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2022 (9) TMI 1553 - HC - Indian LawsMaintainability of petition - alternative remedy available to petitioner to approach the Debt Recovery Tribunal under Section 17 of the Act - claim of refund - seeking quashing of the e-mail dt.15.12.2021 issued by respondent No. 2 forfeiting the said amount deposited towards the earnest money by him - suppression of factum by secured creditor like SBI of the pendency of litigation in respect of the secured asset being put to sale, from persons intending to participate in the e-auction - It is the contention of the petitioner that it was the duty of the Bank to disclose about the pending litigation in the e-auction notice, and suppression of the said fact by the Bank is contrary to law. Maintainability of petition - alternative remedy available to petitioner to approach the Debt Recovery Tribunal under Section 17 of the Act - HELD THAT - If there is a violation of the provisions of the Act by the respondent-Bank while taking steps to recover it's dues under the Act, the Writ Petition can be entertained by this Court, and it is not necessary to relegate the parties to avail alternative remedy. Though counsel for respondents have placed reliance on the decision of the Supreme Court in the case of Aggarwal Tracom Pvt. Ltd. v. Punjab National Bank 2017 (11) TMI 1523 - SUPREME COURT to contend that the Writ Petitions under Article 226 of the Constitution of India cannot be entertained when effective statutory remedy is available to the aggrieved person, in a later judgment rendered in the case of AUTHORIZED OFFICER, STATE BANK OF TRAVANCORE AND ANOTHER VERSUS MATHEW K.C. 2018 (2) TMI 25 - SUPREME COURT , the Supreme Court held that there are well defined exceptions to the rule of exhaustion of alternative remedy as laid down in decision of COMMISSIONER OF INCOME TAX OTHERS VERSUS CHHABIL DASS AGARWAL 2013 (8) TMI 458 - SUPREME COURT and one of such exceptions mentioned in Para 15 of the said judgment is where the statutory authority has not acted in accordance with the provisions of the enactment in question. - the plea of the respondent that the Writ Petition ought to be dismissed in view of existence of alternative remedy under Sec.17 of the Act is rejected. Whether it was proper for a secured creditor like SBI to suppress from persons intending to participate in the e-auction being conducted by it under the SARFAESI Act, 2002, the factum of the pendency of litigation in respect of the secured asset being put to sale by it? - HELD THAT - It is settled law that persons holding positions of trust have to act in a bonafide manner and transparently and cannot mislead persons sought to be affected by their actions by suppressing material facts and circumstances. Rule 8(6)(f) of the Rules protects the interest of the intending purchaser to be put on notice as to encumbrance as otherwise, he or she would be purchasing property, and simultaneously buying litigation as well, and the intending purchaser may not bid in the event, if he or she came to know any encumbrance over the property. That is why the Rules specifically contemplate a provision for the Authorized Officer, while notifying the sale, to specifically state as to the encumbrance. Merely by mentioning in the e-auction notice that the sale is on as is where is basis, as is what is basis and whatever there is basis, the Bank is not absolved of its statutory obligation of disclosing the encumbrances attached to the property brought for sale by way of tender or any auction or sale by public auction. In Joginder Singh 2022 (7) TMI 1505 - PUNJAB AND HARYANA HIGH COURT also there was civil litigation pending in respect of the secured asset which was not disclosed in the tender/public notice issued the Bank, and this Court has held that if such a fact had been disclosed, the petitioner might not have participated in the tender issued by the Bank at all as no intending purchaser wants to buy a fresh litigation or take on other unknown liabilities against third parties, and the action of the Bank was arbitrary and contrary to the provisions of the Act of 2002. It was not proper for a secured creditor like SBI to suppress from persons intending to participate in the e-auction being conducted by it under the SARFAESI Act, 2002, the factum of the pendency of litigation in respect of the secured asset being put to sale by it; and that it ought to have refunded the amount deposited by petitioner, instead of forfeiting it. The email dt.15.12.2021 (Annexure P-16) issued by respondent No. 2 to the petitioner is set aside; and respondents 1 to 3 are directed to refund within 4 weeks Rs. 16,08,250/- to the petitioner with interest @ 7% per annum from the date such deposit(s) were made till the date of refund - petition allowed.
Issues Involved:
1. Maintainability of the Writ Petition. 2. Suppression of litigation details by the Bank. 3. Forfeiture of the earnest money deposit. 4. Bank's obligation to disclose encumbrances. 5. Discrimination against the petitioner. Detailed Analysis: Maintainability of the Writ Petition: The respondent-Bank contended that the petitioner had an alternative remedy before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, 2002, citing the Supreme Court decision in Aggarwal Tracom Pvt. Ltd. v. Punjab National Bank. However, the Court held that if there is a violation of the provisions of the Act by the Bank, the Writ Petition can be entertained. The Court referenced the Supreme Court's decision in Authorized Officer, State Bank of Travancore v. Mathew K.C, which allows for exceptions to the rule of exhaustion of alternative remedies, particularly when the statutory authority has not acted in accordance with the provisions of the enactment. The Court also cited similar views from past judgments, thereby rejecting the plea that the Writ Petition should be dismissed due to the existence of an alternative remedy. Suppression of Litigation Details by the Bank: The petitioner argued that the Bank failed to disclose the pending litigation (CWP No. 22761 of 2020) related to the auctioned property, which is contrary to law. The Court noted that the Bank had previously refunded the earnest money to another bidder, Smt. Jaswinder Kaur, under similar circumstances where litigation details were not disclosed. The Court emphasized that under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, it is incumbent on the secured creditor to disclose known encumbrances and any material facts that a purchaser needs to judge the nature and value of the property. The Court held that the Bank's failure to disclose the pending litigation was a suppression of material facts and not bona fide. Forfeiture of the Earnest Money Deposit: The petitioner did not pay the remaining 75% of the bid amount due to the undisclosed litigation and sought a refund of the earnest money. The Bank, however, forfeited the amount under Rule 9(5) read with Rule 9(4) of the Rules. The Court found that the Bank's action was discriminatory and arbitrary, especially since it had refunded the earnest money to another bidder under similar circumstances. The Court held that the forfeiture was not justified and directed the Bank to refund the earnest money with interest. Bank's Obligation to Disclose Encumbrances: The Court examined the definition of "encumbrance" and concluded that the existence of litigation falls within this definition as it constitutes a burden on the title and diminishes the property's value. The Court referenced the Supreme Court's interpretation in State of H.P. v. Tarsem Singh and held that the Bank's failure to disclose the pending litigation was a violation of Rule 8(6) of the Rules. The Court emphasized that the Bank's statutory obligation to disclose encumbrances cannot be negated by merely stating that the sale is on an "as is where is" basis. Discrimination Against the Petitioner: The Court noted that the Bank had refunded the earnest money to Smt. Jaswinder Kaur under similar circumstances but refused to do so for the petitioner. This differential treatment was deemed discriminatory and arbitrary, violating Articles 14 and 300A of the Constitution of India. The Court held that the Bank's action was not justified and directed the refund of the earnest money along with interest. Conclusion and Relief: The Writ Petition was allowed. The email dated 15.12.2021 forfeiting the earnest money was set aside. The respondents were directed to refund Rs. 16,08,250/- to the petitioner with interest at 7% per annum from the date of deposit until the date of refund. Additionally, the respondents were ordered to pay Rs. 50,000/- as costs to the petitioner within four weeks.
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