Appeal arising from DRT decision setting aside an e-auction property sale by Axis Bank. Tribunal dismissed Bank's appeal, confirming lower decision on grounds of undisclosed encumbrances and property description discrepancies that vitiated the sale.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
Appeal No. 54 of 2022-DRAT-Kolkata
IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA
(Appeal No. 54 of 2022)
(Arising out of S.A. 165 of 2020 in DRT, Visakhappatnam)
THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON
-Versus-
| … Respondent | |
|---|---|
| Counsel for the Appellants | Mr. Nemani Srinivas, Learned Counsel |
| Counsel for Respondent | Mr. Mr. P. Veeraju, Learned Counsel for the Respondent. |
| JUDGMENT : |
On 25thAugust 2022 |
| THE APPELLATE TRIBUNAL : |
Instant Appeal has been preferred by the Appellant, who was Respondents in the SARFAESI Application No. 165 of 2020 Sri Laxmi Vara Prasad Seethina versus Authorised Officer Axis Bank and others decided on 13.09.2021, whereby Learned DRT allowed the SARFAESI Application and declared the e-auction sale of the scheduled property as void and further Respondent Bank was directed to refund the amount of Rs. 1,00,26,250/- to the SARFAESI Applicant with FDR rate of interest.
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Appeal No. 54 of 2022-DRAT-Kolkata 2. As per the pleadings of the parties, Respondent, who was the Applicant in the SARFAESI Application, is an auction purchaser and auction sale was conducted by the Appellants. Respondent is a Non Resident Indian who came across an e–auction sale notice dated 25.02.2020 published in the ‘Indian Express’ and ‘Andhra Prabha’ to the effect that an e-auction sale of scheduled property situated in Two item would be held on 12.03.2020 by e-auction. Properties were located in-
(i) Door No. 07-33, 7-34, 7-35 on Survey No. 103/2, 103/2D of Chinagantayada Village, Gajuwaka SRO, Gajuwaka Mandal, Visakhapatnam.
(ii) Door No. 7-133, on Survey No. 103/2 of Chinagantayada Village, Gajuwaka SRO Gajuwaka SRO, Gajuwaka Mandal Visakhapatnam. 3. In pursuance of the sale notice, Respondent approached the Bank and he was assured that the scheduled property of the borrower was mortgaged with the Bank. Borrower committed default in payment of the instalments. Thereafter, Bank proceeded under the provisions of SARFAESI Act. Loan was declared as NPA. Legal notice as per the provisions of Section 13(2) and 13(4) of the Act were issued and the property was put to auction sale. Respondent participated in the e-auction on 12.03.2020 and the final bid was knocked down in his favour of Rs. 4,01,05,000/-. He was the only bidder. As per the terms and conditions of the sale notice, 10% of the reserve price as EMD was already paid and the Respondent was asked to deposit the remaining 15% bid amount. Consequently, he deposited the same. An amount of Rs.1,00,26,250/- was deposited by the Respondent. 4. Subsequently, Respondent visited the Bank and demanded the Title deeds of the property sold in auction, but he was not provided with them. Even he came to know about the pendency of certain SARFAESI Applications regarding the property in dispute. He demanded the details of the same from the Bank. But those documents were also not provided to him. Property also did not match
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Appeal No. 54 of 2022-DRAT-Kolkata with the property at the spot. He made all the attempts to obtain the non-incumbrance certificate, but he could not get the same. On 21st March, 2020, Lock Down was imposed due to Covid 19 Pandemic. When the Appellant asked for payment of balance 75% of the sale consideration, he sought time for payment. Subsequently, the Respondent also approached the State Bank of India as well as Karur Vysya Bank for sanction of loan for payment of the remaining purchase price which could not be managed. Respondent made a request for extension of time on 23.03.2020. He was granted time till 30th April, 2020. Again on 14.04.2020, he sought extension of 55 days time, but was granted time till 18.05.2020. Again, Respondent made a request for extension of time till 26th June, 2020 by his e-mail dated 04.05.2020 but it was not responded by the Appellants.
