Auction Failed, Deposit Stuck: Karnataka HC Shuts Out a Bank's Late Bid to Bar a Refund Suit

A Bengaluru real estate firm took part in a public auction of mortgaged properties held by a co-operative bank to recover a loan, and made deposits towards the purchase. The sale never went through. According to the High Court, "the transaction remained inconclusive for various reasons, and the deposit continued to remain with the Bank." The firm sued in the Commercial Court for its money back with interest. Sixteen months after the bank filed its written statement, and after the firm's first witness had testified, the bank tried to argue that the suit should never have been filed at all. On November 3, 2026, the Karnataka High Court refused to let it.

The order, in Saraswat Co-operative Bank Limited v. M/s Royale Builders and Developers, Writ Petition No. 27233 of 2026, was delivered by Justice K.V. Aravind. Bank auctions are one route by which Bengaluru buyers acquire homes, sites and commercial space. This case shows what can happen when an auction collapses and the deposit stays with the bank, and how a procedural objection raised late can be shut out.

The short answer. The High Court dismissed the bank's writ petition and upheld the Commercial Court's order of 14.07.2026, which had rejected the bank's application to amend its written statement to plead that the suit was barred under Section 115 of the Multi-State Co-operative Societies Act, 2002. The court said that "the bar against institution of a suit without issuance of notice is attracted where the issues relate to the constitution, management or business of the Society", and that a claim for refund of an auction deposit "cannot, prima facie, be said to relate" to those matters. The trade-off: the bidder's suit can proceed to a decision, but the amount and the merits of the refund claim are still to be decided at trial.

What happened at the auction?

The order gives only a brief account. The bank, a multi-state co-operative bank with its registered office in Mumbai and a branch in Bengaluru, "pursuant to the recovery proceedings in respect of a loan, notified certain mortgaged properties for auction sale, pursuant to which the respondent made certain deposits." The respondent is a partnership firm "engaged in the business of real estate". The court records that the transaction "remained inconclusive for various reasons", and the suit "came to be instituted for recovery of the said deposit."

The order does not state the amount deposited, the properties auctioned or why the sale did not complete. Those questions belong to the trial in Com.O.S. No. 1233 of 2024 before the LXXXVIII Additional City Civil and Sessions Judge, Bengaluru, sitting as a Commercial Court. What the High Court decided was narrower but still useful for bidders: whether the bank could, at a late stage, change its defence to claim the suit was barred.

How did the case move through the Commercial Court?

Slowly, and the High Court traced why. The bank "initially did not appear before the Commercial Court despite service of the suit summons and was accordingly placed ex parte." The court later recalled that order and allowed a written statement, which the bank filed on 10.12.2024. The bank then applied to have the plaint rejected; meanwhile it "proposed settlement, resulting in deferment of consideration", and the application was finally rejected on 21.11.2025.

The court said this sequence "would weigh against the petitioner, particularly when the petitioner appears to have made repeated attempts resulting in delay in the progress of the suit." By the time the amendment was sought, "the examination-in-chief of PW-1 had been completed and documents had been marked in evidence."

What is Section 115, and why did the bank invoke it?

The bank's counsel argued that "no suit shall be instituted against a Multi-State Co-operative Society until the expiry of 90 days from the date of service of notice to the Central Registrar", that the requirement was mandatory, and that the court should insist on it even without a specific plea. The bidder's counsel replied that the provision "is not applicable to every suit instituted against a Multi- State Co-operative Society unless the parameters stipulated therein are shown to be prima facie applicable."

The court accepted that "on a plain reading of Section 115 of the Act, the requirement contemplated therein is mandatory." But it said "The amendment has been sought on the premise that every suit instituted against the petitioner would attract Section 115 of the Act. Such an understanding of the provision is impermissible." It relied on a Bombay High Court decision in a case involving the same bank, which held that for Section 115 to be attracted, "the issue involved in the suit must necessarily relate directly to the constitution, management or business of the Society."

Why was the late amendment refused?

