Karnataka High Court rejects Saraswat Bank's late defence in auction deposit refund suit

The Karnataka High Court on 3 November 2026 dismissed a petition by Saraswat Co-operative Bank, which wanted to add a new defence late in a suit filed by a Bengaluru real-estate firm, Royale Builders and Developers. The firm is seeking a refund, with interest, of money it deposited when the bank auctioned mortgaged properties to recover a loan. The court held that the bank could not raise the new plea at this stage.

What Happened

According to the judgment, the bank notified certain mortgaged properties for auction and the firm made deposits. The sale did not go through, and the deposit stayed with the bank. The firm then sued in a Bengaluru commercial court for its return.

After evidence had begun, the bank asked to amend its written statement (its formal reply in the suit) to argue that the suit was barred. It said Section 115 of the Multi-State Co-operative Societies Act, 2002 requires 90 days' notice to the Central Registrar before a suit is filed against such a society. The commercial court rejected the request on 14 July 2026.

The High Court upheld that order. It held that once a trial has started, a party must show it could not have raised the plea earlier despite due diligence, and the bank gave no such reason. It noted the bank's conduct had delayed the suit and that the late plea would prejudice the firm, including on limitation. The court also held that Section 115 applies where a dispute relates to the constitution, management or business of the society, and that refunding a deposit made in an auction cannot, prima facie, be said to fall within it. It said the final question remains for the commercial court.

What It Means

The refund suit will now continue in the commercial court. For buyers who bid in bank auctions, the ruling shows that a multi-state co-operative bank cannot rely on a statutory notice defence it did not raise at the start, and that a dispute over refunding an auction deposit was not, prima facie, treated as the bank's business under Section 115. Customers with a complaint against a bank can also approach the RBI at https://cms.rbi.org.in.

Source: High Court judgment