5 . Respondent requested the Appellant for providing the copies of the SARFAESI proceedings through e-mail dated 05.05.2020, but the Appellant refused to issue the same. Thereafter, a legal notice was sent by the Respondent on 15.05.2020 treating the contract as cancelled as vitiated by fraud which was replied on 27.05.2020 and the time was extended till 25.05.2020. On inspection being made by the Respondent, he found that following cases were pending with respect to the property in dispute.
| Case Number | Court name | Applicant/ Plaintiff |
Respondent/Defendant |
|---|---|---|---|
| O.A./98/2018 | Debts | Axis Bank | Pinion Software Pvt. |
| Recovery Tribunal Visakhapatnam |
Ltd. And others | ||
| O.A./106/2018 | Debts | Axis Bank | M/s Jayanthi Steels |
| Recovery | Enterprises India Pvt. | ||
| Tribunal | Ltd. Rep by Myneni | ||
| Visakhapatnam | Ventaka Rao | ||
| SA/94/2018 | Debts | M/s | Axis Bank |
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| Recovery Tribunal Visakhapatnam |
Jayanthi Steels Enterprises Pvt. Ltd. |
Appeal No. 54 of 2022 |
-DRAT-Kolkata | |
|---|---|---|---|---|
| SA/277/2018 | Debts Recovery Tribunal Visakhapatnam |
M/s Jayanthi Steels Enterprises Pvt. Ltd. |
Axis Bank |
|
| SA/161/2020 | Debts Recovery Tribunal Visakhapatnam |
M/s Jayanthi Steels Enterprises Pvt. Ltd. |
Axis Bank | |
| OS/59/2018 | Jr. Civil Court, Gajuwaka |
Myneni Chandra Sekhar |
Axis Bank corporate service unit Suresh |
Limited credit Myneni |
6. In the e-auction dated 25.05.2020 and sale confirmation letter dated 25.01.2020, there are two items of property. The buildings extends and boundaries but, on the spot there is one building. But the Appellants did not disclose this fact nor any reply was given by him. Even the boundaries are not consistent with the auction sale notice. Due to these reasons, it is impossible to get the sale deed executed and possession to be delivered to the Respondent. These facts were suppressed by the Appellants. Respondent was ready and willing to pay the balance consideration but the property in dispute was not identifiable. Even the property was under litigation which facts were not disclosed to the Respondent. Accordingly, Respondent filed SARFAESI Application under Section 17 of the SARFAESI Act to set aside the auction sale and for refund of the EMD of Rs.1,00,26,250/-
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Appeal No. 54 of 2022-DRAT-Kolkata with 24% interest per annum along with compensation to the tune of Rs. 50 lacs.
7 . Written Statement was submitted by the Appellant Bank wherein the allegations levelled in the SARFAESI Applications are denied. It is stated that the demand notice under Section 13(2) of the SARFAESI Act was issued against the scheduled property of the borrower. Thereafter, notice U/s 13(4) was also issued on 10.03.2017. Possession notice was published on 14.03.2017. Tender cum auction sale notice was published on 18.10.2017, thereafter on 30.01.2018, 04.04.2018, 21.02.2020. E-auction was held on 12.03.2020 wherein it was specifically mentioned that the property is sold on ‘as is where is, as is what is, whatever there is and no recourse basis’. Purchasers should satisfy themselves before participating in the e-auction. Bank does not give any guarantee or warrantee. Purchasers themselves should make their own enquiries regarding encumbrances, if any. Property is being sold with existing encumbrances whether known or unknown to the Bank. It was also mentioned in the notice that in default of payment of balance sale price within the time stipulated, unless otherwise extended, sale will automatically be revoked and the deposit shall be forfeited.
8. Respondent participated in auction. He was the only bidder and the property was sold for an amount of Rs. 4,01,05,500/-. 25% of the amount of Rs. 1,00,26,250/- was deposited. Balance amount was to be deposited by on or before 27.03.2018. 9. It is also admitted that Respondent sought extension of time on different dates till 18.05.2020. He sent a legal notice on 15.05.2020 which was replied on 18.05.2020.
10 . Respondent is a defaulter in payment of balance amount of auction sale. Bank gave him all the opportunities to deposit the money. Because of this reason, time was also given to him. Finally, Bank issued a legal notice on 20th May, 2020 to the Respondent which
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Appeal No. 54 of 2022-DRAT-Kolkata was not replied. This fact was suppressed. Notice of forfeiture is not challenged.