Because the trial had begun, the bank had to show it could not have raised the plea earlier despite due diligence. The court noted the bank "is a statutory body" and "It cannot be said that the petitioner was unaware of the statutory protection available to it". Its affidavit "does not state that, despite due diligence, the requirement under Section 115 of the Act could not be pleaded earlier."

Prejudice to the bidder was decisive. The court explained that if the plea had been raised at the start and upheld, the suit "could have been re-presented after complying with the statutory requirement." Raised now, it could expose the bidder to a limitation problem on refiling. It said the belated plea "has the effect of further delaying the proceedings and would cause prejudice to the respondent, which cannot be adequately compensated in terms of money."

The bidder had also argued that the notice requirement could be waived, relying on a Supreme Court case about Section 80 of the Code of Civil Procedure. The court did not accept this, saying the two provisions are "not identical", and that inferring a waiver "would amount to rewriting the statutory provision, which is impermissible." So the bidder won on prejudice and on the prima facie scope of Section 115, not on waiver.

Does this mean bank auction deposits are easy to recover?

No. The order only clears a procedural hurdle. The court said "the applicability of Section 115 of the Act is ultimately a matter for consideration by the Commercial Court", and its view that the refund claim does not relate to the bank's business was expressly prima facie. Whether the firm is entitled to its deposit, and with what interest, will be decided at trial.

What the case does show is that a bidder who sues for a stuck deposit may face years of litigation, including an ex parte stage, a plea to reject the suit, settlement talks and late amendments. PropNewz looked at another dispute where a claim depended on events that had not yet happened in its report on the Coffee Board housing society's TDR claim, and at a buyer's long road to a refund in its report on a sale agreement advance returned with 6 percent interest.

What should bidders at Bengaluru bank auctions do?

Treat the deposit as money that may be locked up if the sale fails, and build your paper trail from the first day. Know who the seller is: a public sector bank, a private bank, a co-operative bank registered in the State, or a multi-state co-operative bank, since different laws and notice requirements can apply. If a refund is refused or delayed, act within time, because limitation and notice rules can decide whether your claim is even heard.

1. Read the auction notice and terms closely, especially the clauses on refund of deposits if the sale fails.
2. Pay only through traceable banking channels and keep every receipt and acknowledgment.
3. Confirm the legal status of the bank, including whether it is a multi-state co-operative society.
4. If the sale does not complete, ask the bank in writing for a refund and the reasons, and note the date.
5. Ask a lawyer whether a statutory notice must be served before you sue, and serve it if in doubt.
6. File within the limitation period, and keep track of every hearing and application in the suit.
7. Take legal advice before bidding on properties that are already under litigation or recovery proceedings.

Frequently asked questions

What did the Karnataka High Court decide in Saraswat Co-operative Bank v. Royale Builders on November 3, 2026?

Justice K.V. Aravind dismissed the bank's writ petition and upheld a Bengaluru Commercial Court order of 14.07.2026 refusing to let the bank amend its written statement. The bank wanted to argue, after trial had begun, that a suit for refund of an auction deposit was barred for want of notice under Section 115.

Does Section 115 of the Multi-State Co-operative Societies Act apply to every suit against such a bank?

No, according to this order. The court said the bar applies where the issues relate to the constitution, management or business of the society, and that refund of an amount deposited in auction proceedings cannot, prima facie, be said to relate to those matters. The Commercial Court will finally decide applicability.

Why did the court refuse the bank's amendment?

The trial had commenced, so the bank had to show due diligence. The court found no explanation for raising the plea late, noted repeated delays in the suit, and held the amendment would prejudice the bidder in a way money could not compensate, including on limitation if the suit had to be refiled.

What should a bidder do if a bank keeps an auction deposit after a failed sale?

Keep the auction notice, bid documents and payment proof, ask the bank in writing for a refund and reasons, and note the dates. Check whether the bank is a multi-state co-operative and whether a statutory notice is needed before suing, and take legal advice early so limitation is not lost.

This article summarises a court order for general information and is not legal or investment advice. The refund suit is pending, and no finding has been made on its merits.

Last updated 2026-11-07. PropNewz Team.