We have heard the counsel for
the parties and perused the materials on record. At the outset, we reject
the contention of the respondent that the High Court, based on concession
of counsel for the Authorized Officer, proceeded to pass the order for
refund. After referring to the applicable statutory provisions, the said
counsel submitted before the Court that the interest of the Authorized Officer
should be taken care of. Such a submission does not, in our considered view,
amount to any concession rendering the appeal not maintainable.
Two legal questions now arise for consideration. The first
question is whether100 the power of forfeiture was
exercised by the Authorized Officer in an arbitrary manner. The second
question is whether the120 High Court was justified in its interference with the
forfeiture order on the ground assigned in the impugned judgment and order.
Sale of a secured asset, which is an immovable property, is
regulated by Rule 9 of the Security Interest (Enforcement) Rules, 2002. Bare
perusal of the aforesaid provisions reveals an ordainment in sub-rule
(4) that on mutual agreement, the time for making deposit of the balance amount
of sale price can be extended for a period not200 exceeding ninety days; but,
extension beyond ninety days is not permissible on any count. Grant of
extension for intermittent periods so that the duration of
such periods taken together does not exceed ninety days would suggest some
element of discretion240 being reserved unto the authorized officer of a secured creditor
under sub-rule (5) of Rule 9. However, there can be no gainsaying
that such discretion has to be exercised reasonably and not on whims or caprice.
At the same time, no auction purchaser can claim extension as a
matter of right and that too beyond the statutorily prescribed period.
Whether300 or not a case for extension does exist would depend upon the peculiar
facts of each case and no strait-jacket formula can ever be laid down. If,
however, circumstances are shown to exist where a bidder is faced with such a
grave disability that he has no other option but to seek extension of
time on genuine grounds so360 as not to exceed the stipulated period of ninety days and
the prayer is rejected without due consideration of all facts and
circumstances, refusal of the prayer for extension could afford a ground
for a judicial review of the decision-making400 process on valid grounds.
Sub-rule (5) of Rule 9 does envisage forfeiture, should there be a
default in payment of the balance amount of purchase price within the
period mentioned in sub-rule (4). The power of forfeiture is, therefore,
statutorily conferred. Before we take our discussion forward, it is
necessary to ascertain the true character of the term 'forfeiture'. Black's
Law Dictionary, inter alia, explains 'forfeiture' as "the loss of a
right, privilege, or property because of a crime, breach480 of obligation, or neglect of
duty" or "something lost or confiscated by this process” or “penalty".
It is also explained500 as "a destruction or deprivation of some
estate or right because of the failure to perform some obligation or condition
contained in a contract". It is also found from the same dictionary
that though penalty is usually referable to a crime, penalty is
sometimes imposed for civil wrongs such as a statutory penalty for a statutory
violation; especially, a penalty imposing automatic liability on a wrongdoer
for violation of the terms of a statute without reference to any actual damage
suffered.
Having regard to
the terms of Rule 9, the notice for auction constitutes the
'invitation to offer'; the bids600 submitted by the bidders constitute the 'offer' and upon
confirmation of sale in favour of the highest bidder under sub-rule (2) of Rule
9, the contract comes into existence. Once the contract comes into existence,
the bidder is bound to honour the terms of the statute under which the
auction is conducted and suffers consequences for breach, if any, as
stipulated.
The sub-rule (5)
of Rule 9 legislatively lays down a penal consequence. 'Forfeiture'
referred to in sub-rule (5) of Rule 9 has to be construed as denoting a
penalty that the defaulting bidder must suffer should he fail to700 make payment of the entire sale
price within the period allowed to him by the authorized officer
of a secured720 creditor. Though it is true that
the power conferred by sub-rule (5) of Rule 9 of the Rules ought not
to be exercised indiscriminately without having due regard to all
relevant facts and circumstances, yet, the said sub-rule ought not to be
read in a manner so as to render its existence only on paper. Drawing from our
experience on the Bench, it can safely be observed that in many a case,
the borrowers seeking to frustrate auction sales, use800 their own henchmen as intending
purchasers to participate in the auction but thereafter they do not choose to
carry forward the transactions citing issues which are hardly tenable. This
leads to auctions being aborted and issuance of fresh notices. Repetition840 of such a process of participation
and withdrawal for a couple of times or more has the undesirable effect
of rigging of the valuation of the immovable property. In such cases,
the only perceivable loss suffered by a secured creditor would
seem to be the extent of expenses incurred by it in putting up the immovable
property for sale.
However,900 what does generally escape notice in the process is that it is
the malicious borrower who steals a march over the secured
creditor by managing to have a highly valuable property purchased by one of
its henchmen for a song, thus getting such property freed from the clutches of mortgage
and by diluting the security cover which the secured creditor960 had for its loan exposure. Bearing
in mind such stark reality, sub-rule (5) of Rule 9 cannot but be interpreted pragmatically
to serve twin purposes - first, to facilitate due enforcement of security
interest by the secured creditor; and second,1000 to prohibit wrongdoers from
being benefitted by a liberal construction thereof.
In terms of
the Indian
Contract Act, 1872, a person can withdraw his offer before acceptance. However,
once a party expresses willingness to enter into a contractual relationship
subject to terms and conditions and makes an offer which is accepted but
thereafter commits a breach of contract, he does so at his own risk and
peril and naturally has to suffer the consequences. We are not oblivious1080 of the terms of section 73 and section 74 of the
Contract Act. These sections, providing for compensation1100 for breach of contract and for liquidated damages, have
remained on the statute book for generations and permit the party
suffering the breach to recover such quantum of loss or damage from the party
in breach. However, with changing times, the minds of people are also changing.
The judiciary, keeping itself abreast of the changes that are bound to occur in
an evolving society, must interpret new laws that are brought in operation to
suit the situation appropriately. In the current era of globalization,
the entire philosophy of society, mainly on the economic front is making
rapid strides towards changes.1200