11. It is further stated that no Court dispute either in Civil Court or in DRT were pending. Respondent was well within its knowledge regarding the terms and conditions of the sale notice, but he did not pay the amount within time. He had no means to pay the remaining amount. No Court had granted any stay on the proceedings since 2017. It was also within the knowledge of the Respondent. Thereafter, he participated in the auction sale. In para 18 of the reply it is mentioned that “the property scheduled mentioned in the e- auction is with two items and two buildings under two separate sale deeds. The Applicant has gone through the entire terms and conditions of the e auction sale as well as the schedule of the property and now filed the petition suppressing the facts. Such petition is liable to be dismissed in limini. All copies of the documents were provided to the Respondent. He had seen those documents, thereafter he participated in the auction. Subsequently he concocted the story. Continuously he sought time. In Civil Suit O.S. No. 59 of 2018, no stay is granted by the Civil Court. Other S.A.s are pending. But no stay is granted in SA No. 94 of 2018, SA No. 277 of 2018 and SA No.161 of 2020. Valuation certificate was obtained by the Bank before the auction. Disputed property at the spot fully tallies with the property as mentioned in the sale notice. Forfeiture clause was also specifically mentioned in the sale notice and the SARFAESI Application is liable to be dismissed.
12 . Learned DRT vide impugned judgment dated 13.09.2020 allowed the SARFAESI Application. It was held that the property as mentioned in the e auction notice dated 25.02.2020 and sale confirmation letter dated 25.12.2020 did not match with the property at the spot and there is inconsistency. Further, litigation was pending before the different Courts but that were not disclosed in the e auction sale notice. Accordingly, there are violations of the provisions of SARFAESI
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Appeal No. 54 of 2022-DRAT-Kolkata
Act and Rules. It is a suppression of the facts by the Bank. The Bank is not entitled for forfeiture of the amount of EMD to an extent of Rs. 1,00,26,250/-. Accordingly, e-auction sale was declared void and Bank was directed to refund the amount with interest to the Respondent.
13. I have heard Mr. N. Srinivas, Learned Counsel for the Appellants and Mr. P. Veeraju for the Respondents and perused the records. 14. Before entering into the merits of the case, it would be relevant to mention that after the judgment of the Learned DRT dated 13.09.2021 when the amount was not refunded by the Appellant Bank to the Respondent, a writ petition was filed by the Respondent (SARFAESI Applicant) before the Hon’ble Andhra Pradesh High Court being W.P. No. 28201 of 2021 which was decided on 11.03.2022. A memo was filed by the Respondent before the DRT Visakhapatnam for issuance of Recovery Certificate in terms of the award but that could not be issued as there was no Presiding Officer in the said Tribunal. Hence, Writ Petition was filed. Hon’ble High Court observed that “
“ 6 . Though, the counter filed by the respondents mainly speak about the disentitlement of the petitioner for claiming the amount in terms of the agreement, but the said order of Tribunal though said to have been challenged before the DRAT, Calcutta, but there is no interim order in favour of Respondent Nos. 2 and 3 herein. It appears that even the appeal said to have been filed is not numbered till date.
7. Having regard to the above, the request of the petitioners for implementation of the order of DRT in S.A. No. 165 of 2020 cannot be found fault with.
8. Accordingly, the Writ Petition is allowed directing the Respondent Nos. 2 and 3 to implement the order dated 13.09.2021 passed in SA No. 165 of 2020 by DRT, Visakhapatnam within a period of ten (10) weeks from today.”
15 . In compliance of the judgment of the Hon’ble Andhra Pradesh High Court, amount was refunded by the Respondent on 19.05.2022.
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Appeal No. 54 of 2022-DRAT-Kolkata
The Appellant Bank also filed SLP © No. 10291 on 2022 before the Hon’ble Apex Court challenging the aforesaid order of the Hon’ble High Court wherein on 13th July, 2022, Hon’ble Apex Court was pleased to pass following order .
