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Banks can’t forfeit payment or impose unreasonable penalty: HC

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Sun, Apr 25, 2021

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  • Banks can’t forfeit payment or impose unreasonable penalty: HC
    Published: Apr 25,202105:29 AM

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Observing that reasonable conduct ought to be expected of nationalised banks as they deal with public funds, the Madras High Court held that the law of the land does not allow a person to unjustly enrich himself by forfeiting any payment or imposing an unreasonable penalty.

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File photo
Chennai: The first bench comprising Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy made the observation on a plea relating to sale of a property by a nationalised bank. The petitioners had bid Rs 3.76 crore for the property in an auction held in 2019. But as only Rs 94 lakh was paid, the bank took steps to sell the property again after issuing a notice to forfeit the payment tendered by the petitioners.
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Pointing out that it appeared that a little degree of flexibility on the part of the bank might resolve the issue but that bank officers may not prefer a quick resolution for obvious reasons, the Chief Justice said, “Merely because the balance amount has not been made does not permit the entire amount already tendered to be forfeited without any further consideration. That is both against the Contract Act, 1872, and opposed to public policy.” Noting that no one had queued up at the recent sale attempted by the bank, the bench said, “It may do well for the secured creditor (bank) to accept the payment of Rs 3.76 crore for the property together with reasonable interest for the belated payment by the petitioners, if the petitioners are so inclined.” Any reasonable rate of interest for a period of two years or so would take the total consideration to more than Rs 4 crore, the bench pointed out. “It will be open to the petitioners and the secured creditor to indicate whether it would be acceptable to both to complete the unfinished transaction that commenced in 2019,” the bench added.

The court then directed the registry to send a copy of the order to the chairperson of the bank so that the matter received the attention of the highest authority. The plea has been posted for hearing to June 18.

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