Telangana High Court Orders Union Bank to Refund ₹2.16 Crore to Auction Purchaser for Failing to Disclose Pending Litigation, Citing Rule 9 of Security Interest Rules
Sanchayita Lahkar
The High Court of Telangana, Division Bench of Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar directed the Union Bank of India to refund INR 2,16,25,000 paid by an auction purchaser as 25% of the sale consideration, holding that the Bank had failed to adequately disclose the pending litigation concerning the auctioned property. Referring to Rule 9 of the Security Interest (Enforcement) Rules, 2002, the Bench observed that a secured creditor bears an unimpeachable obligation of full disclosure to the purchaser and that a sale can only be effected of secured assets. The Court, therefore, ordered the Bank to return the forfeited amount within four weeks.
The petitioner participated in an e-auction conducted by Union Bank of India on 14 March 2023 for a property offered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). His bid of Rs.8.65 crore was declared the highest, and he deposited Rs.2.16 crore—25 percent of the sale consideration—as required. Subsequently, the bank issued a letter dated 15 March 2023 confirming his offer but stipulating that the sale was “subject to the outcome of S.A. No.58 of 2023 pending before the Debts Recovery Tribunal-I, Hyderabad (DRT).” The petitioner was instructed to pay the remaining 75 percent within fifteen days.
Unknown to the petitioner, the guarantor of the loan had already challenged the e-auction notice before the DRT and also filed before the High Court. On 16 and 20 March 2023, a Co-ordinate Bench of the same High Court directed the bank “not to confirm the sale in favour of the auction purchaser” until the DRT decided the pending securitisation application. Despite this restraint, the bank demanded the remaining 75 percent payment and later, by letter dated 13 June 2023, forfeited the petitioner’s deposit for non-payment.
The petitioner approached the High Court seeking to set aside the forfeiture and direct the bank to execute a sale certificate or alternatively refund the deposit. The bank justified its action under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, asserting that forfeiture was lawful for failure to pay within the stipulated time. The guarantor opposed the petition, contending that disputed facts rendered the writ petition untenable.
The Court recorded that “the Bank was under a restraint order passed by the High Court with regard to confirming the sale in favour of the petitioner,” yet it “did not bring this fact to the notice of the petitioner by way of a written communication.” It noted that no correspondence from the bank indicated any disclosure of the High Court’s order dated 20 March 2023.
The Court observed that “the failure on the part of the Bank to make full disclosure of the Court order to the petitioner assumes importance since the Bank proceeded to demand the balance 75% consideration price from the petitioner despite its obligation to keep the petitioner informed of the restraint order.” The Bench stated that it was the “bounden duty of the Bank to come clean in respect of the very same property for which the petitioner had already parted with 25% of the sale price.”
Rejecting the bank’s argument that the DRT proceedings pertained to earlier auction notices, the Court held that “the contention that the Bank insisted upon the balance 75% by reason of the auction being free of any Court orders is completely misplaced and incorrect.” The Bench remarked that the bank’s conduct “reeked of unjust enrichment at the expense of the petitioner/auction purchaser being kept in the dark at the relevant point of time.”
The Court concluded that “Rule 9(5) of the 2002 Rules would not come to the aid of the Bank” since the provision presupposes good faith and full disclosure, which the bank had failed to uphold.
The Bench stated that “once the secured creditor/Bank falters on its obligation of full disclosure, it cannot use Rule 9(5) as a shield for payment of the balance 75% of the sale price, against the purchaser.” It found that the bank’s reliance on Rule 9(5) “is completely undermined by its own conduct.”
The judgment recorded that “a party can approach the Writ Court on certain exceptions including breach of the principles of natural justice,” and that “any act of deliberate non-disclosure would deprive the other party to effectively deal with the information suppressed.” The Court accordingly held that the writ petition was maintainable despite the bank’s argument that the SARFAESI Act provided an alternative remedy.
After reviewing the sequence of communications and judicial orders, the Court declared that “the Bank sought to enrich itself both from the petitioner as well as the guarantor” and that such conduct “deserves to be deprecated for lack of probity and transparency.” The Division Bench therefore directed the Union Bank of India “to refund/return Rs.2,16,25,000/- deposited by the petitioner towards 25% of the sale consideration pursuant to the e-auction conducted on 14.03.2023.” The Court clarified that the petitioner was not entitled to compel the bank to accept the balance 75 percent or execute a sale certificate, as the property remained under litigation.
The Bench further ordered that “the respondent No.2-Bank shall return the amount to the petitioner within four weeks from the date of this order,” and disposed of the writ petition along with all connected applications, vacating all interim orders.
Advocates Representing the Parties:
For the Petitioner: Mr. Avinash Desai, Senior Counsel representing Ms. Zainab Khan, Advocate.
For the Respondents: Mr. K. Arvind Kumar for Respondent No.1; Mr. V. Sethu Madhava Rao representing Ms. V. Dyumani; Mr. K. Krishna Shrawan.
Case Title: XX v. Union Bank of India & Others
Case Number: W.P. No.14530 of 2025’
Bench: Justice Moushumi Bhattacharyya and Justice Gadi Praveen Kumar