“Issue notice, in the meantime there shall be stay of operation and implementation of the impugned judgment. Mr. Ritin Roy, Learned Senior Counsel’s contention was that Appeal before the DRT filed by the Appellant is scheduled on 26th July, 2022. We request the Learned DRAT to take up the Appeal filed by the Appellant on the said date and decide as expeditiously as possible in any case within a period of one month from the said date.”
16. In compliance of the orders of the Hon’ble Apex Court, Appeal was heard.
17. Learned Counsel for the Appellant has challenged the impugned order passed by the Learned DRT and submitted that the Learned DRT has erred in appreciating the material available on record. Learned Counsel submits that the Learned DRT has arrived at a wrong conclusion that the property in dispute is not identifiable at the spot. It is specifically mentioned that the area of the disputed property as mentioned in the e- auction sale notice dated 25.01.2020 matches with the valuation report of Mr. V.V.N. Ramesh, who is an authorised approved valuer wherein he has specifically mentioned the area of the property. It is further submitted that the conduct of the Respondent shows that although he participated in the auction sale and deposited 25% of the bid amount, but he was not having sufficient fund to deposit the remaining 75% of the amount. It is further submitted that the Respondent sought extension of time thrice for depositing the remaining 75% amount but even then, he was not in a position to make full payment. Extension of time was sought on the ground that he is trying to get loan from different other Banks but they are not agreeable to disburse the loan as some dispute is pending regarding the property in dispute. Even he made efforts to arrange the money
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Appeal No. 54 of 2022-DRAT-Kolkata from his relatives but that too could not be done due to pandemic. Hence, it shows that the Respondent was not having sufficient funds at his disposal.
18. It is further submitted that he was an unscrupulous intending purchaser having no means to make payment. Hence, he defrauded the Bank by participating in the e auction sale. 19. Learned Counsel further submitted that the Appeal is maintainable. No fact had ever been concealed by the Appellant. It is true that the order passed by the Learned DRT was complied. But the payment was made under the orders dated 11.03.2022 of the Hon’ble Andhra Pradesh High Court. It is further submitted that the order of the Hon’ble High Court are challenged by the Appellant before the Hon’ble Apex Court in S.L.P. No. 10291 of 2022. Hence, the Appeal is maintainable.
20. Per contra, Learned Counsel for the Respondents submits that the Appeal is devoid of merits and is liable to be dismissed. It is submitted that primarily Appeal is not maintainable. Learned Counsel has drawn the attention of this Appellate Tribunal towards the memo of appeal wherein a declaration is made that no matter touching the cause of action regarding, which this Appeal is made, is pending before any Court of law or any other authority or other Bench of the Tribunal including the High Court of Andhra Pradesh. Learned Counsel submits that the Appellant has filed the Appeal on 22.11.2021 while the judgment of the Hon’ble High Court was passed on 11.03.2022. At the time of filing of the Appeal, no notice of the Writ petition was served upon the Appellant. Thereafter, after judgment of the Hon’ble Andhra Pradesh High Court on 11.03.2022 when the amount was refunded on 19.05.2022, SLP was filed before the Hon’ble Apex Court. In the meantime, when the matter was listed for issuance of notice of this Appeal, Appellant did not take any steps for issuance of the notices of Appeal as he had already preferred the SLP before the Hon’ble Apex Court. After orders of the Hon’ble Apex Court dated 13.07.2022,
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Appeal No. 54 of 2022-DRAT-Kolkata notices in this appeal were served upon the Respondent. Hence, it could not be said that any suppression of material facts was made by the Appellant. Hence, there was no question of making any amendment in the memo of Appeal.
21. I find force in the submission of the Learned Counsel for the Appellants. Appeal was filed on 22.11.2021. There is nothing on record to show that at the time of filing of the Appeal notice of the Writ Petition were served upon the Appellants. Thereafter, after judgment of the Hon’ble Andhra Pradesh High Court on 11.03.2022 when the amount was refunded on 19.05.2022, SLP was filed before the Apex Court. In the meantime when the matter was listed for issuance of notice of this Appeal, Appellant did not take steps for issuance of the notices of Appeal as he had already preferred the SLP before the Hon’ble Apex Court. After orders of the Apex Court dated 13.07.2022, notice in this Appeal were served upon the Respondent. Hence, it could not be said that any suppression of material facts was made by the Appellant.
