and undue delay.
The court categorically stated:
“Looking to the objectives for which the SARFAESI Act, 2002 has been enacted, Courts have taken a consistent view that in such a situation, where a bidder has failed to deposit the entire sale price within the stipulated period of ninety days, the tribunal/court would be extremely reluctant to interfere, unless of course, a very exceptional case for interference is made out.”
