Reinitiation Of SARFAESI Action By Bank Upon Borrower Not An 'Exceptional Circumstance' To Dilute Forfeiture Under Rule 9(5) Of 2002 Rules: Allahabad HC

The Allahabad High Court has held that the bank reinitiating proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is not an “exception circumstance” to forgo the forfeiture of deposit prescribed under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002.

Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 provides that if the purchaser of the immovable property under Rule 9 defaults on payment within the stipulated time, then any amount deposited by him pursuant to the sale agreement will be forfeited in favour of the secured creditor and the property shall be resold. It further provides that the defaulting purchaser will have no claims over the immovable property or to the amount recovered on the resale of the property.

Petitioner, auction-purchaser, failed to deposit the balance 75% amount of the purchase value within the time prescribed. It was argued that the bank, suo-moto, recalled the sale and initiated fresh sale proceedings under the SARFAESI Act and also forfeited the 25% amount deposited by the petitioner.

Petitioner approached the High Court seeking refund of the said amount on grounds that these were exception circumstances which did not warrant forfeiture of the amount. It was argued that since it was the Bank who cancelled the entire sale, the forfeiture of the amount would be unjust enrichment of the bank. Reliance was placed on the decision of the Supreme Court in Authorised Officer, Central Bank of India Vs. Shanmugavelu.

Counsel for respondent-bank argued that in the aforesaid case, the Apex Court had held that unjust enrichment does not apply to forfeiture under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 and that 'exception circumstance' would be something extraneous which prevented the purchaser from paying the sale consideration within the prescribed time.

The Court noted that in Authorised Officer, Central Bank of India Vs. Shanmugavelu, the Supreme Court held that

“Rule 9(5) of the SARFAESI Rules is a legal consequence that has been statutorily provided in the event of default in payment of the balance amount. The consequence envisaged under Rule 9(5) follows irrespective of whether a subsequent sale takes place at a higher price or not, and this forfeiture is not subject to any recovery already made or to the extent of the debt owed. In such cases, no extent of equity can either substitute or dilute the statutory consequence of forfeiture of 25% of deposit under Rule 9(5) of the SARFAESI Rules.”

The Supreme Court held that in case of conflict between law and equity, law prevails. It was held that where extraneous circumstances have prevented the purchaser from depositing the amount despite his best efforts and any fault attributable to him, then the money deposited can be refunded.

Holding that the reinitiation of SARFAESI proceedings by the bank was not an 'exceptional circumstance', the bench of Justice Shekhar B. Saraf and Justice Dr. Yogendra Kumar Srivastava held

“The subsequent actions of the Bank in re initiating the SARFAESI action cannot enure to the benefit of the petitioner in any manner whatsoever, as forfeiture is a statutory consequence under the 2002 Rules.”

The Court held that there was no equity in favour of the petitioner as he had failed to deposit the balance amount within the prescribed period. Accordingly, the writ petition was dismissed.

Case Title: Anil Kumar Jaiswal v. Union Bank Of India And Another [WRIT ­ C No. ­ 13012 of 2025]

Counsel for Petitioner: Rahul Agarwal, Vipul Pandey

Counsel for Respondent: Anil Kumar Bajpai, Ashish Agrawal

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