22. Another submission is made by the Learned Counsel for the Respondent that Appeal has become infructuous as payment has already been made by the Appellant in compliance of the orders of Learned DRT. I do not find any force in the submissions. No doubt amount deposited by the Respondent has been refunded by the Appellant but, the refund was made under the orders of the Hon’ble High Court. Orders of the Hon’ble High Court dated 11.03.2022 are under challenge before the Hon’ble Apex Court in the SLP. Hence, merely refund of the amount in compliance of the orders of Hon’ble High Court would not make the Appeal infructuous while the orders of the Hon’ble High Court are sub judice before the Hon’ble Apex Court.
23. Now, before dealing with the merits of the matter, it would be appropriate to refer the relevant “The Security Interest (Enforcement) Rules 2002” in this regard.
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Appeal No. 54 of 2022-DRAT-Kolkata Rule (3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent, of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again.
Rule (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period [as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months]
Rule (5) In default of payment within the period mentioned in subrule (4), the deposit shall be forfeited [to the secured creditor] and the property shall be resold and the defaulting purchaser shall forfeit all claims to the property or to any part of the sum for which it may be subsequently sold.”
24. In the case of Mandava Krishna Chaitanya Vs. UCO Bank 2018 SCC On Line Hyderabad 196 a Division Bench of Hon’ble Andhra Pradesh High Court in Para 18 held that-
“18. It may however be noted that the afore stated decision was not rendered under the SARFAESI Act and the Rules of 2002. The duty cast upon the secured creditor under the SARFAESI Act and the Rules of 2002. The duty cast upon the secured creditor under the SARFAESI Act being essentially different, as set out in the Rules of 2002 and, in consequence, the Transfer of Property Act, 1882, the law laid down in the afore stated decision cannot ipso facto be extended to cases arising under the SARFAESI Act. In fact, in Haryana Financial Corporation v. Rajesh Gupta, the Supreme Court distinguished the powers of a secured creditor as opposed to those of an Official Liquidator while selling property and held that reliance placed on the United Bank of India was wholly misconceived. The Supreme Court
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Appeal No. 54 of 2022-DRAT-Kolkata
further negatived the contention that when a secured asset is sold on an ‘as is where is basis the purchaser cannot thereafter be permitted to wriggle out of a confirmed bid on the ground that there is a material defect in title. “
25. In Haryana Financial Corporation Vs. Rajesh Gupta (2010) 1 SCC 655, the Supreme Court further negatived the contention that when a secured asset is sold on an “as is where is basis”, the purchaser cannot thereafter be permitted to wriggle out of a confirmed bid on the ground that there is a material defect in title. It was further held in Para 22 of Mandava Krishna Case (supra) that –
“ Such a secured creditor not only owes a duty to protect the interest of the borrower by raising the best possible price while selling his mortgaged properties, but also owes a duty to the auction purchaser to verify the encumbrances that attach to the mortgaged property proposed to be sold, so as to inform all Rules of 2002 bear out this responsibility explicitly, as the secured creditor is mandated thereunder to include the details of the encumbrances known to it and also judge the nature and value of the property. These clauses therefore visit a duty upon the secured creditor to undertake due diligence at least, at the stage of putting the secured asset to sale, if not at the time of taking the said property as security while granting loans, so that the bidders in the auction can rest assured that the bank has taken necessary measures in this regard and proceed to participate in the auction sale. Ignorance of the secured creditor as to the encumbrances on the property sold by it is no longer an acceptable argument in the light of the decisions of various Courts no longer an acceptable argument in the light of the decisions of various Courts rejecting the plea that a sale on ‘as is where is’ basis constitutes a shield of protection.
23. Further, the concept of ‘as is where is; and ‘as is what is’ basis has lost its significance in the current commercial milieu and the principle of caveat vendator is more on the rise as compared to the
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Appeal No. 54 of 2022-DRAT-Kolkata outdated principle of caveat emptor. The Transfer of Property Act, 1882, requires the seller to own up to certain duties and it is not open to a responsible bank to take an innocent auction purchaser for a ride by selling to him a tainted property and thereafter claim protection under the principles of ‘buyer beware’.
