Allowed

J.Mahesh Babu and 3 others v. The State Bank of India and 2 others

Telangana HC24 Aug 2021WP/1778/2021

Case brief

AI extract

What is this about?

The High Court allowed the writ petition holding that the bank's failure to verify title and disclose defects violates mandatory disclosure rules. The court directed the respondents to pay interest at 18% per annum on the refunded amount, bypassing the need to approach the Debt Recovery Tribunal.

What did the court decide?

Director the respondents to remit interest on the refund amount @ 18% p.a. from the date of deposit till the date of refund.

J.Mahesh Babu and 3 others Vs The State… — Contract and Commercial Disputes | Telangana HC (2021)

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HIGH COURT FOR THE STATE OF TELANGANA^{AT HYDERABAD} (Special Original J urisdiction)

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TUESDAY, THE TWENTY FOURTH^{DAY OF AUGUST} TWO THOUSAND AND TWENTY ONE

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PRESENT

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THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY AND

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THE HON'BLE DT. JUSTICE SHAMEEM^AKTHER

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WRIT PETITION NO. 1778 OF 2021

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Betwee n:

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J.lvlahesh Babu, S/o J.Ranga Swamy,^{Aged about 48 years,No. 1-3-158121L'} Station Road, Rajendra Nagar, Mahabubnagar^{- 509 001}

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A.Madhusudhand Reddy, S/o.^{A.Venkatasubba Reddy, Aged about 53 years,} R/o. 1-4-80/C, New Town, [t4ahabubnagar^{- 509001}

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tV.J.Vijayakanth, S/o. M.Joseph,^{Aged about 49 years, Rl/o. 8-3-1siA,} li,4ettuoadda. Mahabubnaoar -509001^.

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+. A.Bhaiker Reddy, S/o. 6al Reddy, Aged^{about63 years, R/o 480, Teachers} Colony, Hastinapuram, Sarronagar,^{Hyderabad-500079.}

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,..PETITIONERS

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AND

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1 The State Bank of lndia, State Bank^{Bhawan,[,4adame Camal,4arg,Nariman} Point, l,4umbai^- 400 021 Rep. by its Managing^Director

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2 Authorized Officer under SARFAESI^{Acl, 2002, Stressed AssetsManagement} Branch, State Bank of India, 5'n Floor,^{Rear Block of HMWSSB Compound,6-2-} 915, Khairatabad, Hyderabad^- 500^004.

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3 The Reserve Bank'of lndia, Secretariat^{Road, Saifabad,Hyderabad-SO0 004} Rep. by its Regional Director^(T & AP)

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,..RESPONDENTS

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Petition under Article 226 of lhe Constitution of^{lndia prayingthat in the} circumstances stated in the affidavit filed^{therewith,the High court maybe pleased} to issue a Writ, Order or Direction more^{particularlyone in the nature of Mandamus,} directing the Respondents 1 and 2 to^{pay interestto the Petitioners,at the rate of} 18% p$ annum, on the refund made on 12.10.2020,^{to the Petitioners, towards the} sale consideration of the^property i.e., an extent^{of Ac.'16.28Gts of land, situatedin} Sy.Nos. 173,334 (Part), 345, 347,348 and 349, Yedhira^{Village,I\ilahabubnagar} lvlandal and District, which was brought to auction on^{01 .02.2020 by the} Respondents 1 and 2, under the^provisions of Securitization and^{Reconstruction of} Financial Assets and Enforcement of Security Interest Act, 2002.

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lA NO: 1 OF 2021

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Petition under Section 151 CPC praying that in the circumstances statedⁱⁿ the affidavit filed in support of the^petition, the High Court may be^{pleased to direct}

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the 2nd Respondent to take an appropriate^{decisionin the matter of payment of} interest to the Petitioners, as sought for by^{them in the representation dt.01 .1O.2O2O} on the amount that they had^paid towards the^{auction sale corductedon 01.02,20(0} by the Respondents 1 and 2 in respect of the^{property ie., an ,:xtent of Ac.16.28Gts} of land, situated in Sy.Nos 173,334^{(Part),345, 347,348anc 349, YedhiraVillage,} tr,4ahabubnagar tt/andal and District,^pending disposal of the^{W'it Petition.}

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Counsel for the Petitioner: SRI P. ROY REDDY

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Counsel for the Respondent No.1 & 2: SRI PRAVEEN^KUMAFIJAIN, STANDING COUNSEL FOR S.B.I.

