Bank must pay 7% interest on delayed refund of an unsuccessful bidder’s EMD.

The respondent participated in a bank auction and was declared the unsuccessful, second-highest bidder after the bid was accepted in favour of the highest bidder.

He deposited an Earnest Money Deposit (EMD) of ₹40,00,000 on 22 September 2021, which the Bank refunded only on 12 March 2024.

Despite repeated requests, the Bank retained the EMD, contending that the auction proceedings had been stayed by the Debts Recovery Tribunal (DRT) in separate litigation.

The Single Judge directed payment of interest at 12% per annum from the date of deposit until refund and 15% per annum for any further delay after one month from the order.

The Bank challenged those directions in the present writ appeal.

Whether the Bank was liable to pay interest for the delayed refund of the EMD retained after the respondent was declared an unsuccessful bidder.

Whether the rate of interest awarded by the Single Judge at 12% per annum, with a further rate of 15% for additional delay, was justified, or required modification.

An unsuccessful auction bidder is entitled to refund of the EMD, and the Bank cannot justify retaining that amount merely because the auction sale is subject to separate litigation or a stay, particularly where the DRT has not directed withholding of the EMD and the bidder is not a party to that proceeding.

The Court considered Govinda Kumar Sharma v. Bank of Baroda, 2024 SCC OnLine SC 559, where 12% interest was awarded in materially different circumstances involving illegality in the conduct of the auction.

For a simple delayed refund, the appropriate interest rate may be assessed with reference to the prevailing fixed-deposit rates in nationalised banks.

The Court held that the DRT proceedings concerned the auction sale and did not involve the respondent, who had merely been an unsuccessful bidder.

Since the DRT had not directed the Bank to withhold or otherwise interfere with refund of the EMD, the pendency or stay of those proceedings did not justify retention of the respondent’s money.

The Bank was therefore liable to pay interest for the period during which it wrongfully retained the EMD.

However, the Court distinguished Govinda Kumar Sharma because that case involved illegality by the Bank in conducting the auction, whereas the present case concerned delayed refund alone.

Considering the prevailing fixed-deposit interest rates of approximately 6%–8%, the Court found 7% per annum to be appropriate.

The Court upheld the respondent’s entitlement to interest on the delayed refund of the EMD but modified the rate fixed by the Single Judge.

The Bank was directed to pay interest at 7% per annum for the period from 24 September 2021 to 12 March 2024, when the EMD was refunded.