2022 (11) TMI 856 - SC - Indian Laws

Maintainability of suit - auction of property - fraud established or not - suit was barred in view of Section 34 of the SARFAESI Act - disclosure of all facts - actual area of the secured property put to auction is less than 54 cents - property was put to auction as is where is and as is what is basis - HELD THAT - It is required to be noted that after the Bank received the possession of the secured property in exercise of powers under the SARFAESI Act, the property in question admeasuring 54 cents was put to auction, by Auction Notice dated 23.01.2007. The plaintiff on the basis of the representation made and the auction notice in which the land was put to auction was stated to be 54 cents submitted her offer of Rs.32,05,000/for sale of 54 cents. At this stage, it is required to be noted that in the quotation itself the plaintiff specifically stated that the offer of Rs.32,05,000/is subject to the condition that the absolute ownership and vacant possession of full extent of property without encumbrances is handed over - The sale consideration received by the Bank was for 54 cents. That thereafter the sale certificate was registered in the month of October, 2010. Thereafter the plaintiff filed the suit for recovery of damages with respect to 14.40 cents. The final certificate was registered on 01.10.2010 and thereafter when the suit was filed in the year 2012 it cannot be said that the suit was barred by limitation. At this stage, it is required to be noted that as such no issue was framed by the learned Trial Court on whether the suit is barred by limitation or not. Suit was barred by Section 34 of the SARFAESI Act or not - HELD THAT - It is required to be noted that the suit was for damages/compensation, with respect to the balance land, which could not have been decided by the DRT or Appellate Tribunal, Section 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act. The plaintiff was not challenging the sale/sale certificate. The plaintiff claimed the damages/compensation with respect to the less area. Therefore, the High Court has seriously erred in holding that the suit was barred by Section 34 of the SARFAESI Act. Property was put to auction on as is where is and as is what is basis - HELD THAT - Considering the fact that the auction notice was for 54 cents; the plaintiff submitted the offer of Rs.32,05,000/for 54 cents; the plaintiff paid the actual amount of sale consideration i.e. Rs.32,05,000/for 54 cents; the sale certificate was issued for 54 cents and even the sale certificate which was registered in the year 2012 was for 54 cents, thereafter it was not open for the Bank to contend that though the Bank had handed over the possession of 34.60 cents still the sale consideration recovered would be for 54 cents. It was not open for the financial institution like the Bank to take such a plea. Even otherwise it is required to be noted that at least in the month of November, 2007 when the Tehsildar submitted the report, the Bank was aware that the actual area is 34.60 cents and not 54 cents. Thereafter the Bank ought not to have issued the sale certificate for 54 cents. The Bank ought to have been fair and ought to have issued the sale certificate only for 34.60 cents. This shows the conduct on the part of the bank. The High Court has committed an error in allowing the appeal and quashing and setting aside the judgment and decree passed by the learned Trial Court. Consequently, the impugned judgment and order passed by the High Court is hereby quashed and set aside. The judgment and decree passed by the learned Trial Court decreeing the suit is hereby restored - appeal allowed.

Summary

Issues Involved:
1. Maintainability of the suit.
2. Entitlement of the plaintiff to the decree as prayed for.
3. Applicability of Section 34 of the SARFAESI Act.
4. Allegation of fraud by the Bank.
5. Basis of the auction sale ("as is where is" and "as is what is").
6. Limitation period for filing the suit.
7. Compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002.
8. Compliance with Section 55(1)(a) of the Transfer of Property Act.

Issue-wise Detailed Analysis:

1. Maintainability of the Suit:
The learned Trial Court framed the issue of whether the suit is maintainable. The Trial Court decreed the suit, directing the Bank to pay the plaintiff a sum of Rs.58,10,000 with interest. The High Court, however, quashed this decree, stating that the suit was barred by Section 34 of the SARFAESI Act. The Supreme Court observed that the suit was for damages/compensation, which could not have been decided by the DRT or Appellate Tribunal, and thus Section 34 of the SARFAESI Act was not applicable.

2. Entitlement of the Plaintiff to the Decree:
The plaintiff argued that they paid for 54 cents of land but were handed over only 39.60 cents, thus entitling them to compensation for the shortfall. The Trial Court agreed and decreed in favor of the plaintiff. The High Court set aside this decree, but the Supreme Court restored it, noting that the Bank issued a sale certificate for 54 cents despite knowing the actual measurement was only 39.60 cents.

3. Applicability of Section 34 of the SARFAESI Act:
The High Court held that the suit was barred by Section 34 of the SARFAESI Act, as no fraud was established. The Supreme Court disagreed, stating that the suit for damages/compensation could not be decided by the DRT or Appellate Tribunal, hence Section 34 did not apply.

4. Allegation of Fraud by the Bank:
The plaintiff alleged that the Bank committed fraud by not disclosing the actual measurement of the land. The Supreme Court noted that the Bank was aware of the actual measurement as early as November 2007 but still issued a sale certificate for 54 cents, thus supporting the plaintiff's claim of non-disclosure and misrepresentation.

5. Basis of the Auction Sale ("As Is Where Is" and "As Is What Is"):
The Bank argued that the property was sold on an "as is where is" and "as is what is" basis, and the plaintiff was aware of the actual area. The Supreme Court found that the plaintiff had consistently insisted on purchasing 54 cents and had paid for that amount. The Bank's defense was not accepted as it was obligated to disclose the actual measurement.

6. Limitation Period for Filing the Suit:
The Bank contended that the suit was barred by limitation, as it was filed beyond three years from the date of knowledge. The Supreme Court noted that the sale certificate was registered in October 2010, and the suit was filed in 2012, thus within the limitation period.

7. Compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002:
The Supreme Court highlighted that Rule 8 of the 2002 Rules mandates the authorized officer to take all precautions before selling the secured asset, including obtaining a valuation and fixing the reserve price. The Bank failed to disclose the actual measurement, thus violating this rule.

8. Compliance with Section 55(1)(a) of the Transfer of Property Act:
The Supreme Court noted that under Section 55(1)(a) of the Transfer of Property Act, the seller must disclose any material defect in the property. The Bank's failure to disclose the actual measurement constituted a breach of this duty.

Conclusion:
The Supreme Court quashed the High Court's judgment and restored the Trial Court's decree, directing the Bank to pay the decretal amount with interest within eight weeks. The appeal was allowed with costs, quantified at Rs.25,000, to be paid by the Bank to the original plaintiff.