On September 21, the Supreme Court issued a significant judgment regarding the borrower's right to reclaim their mortgaged property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). According to this ruling, once a bank publishes an auction notice for the sale of a secured asset, the borrower loses the opportunity to redeem the mortgage and keep the property. In simpler terms, if your bank announces the auction of your property, you won't be able to regain ownership of it through mortgage redemption.
As borrowers, we count on banks to play fair and transparently in their dealings with us. but, in some cases, banks can also interact in unfair practices that place borrowers at a disadvantage. happily, current judicial choices have proven that the courts are willing to stand up for borrowers' rights and keep banks answerable for their actions.
In this article, we will explore some current judgments in favour of debtors towards banks and what they imply for you.
Historical past
In recent years, there were numerous instances wherein banks were accused of carrying out unethical practices. those practices range from charging immoderate charges to misrepresenting the phrases of loans. In response, many borrowers have taken criminal motions against banks to are seeking for redress.
Recent Judgments in Favour of Borrowers
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Case Overview:
- Parties Involved: Central Bank of India (Appellant) vs. Shanmugavelu (Respondent)
- Context: Appeals against the High Court of Madras judgment on the forfeiture of earnest money deposit by the bank.
Factual Matrix:
- Background: Central Bank of India sanctioned credit facilities to Best and Crompton Engineering Projects, secured by a land parcel in Chennai. The borrowers defaulted, and the loan account was classified as a Non-Performing Asset (NPA) on 28.05.2013.
- SARFAESI Measures: The bank took measures under the SARFAESI Act to recover dues, including taking possession and auctioning the secured asset.
Auction Details:
- An e-auction was conducted on 07.12.2016 with a reserve price of Rs. 9,62,00,000/- on an "as is where is" basis.
High Court Ruling:
- The High Court ruled that the bank could only forfeit the earnest money deposit to the extent of the actual loss suffered, not the entire deposit amount.
Supreme Court Analysis:
- Key Issues:
- Applicability of Sections 73 & 74 of the Contract Act, 1872, to the forfeiture under SARFAESI Rules.
- Whether forfeiture of the entire earnest money deposit constitutes unjust enrichment.
- Whether exceptional circumstances justify setting aside the forfeiture.
- Conclusion: The Supreme Court upheld the High Court's decision, emphasizing that forfeiture must be proportional to the actual loss suffered.
Key Takeaways:
- Principle of Proportionality: Forfeiture under SARFAESI Rules should align with the actual loss incurred to prevent unjust enrichment.
- Judicial Scrutiny: Courts must ensure that forfeiture does not lead to undue advantage, adhering to equity principles.
- SARFAESI Act Provisions: The judgment clarifies the relationship between the SARFAESI Act and general contractual principles, particularly in the context of earnest money forfeiture.
Important Legal Points:
- Doctrine of Unjust Enrichment: Prevents parties from retaining benefits unjustly at the expense of others.
- Equity and Law: The law should be interpreted equitably but not at the expense of clear statutory provisions.
- Exceptional Circumstances: Specific scenarios, like the COVID-19 pandemic, may warrant setting aside forfeiture to ensure fairness.
This summary provides a concise and comprehensive overview of the landmark judgment, focusing on its relevance to the SARFAESI Act and emphasizing the importance of proportionality in the forfeiture of earnest money deposits.
Conclusion:
Current judgments in favour of debtors towards banks display that the courts are willing to rise up for debtors' rights. when you have been treated unfairly by way of a bank, you've got legal alternatives available to you. With those judgments, borrowers could have extra self-assurance that they are able to are trying to find justice and keep banks responsible for their actions.
