Bank hid DRT case from auction winner. Supreme Court says refund ₹50.25 lakh.

He bid ₹2.01 crore at a bank auction. The bank didn't tell him the borrower had already gotten a court order blocking the sale.

The question that hung over the case was simple: can a bank keep a winning bidder's deposit when it never told him the sale was already frozen by a court?

When the auctioneer knew what the buyer didn't

Punjab National Bank had initiated proceedings under the SARFAESI Act (a law that lets banks seize and sell defaulters' assets without going to court) against a borrower who had defaulted on a loan. The bank put the mortgaged property up for auction on 26 July 2013. The auction room was crowded with bidders, the air thick with the rustle of bid sheets and the low murmur of men calculating their next move.

Mohd. Shariq emerged as the highest bidder at ₹2.01 crore. He deposited the earnest money plus 25% of the bid amount — a total of ₹50.25 lakhs — as required by the auction terms. Everything seemed routine. The bank officer took the demand draft, stamped the receipt, and handed it over without a word about what else had happened that day.

But on that very same day — 26 July 2013 — something had happened that the bank never mentioned to Shariq. The borrower had approached the Debt Recovery Tribunal (DRT — a specialised court that handles bank recovery cases) and obtained an interim order. The DRT directed that the sale confirmation be kept in abeyance — meaning the auction could proceed but the final transfer of the property could not happen until the tribunal decided the borrower's challenge.

The bank knew about this order. Its legal team had received the DRT's order, a thin document with the tribunal's seal still fresh. It did not tell Shariq.

The moment the truth surfaced

Shariq eventually learned about the DRT proceedings. He went to the bank and said he would pay the remaining balance — the other 75% of the bid amount — once the DRT decided the matter. He was not refusing to pay. He was asking for a reasonable pause until the legal cloud over the auction cleared.

The bank responded with a letter, typed on official letterhead, its language cold and final: pay the full amount immediately, or we forfeit your deposit. The paper felt thin in Shariq's hands as he read the threat.

Shariq did not pay. The bank then conducted a re-auction of the same property on 1 May 2014, this time selling it for ₹1,70,50,000 — more than ₹30 lakhs less than Shariq's bid. A new buyer got the property. Shariq's ₹50.25 lakhs stayed with the bank.

Two judges, two answers

Shariq challenged the re-auction and the forfeiture before the High Court of Uttarakhand at Nainital. A Single Judge ruled in his favour on 21 July 2015, setting aside the re-auction and directing the bank to execute the sale deed in Shariq's favour.

The bank appealed. A Division Bench of the same High Court reversed the Single Judge's order on 10 March 2016. The Division Bench upheld the re-auction and told Shariq that if he wanted his ₹50.25 lakhs back, he would have to file a separate case — an independent civil suit or some other remedy — rather than getting the High Court to decide the issue in the same proceeding.

Shariq had won once and lost once. He took the matter to the Supreme Court.

Why the bank's forfeiture argument collapsed

Before the Supreme Court, the bank relied on Rule 9(5) of the Security Interest (Enforcement) Rules, 2002. That rule says that if a winning bidder fails to deposit the balance purchase price within the specified time, the deposit shall be forfeited and the property can be re-auctioned.

On its face, the rule seemed to support the bank. Shariq had not paid the balance. The bank had re-auctioned the property. The forfeiture appeared to follow the rulebook.

But the Supreme Court, in a bench comprising Justice Ajay Rastogi and Justice Bela M. Trivedi, looked deeper. The courtroom fell silent as the judges read the file. The court asked: what kind of "default" was this?

Shariq had not refused to pay. He had said he would pay once the DRT decided the borrower's challenge. The bank had never told him about the DRT order. The bank had conducted the auction knowing full well that the sale could not be confirmed. It had accepted Shariq's ₹50.25 lakhs without disclosing that the property was under a legal freeze.

The court held that Rule 9(5) could not be invoked in such a case. "This was not a case of simple default but of the bank's failure to disclose material proceedings affecting the auction," the court observed, adding that such non-disclosure "vitiated the consent" of the auction purchaser. This was not a simple default by a buyer who changed his mind. This was a case where the bank's own failure to disclose material facts had vitiated the entire transaction — meaning Shariq's consent to the auction terms was not a free and informed consent. The forfeiture could not stand.

The second error: sending a man on a wild goose chase

The Supreme Court also addressed the Division Bench's decision to send Shariq away to file a separate case for his money. The court found this approach manifestly wrong.

Where the facts are undisputed — and here, everyone agreed that the DRT order existed and that the bank had not told Shariq — the High Court under Article 226 (its constitutional power to hear writ petitions) should resolve the dispute itself, not push the litigant into a second round of litigation. The court noted that "relegating the petitioner to avail other remedial mechanisms" when the factual matrix was undisputed was a "manifest error" that kept the issue alive and forced parties into an "unnecessary second innings of litigation." Forcing a party to start fresh proceedings when the facts are clear is an error that keeps cases alive for years and burdens the system.

What the court ordered

The Supreme Court allowed Shariq's appeal on 11 April 2023 in Civil Appeal No. 2724 of 2023. It directed Punjab National Bank to return the full ₹50.25 lakhs within two months. If the bank failed to pay within that period, the amount would carry interest at 12% per annum until actually paid.

The court did not grant Shariq interest for the period between the forfeiture and the filing of the appeal, noting the delay in approaching the court. But the principal amount — the ₹50.25 lakhs that had sat with the bank for nearly a decade — had to go back.

THE PLAY: If you are an auction purchaser and the bank fails to disclose a court order that affects the sale, your deposit cannot be forfeited under Rule 9(5) — the bank's silence breaks the chain of valid consent.

The bank kept the money for ten years. The court gave it two months to give it back.