The Jharkhand High Court affirmed that a bank must pay statutory interest on a refunded e-auction bid when the delay in delivering possession amounts to unjust enrichment, even if the borrower had earlier undertaken not to claim further relief.
Background & Facts
The Dispute
The appellant, Chief Manager & Authorised Officer, Bank of Baroda, ROSARB, Ranchi, conducted an e-auction on 14.09.2022 of a flat (Flat No. E/2/10, 5th Floor, Block No. E/2, Dalma Enclave) together with a proportionate share of land. The property, originally owned by Mr. Rajesh Prasad, was offered for sale under the SARFAESI Act. The respondent, Shipra Shikha, participated and submitted the highest bid of Rs.30,90,000.
Key Facts
- 14.09.2022: e-auction held; respondent declared highest bidder.
- 15.09.2022 to 26.09.2022: respondent paid the full bid amount of Rs.30,90,000 to the bank.
- 26.09.2022 to 17.05.2023: respondent sent multiple e-mails requesting issuance of a sale certificate; none was issued.
- 20.06.2023 to 26.10.2023: respondent demanded refund of the bid amount citing medical exigency.
- 26.10.2023: bank replied that it was pursuing possession under Section 14 of the SARFAESI Act and sent an antedated sale certificate dated 15.03.2023 (received by respondent on 27.10.2023).
- 22.11.2023: bank informed respondent that the auction sale was cancelled and instructed her to collect a demand draft of Rs.30,90,000 from the Regional Office of Stressed Assets Recovery Branch, Ranchi, with an undertaking not to claim further.
- 06.04.2024: bank refunded the full amount of Rs.30,90,000 to the respondent.
- 31.01.2025: respondent issued a legal notice demanding compound interest at 15% per annum from 26.09.2022.
- 09.06.2025: bank, through counsel, denied the claim for interest, arguing that the respondent herself had requested the refund.
Procedural History
- W.P.(C) No. 3247 of 2026: respondent filed a writ petition before the High Court seeking interest on the refunded amount.
- 17.06.2026: Single Judge allowed the petition, directing the bank to pay interest at 6% per annum on Rs.30,90,000 for the period the amount remained with the bank (more than one and a half year).
- L.P.A. No. 376 of 2026: appellant filed a Letters Patent Appeal against the Single Judge’s order.
- 27.07.2026: appeal reserved.
- 05.08.2026: judgment delivered dismissing the appeal and upholding the interest award.
Parties' Positions
- Appellant (Bank of Baroda): argued that there was no contractual stipulation for interest, the respondent had voluntarily sought a refund and undertook not to claim further, and the delay was due to pending SARFAESI proceedings beyond its control.
- Respondent (Shipra Shikha): contended that the bank’s failure to deliver possession despite full payment caused undue hardship, the undertaking was obtained under duress, and the bank was unjustly enriched by retaining the funds.
Relief Sought
The respondent sought interest at 6% per annum on the refunded amount of Rs.30,90,000 for the period it remained with the bank. The appellant sought reversal of the interest award, asserting no legal basis for such liability.
The Legal Issue
Whether the bank is liable to pay interest on a refunded e-auction bid amount when the refund was made after the bank’s failure to deliver possession, despite the respondent’s prior undertaking not to claim further relief, and in the absence of any express contractual provision for interest.
Arguments Presented
For the Appellant
- No express term in the e-auction agreement mandated payment of interest on a refund.
- The respondent herself demanded the refund and executed an undertaking not to pursue any further claim, thereby waiving any right to interest.
- The delay in delivering possession was attributable to the pendency of proceedings under Section 14 of the SARFAESI Act, a matter beyond the bank’s control.
- Cited Arce Polymers (P) Ltd. v. Alphine Pharmaceuticals (P) Ltd. to argue that waiver of statutory rights is permissible when the party is aware of the consequences.
For the Respondent
- The bank’s failure to deliver possession after full payment constituted a breach, rendering the undertaking obtained under undue pressure and duress, thus voidable under Section 19 of the Indian Contract Act, 1872.
- Retention of the bid amount without delivering the property amounted to unjust enrichment, obligating the bank to make restitution with interest, as affirmed in Union of India v. Tata Chemicals Ltd. and Indian Council for Enviro-Legal Action v. Union of India.
- The bank had a duty to either deliver possession within a reasonable time or refund the amount with appropriate interest, irrespective of any informal undertaking.
The Court's Analysis
The Court began by noting that the appellant’s reliance on the absence of an express interest clause could not defeat the equitable principle of restitution. It observed that when a party retains a benefit without legal justification, the law imposes a duty to restore the benefit with interest, drawing on the doctrine of unjust enrichment.
"Thus, unjust enrichment is a benefit obtained from another which is not legally justifiable, for which the beneficiary must make restitution or recompense and interest is often considered as a normal relief given in restitution."
The Court reiterated the settled rule under Section 19 of the Indian Contract Act that a contract entered under undue pressure, threats, or coercion is voidable at the option of the aggrieved party. It held that the respondent’s undertaking not to claim further was extracted under duress, given her urgent medical needs and the bank’s failure to deliver possession for several months.
Reference was made to the Supreme Court’s pronouncement in Union of India v. Tata Chemicals Ltd. that a public authority retaining money without right must refund it with interest, likening the bank’s position to that of a state instrumentality. The Court distinguished the Arce Polymers case, emphasizing that the present facts involved a clear failure to perform a contractual obligation, not a voluntary waiver of rights.
The Court further examined the bank’s argument that the delay was due to SARFAESI proceedings. It observed that the bank could have approached the High Court for appropriate directions to expedite possession, a remedy it failed to pursue. Consequently, the bank bore responsibility for the delay and could not escape liability on that ground.
In light of the above principles, the Court concluded that the Single Judge’s order directing the bank to pay interest at 6% per annum on Rs.30,90,000 was legally sound. The interest rate reflected a reasonable compensation for the period the amount remained with the bank, aligning with the principle that interest is a normal component of restitution.
The Verdict
The Letters Patent Appeal is dismissed. The order dated 17.06.2026 of the Single Judge is upheld, directing the Bank of Baroda to pay interest at 6% per annum on the refunded amount of Rs.30,90,000 for the period it remained with the bank (more than one and a half year). No other relief is granted to the appellant. All other interim applications, if any, are disposed of.
What This Means For Similar Cases
Unjust Enrichment Triggers Interest
- Courts will award interest as part of restitution when a party retains money without legal justification, even absent an express contractual clause.
- Practitioners should assess whether the retention of funds creates an enrichment scenario and advise clients accordingly.
Undertakings Obtained Under Duress Are Voidable
- An undertaking signed under medical or financial pressure may be set aside under Section 19 of the Indian Contract Act.
- Lawyers must scrutinise the circumstances surrounding any waiver or undertaking before relying on it to defeat interest claims.
Banks Must Ensure Timely Possession or Refund
- Failure to deliver possession after full payment can give rise to liability for interest on the amount retained.
- Financial institutions should either complete the transfer of property within a reasonable time or promptly refund with interest to avoid restitution claims.
