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Synopsis

In a significant decision, the Punjab and Haryana High Court recently quashed Union Bank of India’s decision to cancel an e-auction sale and forfeit Rs.11.14 crore deposited by M/s Micro Turner, the winning bidder.

The bank justified the cancellation by pointing to the bidder’s failure to pay the remaining 75% of the bid amount. However, court held that the bank had neglected to reveal that the borrower was involved in ongoing insolvency proceedings, which had triggered a moratorium under the Insolvency and Bankruptcy Code (IBC), preventing the bank from legally transferring the property.

The bench comprising Justice Anupinder Singh Grewal and Justice Lapita Banerji noted that the contract between the parties was frustrated due to "supervening legal impossibility" under Section 56 of the Indian Contract Act.

Section 56 covers situations where performance of a contract becomes impossible due to unforeseen legal circumstances, in this case, the ongoing insolvency proceedings which made it impossible for the bank to deliver possession of the auctioned property.

M/s Micro Turner, the petitioner, won an e-auction conducted by Union Bank of India for a commercial property located in Chandigarh. The petitioner had deposited Rs.11.14 crore, constituting 25% of the total bid price, with the understanding that they would pay the remaining 75% within the stipulated time. However, insolvency proceedings were initiated against the debtor company, which owned the property, and a moratorium under Section 96 of the IBC was imposed. This legal action prevented the bank from handing over the property, as it was no longer in a position to perform its obligations under the sale agreement.

Despite this, the bank insisted that the petitioner deposit the remaining 75% of the bid amount and threatened to forfeit the already deposited sum. The petitioner requested an extension, citing the moratorium, but the bank refused to acknowledge the legal hurdles and proceeded to cancel the sale, forfeiting the deposit. Aggrieved, the petitioner approached the high court, seeking a refund of the amount.

The high court held that the bank’s actions were arbitrary and illegal, as it had failed to disclose the insolvency proceedings and the resulting moratorium in its auction notice or during the sale process.

"Such a conduct by a nationalized bank is arbitrary, illegal and in colourable exercise of power, that is not at all appreciated," court said.

Consequently, court ordered the bank to refund the entire amount of Rs.11.14 crore within four weeks, with an additional interest of 10% per annum.

Moreover, court imposed costs of Rs.50,000 on the bank for dragging the petitioner into avoidable litigation.

Counsel for the petitioner: Advocates Sidharth Batra, Abhinav Sood, Anmol Gupta Rhythm Katyal

Counsel for the respondent: Senior Advocate Anmol Rattan Singh Sidhu and Advocates Mandeep Singla, Kamal Satija,

Case Title: M/s Micro Turner v. Union Bank of India