Bank Liable to Refund Payment Accepted Towards Sale Consideration Without Enforceable Agreement: DRAT
- REEDLAW
- Nov 22, 2024
- 2 min read
The DRAT held that the bank was liable to refund the payment it had accepted as sale consideration in the absence of an enforceable agreement.
The Debts Recovery Appellate Tribunal (DRAT), Mumbai Bench of Justice Ashok Menon (Chairperson) reviewed an appeal and observed that in the absence of a tri-partite agreement creating enforceable rights, the appellant could not compel the sale of the mortgaged property; however, the bank, having accepted the appellant's payment with knowledge of its intended purpose, was obligated to refund the amount with interest for its wrongful retention.
The Debts Recovery Appellate Tribunal (DRAT) addressed an appeal challenging the dismissal of Securitisation Application No. 282 of 2020 by the Debts Recovery Tribunal-II, Ahmedabad, under Section 18(1) of the SARFAESI Act, 2002. The appellant had sought to restrain the respondent bank from auctioning or alienating a mortgaged property and requested a refund of ₹2 crores allegedly deposited towards its purchase.
The dispute arose from the borrower’s default on a loan from the respondent bank, leading to proceedings under the SARFAESI Act. A One-Time Settlement (OTS) agreement was reached between the borrower, guarantors, and the bank, with the borrower agreeing to sell its assets to settle the debt. The appellant expressed interest in purchasing a mortgaged property and deposited ₹2 crores, expecting the bank to issue a No Objection Certificate (NOC). Although a provisional NOC was issued, the bank later appropriated the appellant's payment toward the borrower’s debt and proceeded to auction the property, eventually selling it to a third party for ₹1.50 crores, a lower amount than the appellant's offer.
The DRAT found no enforceable contract between the appellant and the bank due to the absence of a tri-partite agreement. It concluded that the appellant had no legal right to compel the bank to sell the property to him. However, the tribunal criticized the bank's conduct, noting that the appellant’s payment was made with the clear understanding that it was for purchasing the property. By accepting the funds and later reneging on the provisional NOC, the bank had acted inequitable.
The tribunal directed the bank to refund ₹2 crores to the appellant with interest at 9% per annum from July 3, 2018, until realization. While the appellant was not granted relief to quash the SARFAESI measures or the sale to the third respondent, the order sought to balance the equities by ensuring the appellant was reimbursed for the funds wrongfully retained by the bank.
Mr. Rafeeq Peermohideen along with Ms Somya Tripathi, i/b M/s T.N. Tripathi & Co., Advocates represented the Appellant.
Mr. A.R. Bamne along with Mr. Nilesh Bamne, i/b M/s A.R. Bamne & Co., Advocate appeared for the Respondent.
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