26. In the case of Haryana Financial Corporation (supra) in para 18,19,20 it was held that –
“18. In our opinion, the appellants cannot be given the benefit of Clause 5 of the advertisement. The appellants Corporation cannot be permitted to take advantage of their own wrong. Clause 5 undoubtedly permits the forfeiture of the earnest money deposit. But this can only be, if the auction purchaser fails to comply with the conditions of sale. In our opinion the respondent has not failed to comply with the conditions of sale. Rather, it is the appellants/Corporation which has acted unfairly, and is trying to take advantage of its own wrong.
19. In view of the aforesaid, we are of the considered opinion that the appellants/ Corporation cannot be permitted to rely upon Section 55 of The Transfer of Property Act, 1882. The Appellants/ Corporation failed to disclose to the respondent the material defect about the nonexistence of the independent 3 ‘Karam’ passage to the property. Therefore, the appellants/ Corporation clearly acted in breach of Section 55 (1) (a) and (b) of The Transfer of Property Act, 1882. 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;
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Appeal No. 54 of 2022-DRAT-Kolkata
20. A mere perusal of the aforesaid provision will show that it was incumbent upon the appellant/ 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.
27 . Further in the case of Rekha Sahu versus UCO Bank 2013 SCC on Line Allahabad 13203, a Division Bench of the Hon’ble Allahabad High Court Lucknow Bench held in Para 19 that-
“19. During the intervening period between the depositing of earnest money and till, the balance sale consideration is paid, the auction bidder/ purchaser after making part payment or full payment, may either demand to refund the amount from the Authorised Officer or request to cancel the sale if sale certificate is already issued on the ground that there exists encumbrance on the property or on the apprehension that title may not be proper and that the bank may not be competent to deliver possession of the auction property without encumbrance and free from any further litigation.”
28. Further, in the case of Joy Logistics versus Authorised Officer Syndicate Bank 2010 (4) CTC 627, a Division Bench of the Hon’ble Madras High Court held in Para 5 that – “5. We have considered the submissions. Of course, in the aforesaid judgment, the Supreme Court, while considering a sale by the Official Liquidator, has held that it is the duty of the intending purchaser to satisfy himself as to the encumbrance before participating in the bid. Having participated in the bid, the intending purchaser cannot later on, turn around and question the Official Liquidator on the ground that the encumbrance was not notified. In that case, the
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Appeal No. 54 of 2022-DRAT-Kolkata provisions of the Rules as applicable in the present case are not applicable to the Official Liquidator. But in the case on hand, once possession is taken over under Section 13(4) or under Section 14 of the SARFAESI Act, whenever the secured creditor contemplates a sale of immovable property, they will have to follow Rule 8 of the Security Interest (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 authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property. A ready 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 either the refund of the earnest money deposited or insist the Bank to clear the encumbrance. In the absence of such indication in the sale notice, in our considered view, the Respondent Bank would not be justified in compelling a purchaser to go ahead with the sale by depositing the balance sale consideration together with the encumbrance.” 29. Sale notice was issued on 25.02.2022 when in Para 15 of the terms and conditions, it is mentioned that the property is sold on “as is where is, as is what is and whatever there is and no recourse basis’. Further, in Para 19 it is mentioned that the property is being sold with
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Appeal No. 54 of 2022-DRAT-Kolkata existing encumbrances whether known or unknown to the Bank and the intending bidder shall satisfy themselves about the title ownership, statutory approvals, encumbrances claims etc. in regard to the property. Thus, these clauses shows that the Bank made rigorous attempt to shift all the responsibilities upon the purchaser. But as has been held by the Apex Court, the secured Creditor is also under obligation to inform the purchaser in the terms of sale notice any other change which the Authorised Officer considers it material for a purchaser to know in order to judge the nature and value of the property. Reading of the said rule would also include the encumbrances relating to the property. It is not denied by the Appellant that the different litigations were not pending before the DRATs or Civil Courts, rather it is admitted that the litigations were pending. A plea is taken that there was no stay order. Hence, it was not required to disclose either in the sale notice or at the time of depositing the amount. Respondent asked the Authorised Officer of the Appellant on 05.05.2020 to provide him copies of SARFAESI proceedings of the auction property which he needs to forward them to his money lending Bank for them to proceed further. It was replied by the Appellant Bank on 05.05.2022 at 11.30 p.m. by e-mail that “SARFAESI proceedings cannot be shared which are strictly Bank’s internal documents. It is denied that providing the SARFAESI Proceedings copies to the Respondent by the Bank is not permissible under the law. Authorised officer was under an obligation to disclose and provide the details of litigation to the auction purchaser so that he could verify the credentials about the legal proceedings. It is not the Appellant’s case that no such SARFAESI proceedings were pending, rather they admit that the proceedings were pending. They denied it that it is the internal documents of the Bank. It is denial of the documents sought for by the Respondents which is against the law and violation of Rules.
