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The Supreme Court has held that an auction sale under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be set aside merely due to a shortfall in depositing of an earnest money deposit. The Court said that once the auction purchaser complies with the statutory mandate to deposit 25% mark of the sale price on the same day of auction, then a mere shortfall in deposit of EMD pales into insignificance.

A bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe heard the case where the sale certificate issued in favour of an Appellant-an auction purchaser- was interfered with merely on account of a shortfall in depositing the EMD price, despite the auction purchaser having complied with the requirement of submitting 25% of the sale price on the day of an auction.

The case arose after the borrower's loan account was declared as Non-Performing Asset by the bank, following which the proceedings under the SARFAESI Act began, which resulted in an auction sale proceedings of the borrower's secured property.

The bid was called on for the purchase of the secured asset by 23.04.2009 along with EMD of Rs.21,15,000/- (Rupees Twenty-One Lakhs Fifteen Thousand only). The appellant-auction purchaser submitted the bid on 23.04.2009, along with EMD with a shortfall of Rs. 35,000/- (Rupees Thirty-Five Thousand only) from the stipulated sum.

Next day i.e., on 24.04.2009, the auction took place, where the Appellants bid came to be highest, and was declared as a successful bidders, following which they deposited a further sum of Rs.33,20,000/- (Rupees Thirty Three Lakhs Twenty Thousand only), bringing the total deposit to Rs.54,35,000/- (Rupees Fifty Four Lakhs Thirty-Five Thousand only), constituting twenty-five percent (25%) of the bid amount.

Later on, the balance consideration was also paid by the Appellants on 05.10.2009, and a sale certificate was issued in the Appellants favour on 10.10.2009 and the same was registered on 15.10.2009.

Aggrieved by the DRT's order upholding the auction process, the Respondent-borrower appealed to the DRAT, which had directed the restoration of the property back to the Respondent, owing to non-compliance with the express terms of the auction notice i.e., non-submission of the full EMD amount during the placing of a bid.

The High Court decision to upheld the DRAT's decision led to filing of an appeal before the Supreme Court by the auction purchasers.

Setting aside the Madras High Court and Debt Recovery Appellate Tribunal's decision restoring the possession back to the borrower, the judgment authored by Justice Aradhe observed that a mere shortfall in depositing the EMD amount would not be fatal to the entire auction exercise, when the auction purchasers have otherwise substantially complied with the requirement to deposit 25% of the sale price on the same day of auction in compliance with Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 (the Rules).

“It is equally well-settled in law that where upon due consideration of the tender document submitted by all the tenderers on their own merits, if it is ultimately found that successful bidders had in fact substantially complied with the purport and object for which the essential conditions were laid down, the same may not ordinarily be interfered with.”, the court observed, referencing its judgments in B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. & Ors., (2006) and National High Speed Rail Corporation Ltd. v. Monte Carlo Ltd. & Anr. (2022).

Applying the law, the Court upheld the validity of the auction sale, noting that:

“The auction-purchasers were statutorily obliged to comply with the 25% mark of the sale price on the same day which was made good. Therefore, any anterior shortfall in deposit of EMD pales into insignificance, the moment the 25% of the sale price was deposited. Thus, the non-conformity of the bid of the auction-purchasers insofar as it pertains to deposit of EMD has not resulted in any prejudice or injustice to the other bidder much less to the borrower. Therefore, the shortfall in deposit of EMD as required by Clause 7 of possession-cum-sale notice dated 18.03.2009 does not affect the validity of the bid of the auction purchasers in any manner.”

As a result, the appeal was allowed, directing the bank “to refund the amount of Rs.1,33,94,054/- (Rupees One Crore Thirty-Three 18 Lakhs Ninety-Four Thousand Fifty-Four only) along with interest at the rate of 7% per annum from 23.03.2010 i.e. the date when the surplus amount was kept in a non-interest bearing account till the payment is made to the borrower.”

Cause Title: Lakshmi Mohan (Dead) Through LRs. & Anr. Versus M/s. Airtech Projects Engineers Pvt. Ltd. & Anr. (with connected cases)

Citation : 2026 LiveLaw (SC) 851

Click here to download judgment

Appearance:

For Appellant(s) Mr. Niranjan Reddy, Sr. Adv. Mr. Jayanth Bhushan, Sr. Adv. Mr. Dhruv Mehta, Sr. Adv. Mr. V. Balachandran, AOR Mr. Siddharth Naidu, Adv. Mr. F.B Benjamin George, Adv. Mr. M. A. Chinnasamy, AOR Ms. Shakun Sharma, AOR Ms. Mary Mitzy, Adv. Mr. Vijayanand, Adv. Mr. Vansh Verma, Adv. Mr. B. Ravikiran Singh, Adv.

For Respondent(s) Mr. Jayanth Bhushan, Sr. Adv. Mr. Dhruv Mehta, Sr. Adv. Ms. Mary Mitzy, Adv. Mr. Vijayanand, Adv. Ms. Shakun Sharma, AOR Mr. Amartya Bhushan, Adv. Ms. Swantika Rajvanshi, Adv. Mr. V. Balachandran, AOR Mr. Siddharth Naidu, Adv. Mr. F.B. Benjamin George, Adv. Mr. M. A. Chinnasamy, AOR Mr. C Raghavendren, Adv. Mrs. C Rubavathi, Adv.

Also read - Know The Law | Does Delayed Payment By Auction Purchaser Invalidate Sale Under SARFAESI Act?

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