In a notable case, the 4th respondent, a cooperative bank, extended a business loan of Rs. 25,00,000 to the 1st, 2nd, 5th, and 6th respondents. Following defaults in loan repayments, the bank initiated recovery proceedings before the 3rd respondent, the Assistant Registrar of Cooperative Societies and Recovery Officer. The recovery process culminated in a sale proclamation for the auction of properties held by the defaulting borrowers, with the auction scheduled for 22nd July 2019.

The auction attracted significant interest, leading to a highest bid of Rs. 81,20,000 by the appellant, which was accepted. A confirmation certificate was issued, and the amount was duly deposited. However, disputes among the borrowers led to complications regarding the refund of excess funds after the loan recovery.

The 1st and 2nd respondents sought judicial intervention to set aside the auction sale, arguing that the bank was still entitled to the due amount along with accrued interest. On 17th March 2022, the High Court ruled in favor of the borrowers, declaring the auction sale void. The court allowed the bank to withdraw the amount deposited by the borrowers while directing the bank to refund the full auction amount to the appellant, plus an additional 5% as compensation under the Karnataka Cooperative Societies Rules, 1960.

The appellant subsequently appealed the decision, contesting the adequacy of the 5% solatium awarded for the deprivation of funds from the date of deposit until the refund.

The appeal highlighted critical issues surrounding compensation and interest claims. The appellant argued that the 5% compensation was insufficient given the prolonged deprivation of funds. The bank contended that the amount paid was adequate as per the applicable rules, emphasizing that they only received the auction proceeds from the 3rd respondent on 13th October 2022.

In reviewing the case, the courts recognized that while the auction sale was set aside based on equitable considerations—specifically the prompt repayment by the 1st and 2nd respondents—the appellant's rights were equally significant. The judges noted that the appellant was entitled to compensation for being deprived of the auction amount from the date of deposit until actual refund.

Ultimately, the court ruled that the appellant should receive simple interest at a rate of 6% per annum on the amount of ?81,20,000 from the date of deposit until the actual refund date. This decision modified the previous judgment regarding compensation, emphasizing that the financial institution’s obligations were not limited to the 5% solatium but included interest on the principal amount as well.

This case serves as a critical reminder of the need for financial institutions to navigate recovery proceedings carefully and uphold the rights of all parties involved. The court’s ruling reinforces the principle that an auction purchaser deserves fair compensation when deprived of their funds, highlighting the judiciary's role in balancing equitable outcomes in financial disputes.

The outcome not only provides a precedent for future cases but also underscores the importance of clear communication and adherence to procedural standards in the financial sector.