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TMI Blog2017 (2) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... jab National Bank, Chennai/respondent No.2. 3. The appellant issued a legal notice dated 28.07.2009 stating that he had bonafidely participated in the auction sale to purchase the property without any hesitation and in good faith, but the bank did not furnish the original title deeds and copies of other documents including the judgment and decree from the competent court and therefore apprehended that title may not be proper. He therefore decided not to proceed with the transaction. According to him, it was also doubtful as to whether the Authorised Officer and Chief Manager, Punjab National Bank/2nd respondent would deliver possession of the auctioned property, without encumbrance and free from any future litigation. 4. According to him, the property was not kept under the custody of the second respondent-Bank, in terms of Rules 8 and 9 of the SARFAESI Rules, 2002. Therefore, by the aforesaid notice dated 28.07.2009, the appellant demanded return of the deposited amount of Rs. 3,30,000/-, within a week's time, from the date of receipt thereof, failing which, he would be constrained to initiate proceedings for recovery, with interest, at the rate of 18% per annum. 5. The Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it vide its decision in United Bank of India v. Official Liquidator and others reported in 1994(1) SCC 575. The following passages found in paragraphs 13 and 14 will make the position clear and they are usefully reproduced below:- "13. In our view, the complete answer to Triputi's allegation in regard to the failure of the Official Liquidator to hand over to it possession of certain properties which were sold to it, which, according to it, the company in liquidation did not even own, is contained in clause 2 of the Terms and Conditions of Sale upon the basis of which the property and assets of the company in liquidation were sold by the Official Liquidator to Triputi under the orders of this Court. Clause 2 reads thus: "2. The sale will be as per inventory list on 'as is where is basis' and subject to the confirmation of the Hon'ble Supreme Court of India. The Official Liquidator shall not provide any guarantee and/or warranty in respect of the immovable properties and as to the quality, quantity or specification of the movable assets. The intending purchaser must satisfy themselves in all respect as regards the movable and immovable assets, as to their title, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) deal with sale of unencumbered properties by the Bank, and Rules 9(7) to 9(10) deal with sale of encumbered properties. 9. Referring to Appendix IV in the said Rules, learned counsel for the appellant further submitted that the said Appendix unambiguously states that possession of properties sold, must be delivered and that sale must be free from all encumbrances. He therefore submitted that SARFAESI Act, 2002 and the Rules made thereunder, do not provide for sale, in "as is where is" and "as is what is" condition. 10. Learned counsel for the appellant further contended that the Doctrine of Caveat Emptor and Doctrine of "as is where is" condition, sale are general provisions, concerning sale of goods and such doctrines do not find a place, where specific provisions are made in SARFAESI Act, 2002 and the Rules made thereunder, for sale of assets, secured by the Bank. 11. On the reliance made to Bank of India v. Official Liquidator and others reported in 1994 (1) SCC 575, learned counsel for the appellant submitted that the said decision was rendered, under the Companies Act, 1956, when the purchaser therein, having purchased the property, sought for diminution in price, on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, statute do not contemplate sale in "as is where is condition" or "as is where is basis". He further submitted that the title deeds were not shown to the auction purchaser. 18. He further submitted that for the shortcomings of the Bank, in not clearing the encumbrance and handing over vacant possession, auction purchaser should not suffer an order of forfeiture. For the abovesaid reasons, he prayed that the order made in W.P.No.19557 of 2009, dated 28.10.2009, be set aside and refund a sum of Rs. 3,30,000/-, being 25% of the deposit, be ordered. 19. The Chairman cum Managing Director, Punjab National Bank, New Delhi and Authorised Officer and Chief Manager, Punjab National Bank, Chennai, respondents 1 and 2, in their counter affidavit, have stated as follows: "(a) M/s.Weather Maker, represented by its proprietor Mr.R.S.Sankar, availed of Term Loan Facility and Overdraft facility from the Respondents herein. (b) The prompt and due repayment of the aforesaid financial facilities along with interest accrued thereon was duly secured by the personal guarantee of Mrs.P.S.Sarala Devi and Mr.N.E.Subramanian. (c) The said Mrs.P.S.Sarala Devi also created equitable mortgag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o put the appellant on specific notice that upon his failure to pay the balance sale consideration on or before 22.09.2009, that the deposit amount of Rs. 3,30,000/- paid by the appellant under Section 9(3) of the SARFAESI Rules would stand forfeited in terms of Section 9(4) of the SARFAESI Rules. (k) Owing to the default of the appellant to pay the balance sale consideration within the time schedule as stated in the auction sale notice dated 07.06.2009 and within the time schedule as extended by the authorized officer, the security deposit of Rs. 3,30,000/- paid by the appellant as part payment of the sale consideration stood forfeited. (i) In as much as the appellant herein participated in the tender cum auction sale held by the respondent bank on 17.07.2009 out of his free will and volition, after having realized and understood the inherent risk that are associated with a on sale, the Learned Single Judge dismissed the above Writ Petition No.19557 of 2009, based on the ratio as determined to the Hon'ble Supreme Court, in the case of Union Bank of India v. Official Liquidator and others, as reported in 1994 (1) SCC 575." 