2017 (2) TMI 1154 - HC - Indian Laws

Auction sale - Notification of incumbrances on the property sold - Held that - When rules permit sale, with encumbrance and without, contention of the learned counsel for the appellant that the sale should be free from encumbrance, cannot be accepted. On the facts and circumstances of the instant case, what is required to be considered by us, is whether the Bank has notified the encumbrances on the property sold. In the light of the above we are unable to accept the contentions of the bank that by imposing a condition, as is where is and as is what is , the Bank has no obligation to mention in the auction notice, the encumbrance of the property, sought to be sold and it is suffice to contend that in the auction notice, the Bank has clearly stated that the property sold was in as is where is and as is what is condition and that the same would satisfy the requirements of Rule 8(6) of the Security Interest (Enforcement) Rules, 2002, which states that the authorised officer shall state the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor. In Jai Logistics s case (2010 (7) TMI 1118 - MADRAS HIGH COURT ), defence of the Bank that the encumbrance was not known to them, and hence, could not be published on the sale notice, to sustain the order of forfeiture, was not accepted by this Court. On the facts and circumstances of the case, the Bank may be right in contending that physical possession need not be taken before bringing the mortgaged property for auction, but they cannot shirk their duty to hand over possession to the auction purchaser. If the bank was not in a position to take physical possession, before sale, then recourse ought to have been taken under Section 14 of the Act and under the scheme of the Act, the Bank cannot be permitted to contend that there is no statutory obligation, on its part, to put the auction purchaser in possession. Ordinarily, a sale is completed, on receipt of the entire sale consideration and handing over possession. But if encumbrance is specifically mentioned in the sale notice and if the auction purchaser with eyes open, had purchased the property, then there could be a cause to contend that it is the purchaser, who had taken the risk. While issuing a sale notice, it is the duty of the Bank to mention all the encumbrances in the property. The condition, as is where is or as is what is may indicate that when the property is sold, everything is not clear. But at the same time, the purchaser cannot be expected to know that the property sold was already mortgaged to another bank, viz., Nedungadi Bank and that there was a decree in O.S.No.328 of 1999, dated 10.07.2000, on the file of Subordinate Judge, Poonamallee. Though the appellant has taken a demand draft dated 02.09.2009 in favour of Punjab National Bank, the respondent herein and also sent a telegram that he was ready to hand over the draft, subject to the bank handing over vacant possession of the property and time for remittance was granted up to 22.02.2009, bank has stuck to its stand of as is where is or as is what is condition and not committed to hand over physical and vacant possession of the auctioned property, which in our view is contrary to the scheme of the Act. In the light of the above discussion and decisions, forfeiture of the amount is erroneous. Appellant has made out a case for interference. In the result, order made in W.P. is set aside. The respondent bank is directed to refund, a sum of ₹ 3,30,000/- to the appellant, with interest at the rate of 9% per annum, within a period of four weeks, from the date of receipt of a copy of this order.

Summary

Issues Involved:
1. Legality of the auction process and adherence to SARFAESI Rules.
2. Bank's obligation to disclose encumbrances and provide possession.
3. Validity of the "as is where is" condition in the auction notice.
4. Forfeiture of the deposit amount by the bank.

Detailed Analysis:

1. Legality of the Auction Process and Adherence to SARFAESI Rules:
The appellant participated in an auction conducted by Punjab National Bank for a property, but later sought a refund of the deposit, citing non-furnishing of original title deeds and doubts about the title's validity. The bank contended that all documents were made available and the sale was on an "as is where is" basis, asserting compliance with Rules 8 and 9 of the SARFAESI Rules, 2002. The court examined the statutory provisions, including Rule 8, which mandates the authorized officer to take possession and publish a possession notice, and Rule 9, which details the sale process, including the forfeiture of the deposit in case of default in payment by the purchaser.

2. Bank's Obligation to Disclose Encumbrances and Provide Possession:
The appellant argued that the bank failed to disclose encumbrances and provide vacant possession, contrary to the SARFAESI Act and Rules. The court referred to Rule 9(7) and (9), which require the authorized officer to deliver the property free from known encumbrances upon deposit of money by the purchaser. The court also cited the Supreme Court's decision in Transcore v. Union of India, which held that the bank must deliver the asset free of encumbrances and provide a clear title to the purchaser.

3. Validity of the "As Is Where Is" Condition in the Auction Notice:
The bank's auction notice included a condition that the property was sold "as is where is" and "as is what is." The court noted that while such a condition may be valid, the bank still has a statutory obligation under the SARFAESI Act to disclose known encumbrances and provide possession. The court referred to the decision in United Bank of India v. Official Liquidator, which upheld the "as is where is" condition but distinguished it from cases governed by specific statutory provisions like the SARFAESI Act.

4. Forfeiture of the Deposit Amount by the Bank:
The appellant's deposit of ?3,30,000 was forfeited by the bank for failing to pay the balance amount within the stipulated time. The court examined whether the forfeiture was justified, considering the bank's failure to disclose encumbrances and provide possession. The court referred to several precedents, including Haryana Financial Corporation v. Rajesh Gupta, which held that a statutory corporation must act fairly and cannot take advantage of its own wrong. The court also cited Jai Logistics v. The Authorised Officer, Syndicate Bank, which emphasized the bank's obligation to disclose encumbrances in the sale notice.

Conclusion:
The court concluded that the bank's auction notice failed to disclose encumbrances and the bank did not fulfill its statutory obligation to provide possession. Consequently, the forfeiture of the deposit was erroneous. The court set aside the writ court's order, directed the bank to refund the deposit amount with interest, and allowed the writ appeal.