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FOR

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SRI V. V. S. N. RAJU

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Counsel for the Respondent No.3: -------

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The Court made the following: ORDER

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HON'BLE SRI JUSTICE A. RAJASHEKER REDDY &

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HON,BLE DT. JUSTICE SHAMEEM AKTHER

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WP No. l77B of 2O2l

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OI?If ER:: fircr^{llotr'bleSri Justic.r.4.R.U.lsileA-e/.Re.l.1!/}

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This writ petition is filed by the petitioners who claim to^{be the} auction purchasers in respect of land in an^extent of^{Ac. 16.28} guntas situate in Sy.Nos. 173, 334 (Part), 345, 347,^{3+8 and 349,} Yedhira village, Mahabubnagar^{mandal and District, inan} e-auction conducted on 01-02-2020 and were^{declaredsuccessful} bidders; pursuant thereto the^sale in^{respectthereof was confirmed} in their favour. The total bid amount^{is Rs.12,10,00,000/-(Rupees} Twelve Crores Ten Lacs Only) and^{the petitioners paid the entire} amount in respect of the bid b1'^{03-07-2020.I-lo"'"'ever.before thc} sale certilicate could be issued,^{the petitioners came to knou'thata} part of auctioned land was found to be^{a surplus land under the} provisions of Telangana Land Reforms^{(ceiling of Agricultural} Holdings) Act, 1973 and^{vests with the Government.Since the2nd} respondent did not show^{prefect title of the land in question,the} petitioners made representation^{dated o1-10-2O2Oto refundthe} anrounts paid by them^{with interest} @^{18% per annum' Pursuant to} the same, an amount^{of Rs.12,10,92,5001-(RupeesTwelve Crores} Ninety Two Thousands^{Five Hundred Onty) was returnedto the} petitioners after deducting^{TDS without paying any interest on} deposited a-rnount.^{Hence, this writ petition forappropriate} direction to the^{respondents lor payment of interest'}

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Sri^p.Roy Reddy, learned counsel lbr the petitione-:r

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strenuously contended that in the light of the s;tatutory bar on sa_le of the land in question by virtue of the craim that part of thi land vests with the Government and a writ petition being wp No.15201 of 2012 is pending before this Court, the respondents ought not to have proceeded with the auction of the land and the mistake is soieiy attributable to them, the amount deposited by the petitioners with the 2"d respondent sha,rl have to be construed as "debt" within the meaning of Section 2 (C) rtf the Interest Act, 1978, and the petitioners are entitled for interest at the commercial transaction rate i.e. @ Ig% on the amount deposited by them. It is also contended that the respondents being an insrtrumentality of the State within the meaning of Articre 12 of the constitution of India, are supposed to act fairly and paid interest having retained substantial amounts for considerabre period as the proceedings could not attained finality for no faurt of the petit.ioners. It is stateci that the respondent-bank is under obligation to notify the defects in title if any before conducting e-auction wtrich is statut0t.. re quiremcnt under Section 55 of the Transfer property Act, 1gg0

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Sri Praveen Kumar Jain, learned standinl; counsel for the respondents submitted that the petitioners have an efficacious alternative remedy of redressing their grievance u'der Section 17 of the SARFAESI Act, 2oo2, and. without exhausting the alternate remedy, the petitioners have straightaway rus.ed to this court under Article 226 of the Constitution of India a,d, therefore, the writ petition is not maintainable. on facts it is; stated that the

r^petitioners themselves wanted refund of the amount aeposited.:by them with the bank before the respondent-bank resolved the iitle issue lr'ith the revenue authorities. It is also stated that writ jurisdiction cannot be invoked lor adjudication and enforcement of contractual rights and lor recovery of debts and even on that count writ petition is not maintainable. It is lastly contended that the provisions of the Land Reforms (ceiling on Agricultural Holdings) Act, 1973 are inapplicable to the land in question as any Surplus' land vests in the Government only after taking physical possession of the land by the Revenue Divisional officer or his agent, however' in^{the instantcase the land in question} has been in the conlinuous possession of its debtors. i^-

