Supreme Court of India· 22 August 2026

Must a bank keep surplus sale proceeds in an interest-bearing account?

Lakshmi Mohan (Dead) Through LRs. & Anr v. M/s. Airtech Projects Engineers Pvt. Ltd. & Anr

2026 INSC 909 · Civil Appeal Nos. 9228-9231 of 2013
Coram: Alok Aradhe; Pamidighantam Sri Narasimha

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Answer

Yes. The Bank ought to have kept the balance amount left after appropriation of the sale proceeds in an interest-bearing account and failed to do so. For that omission on the part of the Bank the borrower cannot be penalized, and the borrower is entitled to refund of the balance sale consideration along with interest.

Headnote

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Security Interest (Enforcement) Rules, 2002 — r.9(3) — Earnest money deposit — Essential condition of eligibility — Surplus sale proceeds — Security Interest (Enforcement) Rules, 2002 — r.9(3) — Non-statutory earnest money condition — Held: A non-statutory earnest money condition inserted in the sale notice to filter out non-serious bidders is not an essential condition of eligibility. Once twenty-five percent of the sale price is deposited under Rule 9(3), an anterior shortfall in earnest money does not affect the validity of the bid. (¶20, 21) Auction sale — Non-conformity causing no substantial prejudice — Sale not vitiated — Held further: Any non-conformity with, or relaxation in, the prescribed standard which results in no substantial prejudice or injustice to any party or to public interest in general would not be bad. (¶19, 21) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Surplus sale proceeds — Interest-bearing account — Held further: A secured creditor ought to keep the surplus sale proceeds in an interest-bearing account; the borrower cannot be penalised for that omission and is entitled to refund with interest. Appeals allowed. (¶23, 24)

In the Court's own words

Paragraph 23Admittedly, after appropriation of sale proceeds, the Bank was left with an excess amount of Rs.1,33,94,054/- (Rupees One Crore Thirty-Three Lakhs Ninety-Four Thousand Fifty-Four only). The Bank had offered the aforesaid amount to the borrower by way of a demand draft which it declined to accept presumably on account of pending litigation. The Bank ought to have kept the aforesaid balance amount in an interest-bearing account. However, the Bank has failed to do so. For this omission on the part of the Bank, the borrower cannot be penalized. The borrower is entitled to refund of the balance sale consideration along with interest.

Acts & Sections

r.9(3) Security Interest (Enforcement) Rules, 2002r.8 Security Interest (Enforcement) Rules, 2002s.13(2) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s.13(4) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

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Also decided in this judgment

Does an earnest money shortfall vitiate an auction under the Security Interest (Enforcement) Rules, 2002?

Plain-language answer prepared by the LexStreak Editorial Desk — verify against the judgment. Source: Supreme Court of India. Corrections