{"id":635,"date":"2026-07-23T06:41:59","date_gmt":"2026-07-23T06:41:59","guid":{"rendered":"https:\/\/mudralegal.com\/blog\/?p=635"},"modified":"2026-07-23T07:08:13","modified_gmt":"2026-07-23T07:08:13","slug":"can-a-bank-forfeit-your-entire-auction-deposit-if-you-fail-to-pay-the-balance-supreme-court-clarifies-in-central-bank-of-india-v-shanmugavelu","status":"publish","type":"post","link":"https:\/\/mudralegal.com\/blog\/can-a-bank-forfeit-your-entire-auction-deposit-if-you-fail-to-pay-the-balance-supreme-court-clarifies-in-central-bank-of-india-v-shanmugavelu\/","title":{"rendered":"Can a Bank Forfeit Your Entire Auction Deposit If You Fail to Pay the Balance? Supreme Court Clarifies in Central Bank of India v. Shanmugavelu"},"content":{"rendered":"\t\t
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Purchasing a property through a bank auction<\/strong> can often be an attractive opportunity, with buyers expecting to acquire valuable assets at competitive prices. However, participating in such auctions also comes with strict legal obligations.<\/span><\/p>\n

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One of the most important questions frequently asked by auction purchasers is:<\/span><\/p>\n

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If I fail to pay the remaining sale consideration within the prescribed time, can the bank keep my entire deposit even if it later sells the property for a higher price?<\/strong><\/span><\/p>\n

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The Supreme Court of India<\/strong> answered this question in The Authorised Officer, Central Bank of India v. Shanmugavelu (Civil Appeal Nos. 235\u2013236 of 2024)<\/strong>, decided on 2 February 2024<\/strong>.<\/span><\/p>\n

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The court held that where an auction purchaser defaults in making the balance payment, Rule 9(5) of the Security Interest (Enforcement) Rules, 2002, mandates forfeiture of the entire 25% deposit. The bank is not required to prove that it suffered any financial loss, nor does it have to refund the deposit merely because the property was later sold at a higher price.<\/strong><\/span><\/p>\n

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This judgment reinforces the strict nature of bank auction rules under the SARFAESI Act, 2002<\/strong> and serves as an important warning for prospective auction buyers.<\/span><\/p>\n

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Background of the Case<\/strong><\/span><\/h3>\n

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The Central Bank of India initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)<\/strong> to recover its outstanding dues from a defaulting borrower.<\/span><\/p>\n

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As part of the recovery process, the bank conducted a public auction of the secured property.<\/span><\/p>\n

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Mr. Shanmugavelu emerged as the successful bidder by offering approximately \u20b912.25 crore<\/strong>.<\/span><\/p>\n

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In accordance with the auction conditions, he deposited 25% of the bid amount<\/strong>, amounting to approximately \u20b93.06 crore<\/strong>.<\/span><\/p>\n

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However, under the auction rules, he was required to deposit the remaining 75% of the purchase price within the prescribed time period.<\/strong><\/span><\/p>\n

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He failed to do so.<\/span><\/p>\n

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Consequently, the bank cancelled the sale and forfeited the deposit in accordance with the Security Interest (Enforcement) Rules.<\/span><\/p>\n

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The property was subsequently auctioned again and sold for approximately \u20b914.76 crore<\/strong>, resulting in a higher sale price than the original auction.<\/span><\/p>\n

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The purchaser then approached the court, claiming that since the bank had ultimately recovered an even higher amount, it had suffered no financial loss and therefore should refund his deposit.<\/span><\/p>\n

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The Legal Questions Before the Supreme Court<\/strong><\/span><\/h3>\n

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The Supreme Court examined several important legal issues:<\/span><\/p>\n

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