Section 73 and Section 74 of Indian Contract Act, 1872 will have no application when it comes to forfeiture of Earnest Money Deposit (EMD) under Rule 9(5) of Security Interest (Enforcement) Rules, 2002 – The Authorised Officer, Central Bank of India Vs. Shanmugavelu – Supreme Court

In this case, the following questions fall for consideration: – (i) Whether, the underlying principle of Section(s) 73 & 74 respectively of the Indian Contract Act, 1872 is applicable to forfeiture of EMD under Rule 9(5) of the SARFAESI Rules? In other words, whether the forfeiture of the EMD under Rule 9(5) of the SARFAESI Rules can be only to the extent of loss or damages incurred by the Bank? (ii) Whether, the forfeiture of the entire amount towards the EMD under Rule 9(5) of the Rules amounts to unjust enrichment? In other words, whether the quantum of forfeiture under the SARFAESI Rule is limited to the extent of debt owed? (iii) Whether a case of exceptionable circumstances could be said to have been made out by the respondent to set aside the order of forfeiture of the earnest money deposit?

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