20. Mr.R.Umasuthan, learned counsel for responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the parties and perused the materials available on record. 23. Rule 8 of the Security Interest (Enforcement) Rules, 2002, deals with sale of immovable secured assets and that the same reads as follows: "(1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspaper one in vernacular language having sufficient circulation in that locality, by the authorised officer. (3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Rule is extracted hereunder: "9. Time of sale, Issue of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor: Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9 : Provided further that if the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price. (3) On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent. of the amount of the sale price, to the authorised officer conducting the sale and in default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whereas The undersigned being the authorised officer of the _______________ (name of the Institution) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and in exercise of powers conferred under Section 13(12) read with rule 9 of the Security Interest (Enforcement) Rules, 2002 issued a demand notice dated _______________calling upon the borrower Shri _______________/M/s_______________to repay the amount mentioned in the notice being Rs. _______________(in words_______________) with in 60 days from the date of receipt of the said notice. The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him/ her under Section 13(4) of the said 27[Act] read with rule 9 of the said rules on this _______________day of_______________of the year_______________. The borrower in particular and the public in general is hereby cautioned not to deal with the property and any dealings with the property will be subject to the charge of the _______________ (name of the Instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment accordingly. Rule 9(9) states that the authorised officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above. As per Rule 9(10), certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not. 29. In Transcore v. Union of India reported in 2008 (1) SCC 125, while considering several issues, at Paragraph 26, the Hon'ble Apex Court held as follows: "Section 13(6) inter alia provides that any transfer of secured asset after taking possession or after taking over of management of the business, under Section 13(4), by the bank/FI shall vest in the transferee all rights in relation to the secured assets as if the transfer has been made by the owner of such secured asset. Therefore, Section 13(6) inter alia provides that once the bank/FI takes possession of the secured asset, then the rights, title and interest in that asset can be dealt with by the bank/FI as if it is the owner of such an asset. In other words, the asset will vest in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. 33. Branch Manager, M/s.Nedungadi Bank Ltd., Purasawalkam Branch, Chennai, has filed O.S.No.328 of 1999, on the file of Subordinate Judge, Poonamallee, for recovery of Rs. 3,94,804/-, for the money borrowed by M/s.Weather Maker, 1st defendant therein. Mr.N.E.Subramanian and P.S.Sarala Devi, the defendants 2 and 3 therein have deposited the title deeds of the suit property, with M/s.Nedungadi Bank Ltd., on 10.10.1996. On 10.07.2000, the learned Subordinate Judge, Poonamallee, has decreed the suit, as hereunder: "(1) That the defendant to pay into court on or before the 10th day of September 2000 or any later date upto which time for payment may be extended by the Court, the said sum of Rs. 5,08.894.25 and do pay interest on Rs. 3,94,804/- at 23.75% p.a. from 10.09.2000, will the date of realisation; (2) That on such payment and on payment thereafter before such date as the Court may fix, of such amount as the Court may adjudge due in respect of such costs of the suit and such costs, charges and expenses as may be payable under rule 10, togeth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the parties are at liberty to apply to the Court from time to time, as they may have occasion, and on such application nor otherwise the Court may give such directions as it thinks fit." 34. Mr.R.S.Sankar, the Sole Proprietor of M/s.Weather Maker and the 3rd defendant in O.S.No.328 of 1999, has availed a term loan of Rs. 2,10,000/- along with a overdraft facility of Rs. 7,899/-. For non-payment of loan amount, Punjab National Bank, respondent No.1 herein, has issued a notice, under Section 13(2) of the SARFAESI Act, 2002, demanding a sum of Rs. 11,71,699.50, with further interest, from 01.09.2007, until payment in full is made, within 60 days, failing which, action would be taken under Section 13(4) of the SARFAESI Act, 2002. 