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Appeal No. 54 of 2022-DRAT-Kolkata 30. It is submitted by the Respondents that the property at the spot did not tally with the property as mentioned in the e- auction sale notice. In the e auction sale notice details of the immovable assets are mentioned as under:
1) (I) Equitable mortgage of the property in the name of Mr. Myneni Suresh, represented by its POA holder Mr. Myneni Ventak Rao, S/o. Late Mr. Myneni Venkata Basayalah located at D. No. 7-33, 7-34, 7-35, S.No. 103/2, 103/2D, Chinagantayada Village, Gajuwaka SRO, Gajuwaka Mandal, Visakhapatnam.
All that piece and parcel of land admeasuring 555.54 Sq.yards or 464.503Sq.mtrs., site with building bearing D. No. 7-33, 7-34, 7-35 of Survey No. 103/2D of Chinagantyada Villag, Gajuwaka Municipality, Gajuwaka Mandal, Gajuwaka Sub Registrar Office of Visakhapatnama District and bounded by:
East :Other side South :Other side West :Road and vacant site North :Vacant site
(II) Equitable mortgage of the property in the name of Mr. Myneni Suresh, represented by its POA holder Mr. Myneni Venkat Rao, s/o Late Mr. Myneni Venkata Basavalah located at D. No. 7-133, S. No. 103/2, Chinagantayada Village, Gajuwaka SRO, Gajuwaka Mandal, Visakhapatnam.
All that piece and parcel of the site admeasuring 495 Sq.yards or 413.884 Sq.mtrs., site with building thereon bearing D. No. 7-133, covered by Survey No. 103/2 of Chinagantyada Village, Gajuwaka Mandal, Gajuwaka Municipality limits. Gajuwaka Sub RFegistrar Office of Visakhapatnama District and bounder by:
East :Site of P. Pydithalli South :Site of Executant West :Road of other site
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Appeal No. 54 of 2022-DRAT-Kolkata
North :Site of Executant
30. Reliance is placed by the Appellant on the valuation report of valuer wherein the details of property are mentioned. There is a discrepancy in the details as apparent on the face of record. In the property No. 1 details are D No. 7-33, 7-34, 7-35, S No. 103/2 and 103/2D Chinagangtayada Village, Gajuwaka SRO, Gajuwaka Mandal, Visakhapatnam.In the property No. 2 details are D. No. 7-133, S. No. 103/2, Chinagantayada Village, Gajuwaka SRO, Gajuwaka Mandal, Visakhapatnam. Total area is 555.54 sq. yards or 464.503 sq. meters and 495 sq.yards or 413.884 sq. meters. If we compare it with the valuation report of En. VVN Ramesh of Sri Krishna Associates wherein under the heading of the details of the property being valued plot Number is mentioned as D. No. 26-42-02, S. No. 103/2, S. No. 103/2, 103/2D. It is entirely different from what property is mentioned in the e-auction sale notice. Further the photograph attached with the Valuer report shows that there is only one building where in a board of NARAYANA is affixed wherein the sale notice of two properties are mentioned. Apart from it there is an admission of the Appellant in Para 18 of reply affidavit on behalf of 1st Respondent before the Learned DRT Visakhapatnam, which was submitted by Mr. Pernta Kiran Kumar who was working as Deputy Vice President and Head CC SU Department Axis Bank Limited i.e. Respondent, wherein in Para 18 at the end it is stated that the property scheduled mentioned in the e- auction is with two items and two buildings under two separate sale deeds. The Applicant has gone through the entire terms and conditions of the e auction sale as well as the schedule of the property and now filed the petition with false allegations suppressing the facts such petition is liable to be dismissed in limini. This categorical admission specifically shows that Appellant himself admits that in the e-auction notice two items and two buildings were shown while at the spot there is only one building which is proved from the Valuation Report filed by the Appellant himself. Appellants has placed reliance
