AUTHORISED OFFICER, CENTRAL BANK OF INDIA versus SHANMUGAVELU

Citation: [2024] 2 S.C.R. 12 · Decided: 02-02-2024 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Disposed off

Cited by 1 judgment(s) · cites 16 · see the full citation network in Lexace

Judgment (excerpt)

* Author
[2024] 2 S.C.R. 12 : 2024 INSC 80
The Authorised Officer, Central Bank of India 
v. 
Shanmugavelu
(Civil Appeal No(s). 235-236 of 2024)
02 February 2024
[Dr Dhananjaya Y Chandrachud, CJI, J B Pardiwala,* 
Manoj Misra, JJ.]
Issue for Consideration
(i)Whether, the underlying principle of Section(s) 73 & 74 respectively 
of the Contract Act, 1872 Act is applicable to forfeiture of earnest-
money deposit under Rule 9(5) of the SARFAESI Rules. In other 
words, whether the forfeiture of the earnest-money deposit under 
Rule 9(5) of the SARFAESI Rules can be only to the extent of 
loss or damages incurred by the Bank; (ii) Whether, the forfeiture 
of the entire amount towards the earnest-money deposit under 
Rule 9(5) of the Rules amounts to unjust enrichment. In other 
words, whether the quantum of forfeiture under the SARFAESI 
Rule is limited to the extent of debt owed; (iii) Whether a case of 
exceptionable circumstances could be said to have been made 
out by the respondent to set aside the order of forfeiture of the 
earnest money deposit.
Headnotes
Securitization and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act, 2002 – Security Interest 
(Enforcement) Rules, 2002 – Contract Act, 1872 – ss. 73 and 
74 – Whether, the underlying principle of Section(s) 73 & 74 
respectively of the Contract Act, 1872 Act is applicable to 
forfeiture of earnest-money deposit under Rule 9(5) of the 
SARFAESI Rules:
Held: The SARFAESI Act is a special legislation with an overriding 
effect on the general law, and only those legislations which are either 
specifically mentioned in Section 37 or deal with securitization will 
apply in addition to the SARFAESI Act – Being so, the underlying 
principle envisaged under Section(s) 73 & 74 of the 1872 Act which 
is a general law will have no application, when it comes to the 
SARFAESI Act more particularly the forfeiture of earnest-money 
deposit which has been statutorily provided under Rule 9(5) of the 
[2024] 2 S.C.R. 
13
The Authorised Officer, Central Bank of India v. Shanmugavelu
SARFAESI Rules as a consequence of the auction purchaser’s 
failure to deposit the balance amount – The forfeiture can be justified 
if the terms of the contract are clear and explicit – If it is found that 
the earnest money was paid in accordance with the terms of the 
tender for the due performance of the contract by the Promisee, 
the same can be forfeited in case of non-performance by him or 
her – Since, the forfeiture under Rule 9(5) of the SARFAESI Rules 
is also taking place pursuant to the terms & conditions of a public 
auction – Suffice to say, Section(s) 73 and 74 of the 1872 Act will 
have no application whatsoever, when it comes to forfeiture of the 
earnest-money deposit under Rule 9 sub-rule (5) of the SARFAESI 
Rules. [Paras 68, 89, 91]
Securitization and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act, 2002 – Security Interest 
(Enforcement) Rules, 2002 – Contract Act, 1872 – The High 
Court held that forfeiture of the entire deposit u/r. 9 sub-
rule (5) of the SARFAESI Rules by the appellant bank after 
having recovered its dues from the subsequent sale amounts 
to unjust enrichment – Whether, the forfeiture of the entire 
amount towards the earnest-money deposit under Rule 9(5) 
of the Rules amounts to unjust enrichment:
Held: The consequence of forfeiture of 25% of the deposit under 
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 High Court erred in law by holding 
that forfeiture of the entire deposit under Rule 9 sub-rule (5) of 
the SARFAESI Rules by the appellant bank after having already 
recovered its dues from the subsequent sale amounts to unjust 
enrichment. [Paras 111, 113]
Securitization and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act, 2002 – Security Interest 
(Enforcement) Rules, 2002 – Contract Act, 1872 – Whether a 
case of exceptionable circumstances could be said to have 
been

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