35. Thereafter, a demand notice, dated 19.01.2008, has been issued, calling upon the borrower, to pay the outstanding loan amount, failing which, the Bank would proceed against the borrower, by exercising their right under sub-Section (4) of Section 13 of the SARFAESI Act, 2002. Thereafter, possession notice, under Section 13(4) of SARFAESI Act, 2002, has been published by Punjab National Bank, in Daily Thanthi on 18.09.2008. 36. Admittedly, when noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in S.F.No.375/3, Kalaimagal Nagar, names of the executants/claimants, have been mentioned as, "Sarala Devi (Principal), Sankar (Agent) and Shanmugam. 40. Legal notice, dated 28.07.2009, has been sent by the auction purchaser to the Authorized Officer and Chief Manager, Punjab National Bank, Chennai, stating that though sale was confirmed in his favour, the Bank has failed to furnish the original title deeds, as well as copies of all the documents, including the judgment and decree from the competent Court, pertaining to the auctioned property. Auction purchaser in the said notice, has further stated that after verification of the encumbrance certificate and inspection of the property, he came to know that some third party is in occupation of the same and also found one notice board in front of that house, stating that the property is in dispute. Therefore, the auction purchaser has stated that without following the relevant provisions under Sections 13(2)(4), 14, 15 of the the SARFAESI Act, 2002 and Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, auction has been conducted by the Bank and that therefore, the same is not in accordance with law. 41. In the abovesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, the Authorized Officer and General Manager, Punjab National Bank, has addressed a letter, dated 17.09.2009, to the auction purchaser, stating that 25% of the bid amount, including EMD, ie., a sum of Rs. 3,30,000/- has been deposited, at the time of auction and that the balance amount of Rs. 9,90,000/- has to be paid, on or before 01.08.2009. A reply, dated 19.09.2009, has been given by the Bank. 46. Nowhere in the auction notice, dated 03.06.2009, Punjab National Bank - respondent/secured creditor has stated that the mortgaged property was under a decree in O.S.No.328/1999 dated 10.07.2000 on the file of the Subordinate Judge, Poonamallee. Even in the reply notice dated 14.08.2009, Punjab National Bank, has only reiterated that the bank did not commit to hand over physical and vacant possession of the auctioned property and contended that it was sold only on 'as is where is' or 'as is what is' condition. 47. Admittedly, in the case on hand, even from the version of the bank, only symbolic possession has been taken on 16.09.2008. Though bank has contended that as per the legal position, which prevailed in 2008, they had the right to bring the property for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of financial assistance granted and the total claim of the Bank as on the date of filing the application; (ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period; (iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii) above; (iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount; (v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset; (vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower. (vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-acceptance of such objection or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facto possession, even after without issuance of sale certificate. Therefore, bank, filed an application under Sections 14(1)(2) of the SARFAESI Act, before the learned Chief Judicial Magistrate, Udhagamandalam, on 13.11.2008, seeking an order take possession of the petitioner's property with the help of police aid and hand over the same to the bank. Permission was granted. Writ petition was filed to challenging the order of the learned Chief Judicial Magistrate, Udhagamandalam contending inter alia that once sale certificate was issued in favour of the auction purchaser of the property, there is no secured debt and that the bank loses the character of the secured creditor. Contention has been made that the question of taking actual physical possession does not arise after the issuance of sale certificate. After considering Transcore vs. Union of India repoted in (2008) 1 SCC 125, that banks are entitled to take actual possession of the property in terms of Section 13 of the SARFAESI Act, 2002 and other decisions, in Kathikkal Tea Plantations' case, a Hon'ble Division Bench of this court, at paragraph 16 observed thus: "The third party, who comes forward to purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... staff etc. The Official Liquidator shall not entertain any complaint in this regard after the sale is over. Any mistake in the notice inviting tender shall not vitiate the sale." (emphasis supplied) 52. When the said clause contained that no compensation or deduction in price on any account whatsoever can be claimed, the auction purchaser therein sought for diminution of the price and in such circumstances, the Hon'ble Apex Court in United Bank of India's case, held that having purchased the property on such terms, then a claim for diminution in the price on the ground of defect in title or description of the property, cannot be made. Though in United Bank of India's case, there was a specific clause that the property sold was "as is where is basis", as rightly contended by the learned counsel for the appellant herein, having regard to the statutory provision, Section 14 of the SARFAESI Act, 2002, enabling