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Appeal No. 54 of 2022-DRAT-Kolkata upon the Valuation report. Affidavit of the Deputy Vice President Sri Pernta Kiran Kumar of the Appellant admission in para 18 coupled with the valuation report clearly shows that there were two properties detailed in the e auction sale notice. But at the spot only one building was there. Hence, the property itself is neither identifiable nor possession of the same could be handed over in case of execution of the sale deed. It is a discrepancy which goes to the root of the matter. Rules specifically provides that the property should be free from all encumbrances. Principles of “Caveat Vendator” as laid down by the Division Bench of the Allahabad High Court in the case of Rekha Sahu would also come into play. It was the responsibilities of the Bank to ensure that the property is identifiable. It should have been ensured at the time of mortgaging the secured asset but it was not done at that time.
31. Learned Counsel for the Respondents has placed reliance upon Section 10 and 29 of the Indian Contract Act and submits that since the property itself is not identifiable, hence the contract between the parties could not be completed. There is a discrepancy in the details of the property mentioned in the sale notice as well as at the spot as shown in the valuation report of the Bank. In view of the discrepancy of the same, auction sale is vitiated.
32 . Learned Counsel for the Respondents has vehemently argued that the Bank has played fraud upon the Respondent and he is entitled for the compensation. As far as fraud is concerned, no doubt fraud vitiates everything, but at the same time, it is settled legal proposition that fraud has to be proved categorically. Details of fraud has to be categorically pleaded and proved. In the present case no doubt there are violations of statutory Rules by the Authorised Officer of the Appellant Bank. In my opinion, although there is violation of the mandatory provisions of law but factum of fraud or cheating could not be established by the Respondent i.e. SARFAESI Applicant.
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Appeal No. 54 of 2022-DRAT-Kolkata
On the basis of discussion made above, I am of the opinion that the Appellant’s Appeal lacks merit and is liable to be dismissed.
O R D E R
Appeal is dismissed. Judgement and order of DRT Visakhapatnam is confirmed.
Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.
File be consigned to Record room.
Order signed, dated and pronounced in open Court.
(Anil Kumar Srivastava,J) Chairperson
Dated: 25th August, 2022 tp
3 issues framed by the court
Whether the Appellant Bank is entitled to forfeit the earnest money deposit and revoke the e-auction sale given the discrepancy in property details and disclosed encumbrances.
If the purchaser can claim the transaction is void due to non-disclosure of pending litigations and mismatch in property descriptions in the sale notice.
Whether the Appeal filed by the Bank after the High Court directed refund is maintainable despite the refund being made under interim reliefs.
Colour shows how this judgement treated each authority
Mandava Krishna Chaitanya Vs. UCO BankDistinguished¶59
Mandava Krishna Chaitanya Vs. UCO Bank 2018 SCC On Line Hyderabad 196 · Who else cites this
Haryana Financial Corporation v. Rajesh GuptaExplained¶60
Haryana Financial Corporation v. Rajesh Gupta (2010) 1 SCC 655 · Who else cites this
Rekha Sahu versus UCO BankDistinguished¶78
Rekha Sahu versus UCO Bank 2013 SCC on Line Allahabad 13203 · Who else cites this
Joy Logistics versus Authorised Officer Syndicate BankReferred¶79
Joy Logistics versus Authorised Officer Syndicate Bank 2010 (4) CTC 627
3 provisions across 1 enactments
Authorised Officer, Axis Bank, Structured Asset Group and The Managing Director, Axis Bank
Sri Lakshmi Vara Prasad Seethina
Anil Kumar Srivastava
As recorded by the court registry
8 orders share this CNR
Judgements on the same questions, provisions and authorities, from every court