the secured creditor to take physical possession of the secured assets, and Rule 9(9) of the Security Interest (Enforcement) Rules, 2002, to hand over possession to the auction purchaser, decision in Union of India's case, cannot in strict sense, be made applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier part of this judgment. A perusal of the extracts, reproduced earlier, would clearly show that the Branch Manager has informed the head office in unequivocal language that the independent passage shown in the sale deed is not connected directly with the defaulting unit. It also indicates that the defaulting unit had merely purchased some land to connect the rasta with the revenue record on which movement of the vehicle is not possible at all. This land was not even mortgaged with the appellants/Corporation. The letter also clearly states that by exclusion of the aforesaid land the size of the plot would be reduced from 1210 sq. yards to 1130 sq. yards. That would mean that the main gate of the factory would be out side the land offered for sale. 21. Taking into consideration the aforesaid facts the Division Bench concluded as follows: "Taking the totality of circumstances into consideration, we are satisfied that the petitioner was not at fault. He was entitled to withhold the money as the respondents had failed to provide a proper passage. Still further, the factual position having been admitted in the letter dated April 30, 1998, a copy of which is at Annexure P6, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1882. 25. The aforesaid Section provides as under: (1) The seller is bound- (a) to disclose to the buyer any material defect in the property [or in the seller's title thereto] of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover; (b) to produce to the buyer on his request for examination all documents of title relating to the property which are in the seller's possession or power; A mere perusal of the aforesaid provision will show that it was incumbent upon the appellants/Corporation to disclose to the respondent about the non-existence of the independent passage to the Unit. It was also the duty of the appellants/Corporation to inform the respondent that the passage mentioned in the revenue record was not fit for movement of vehicles. The appellant also failed to produce to the buyer the entire documentation as required by Section 51(1) (b) of the aforesaid Section. We are therefore satisfied that the appellants/Corporation cannot seek to rely on the aforesaid provision of the Transfer of Property Act, 1882." 54. In Jai Logistics v. The Authorised Officer, Syndicate Bank reported in 2010 (4) CTC 627, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest (Enforcement) Rules, 2002. Rule 8(6)(f) mandates the secured creditors to set out in the terms of sale notice any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. A reading of the said rule, in our opinion, would also include the encumbrance relating to the property. We are inclined to read the rule in that way keeping in mind the interest of the intending purchaser to be put on notice as to the encumbrance, as otherwise he/she will be purchasing the property and simultaneously buying the litigation as well and an intending purchaser may not bid in the event he/she came to know of any encumbrance over the property. That is why the rule specifically contemplates a provision for the authorised officer, while notifying the sale, to specifically state as to the encumbrance. It will be a different issue in the event the auction notice indicated that it is the duty of the intending purchaser to verify not only the encumbrance by way of alienation of the property, but also the other statutory liabilities and in that case, the intending purchaser cannot later on turn around and seek for eithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary. After the possession is taken the assets and documents will be forwarded to the secured creditor. 36.3 (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under section 14 of the Act. The Magistrate will thereafter scrutinize the application as provided in section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forwards them to the secured creditor as under clause (ii) above. 36.4 In any of the three situations, after the possession is handed over to the secured creditor, the subsequent specified provisions of rule 8 concerning the preservation, valuation and sale of the secured assets,, and other subsequent rules from the Security Interest (Enforcement) rules, 2002, shall apply." 57. In R.Shanmugachandran (Deceased) & Others v. The Chief Manager, Indian Bank Asset Recovery Management reported in 2014 (4) LW 900, a Hon'ble Division Bench of this Court had an occasion to consider a case of forfeiture of 25% of the Earnest Money Deposit and at Paragraphs 23 to 25, held as follows: "23. The obligation of the Authorised Officer to include in the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce and to scrutinise the title to the property. Therefore, the obligation of the Authorised Officer is only to disclose the encumbrance that had come to the notice of the secured creditor. It is for the auction purchaser to apply for encumbrance certificates, in the time of 30 days made available to the intending buyers to see if there are any encumbrances." 58. 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. 59. In the light of the decisions, stated supra, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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