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The preliminary objection of the learned counsel for the ., .^{respondents is that in view of an alternative} remedy being available ' before the Debt Recovery Tribunal, the petitioners be relegated to approach the Tribunal

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In Whirlpool Corporation u Registrar of Trademarks, i.,..^{Mumbai, (1998) 8 SCC I it was observedthus:-}

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:1: "l '' rl:.^{. ,.:} "Under Article 226 of the Constitution, the High CqUft, ,i) hauing regard to the facts of the case, has discretion entertain or not to entertain a writ petition. But the Uign Coirf:, ::.,i,,;,::;,,, has imposed. upon itself certain restrictions one of which is that . " if an effectiue and effi.cacious remed.g is auailable, the High Courl would" not normallg exercise its jurisdiction. But the alternatiue remedg has been consistentlg held. bg this Couri noty;1:,:;;,.. to operate as a bar in at Least three contingencies, namelg, where the writ petition has been filed .for the enforcement of ang -of"^the Fu;"Lda mental Rights or u.therc,: there has L-seen ct uiolation.

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oJ the principle of natural^{justice orwhere the order or,.'} proceedings are u-tholly ttithout^jurisdiction or the uires of an Act is challenged."

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The same proposition is reiterated in Horbanslql So,hniq us Indian Oil Corpn. Ltd, (2OO3l 2 SCC 107) u'hich is in the follou,ing terms:-

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"In qn appropriate case, in spite oJ- auailability of the alternatiue remedg, the High Court mag stit.l exercise its turit juisdiction in at least three contingencies: (i) uhere the writ petition seeks enforcement of anA of the funcrnmental rights; (ii) tuhere there is failure of principles of natt'.ral^justice; or (iii) tuhere the orders or proceedings are wholly tuithout^jurtsdiction or the uires of an Act is challenged."

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In this case, it is to be seen that the petitioners bona-fidely participated in the e-auction and on being successful bidders deposited the amounts. The respondents did not deny the lact that the part of the land is question is subject matter,:f WP No.15201 of 201,2 pending before this Court. There are ciaims that the land in question vests with the Government being excess surplus land and it is only r,then the petitioners approached the Registration Department, they came to know about the defect in title of the land as the Sub-Registrar purportedly refused to reglister the lald on their names as it is listed in prohibited list. The lel3itimate expectation of the petitioners in the absence of any specific nc,tification as to the defects in title of the land being auctioned is that the land is free from all encumbrances. As a general ru1e, the property the.t is put to auction especiallv by the State or the instrumentalitles of the State, it is the rs understanding ol the general public that the title

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fre€ from all encumbrances as^{the auctioneer being creditor(bank)} at the time of mortgage^{of land under auction, the barik} Ytlq thbroughly verify the title^{and based on subjectivesatisfaction} including calling for a legal opinion^{from its attorney, it will lend} monies. In the circumstances,^{the respondetrts before proceeding} to conduct e-auctioning of^{the land in question ought to have cured} the delects if any more^{particulariy in respect of land u,hose valueis} in large sums. No^{prudent person u'ould like to purchasea land} with defect in title that too by^{a successfulbidder in an open public} auction.

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The Supreme Court in Bharat^{Sanchar Nigam Ltd' vs'} Telephone Cables Ltdl.^{indicated the need for the public sec.tgl} undertakings to ensure fairness^{in all their transactions,it was} obser-ved as under:-

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"A public ttrtrlcrtitkirlg is^{rt'<1trrr-crltoclrsltr(' fairncss,} non clisctirrynirliotr ;irtrl rlon ;tt'lri1r'rtt'irlt'ss^{irr tllcirrlt:lrlings} arid clccision mai<irrg l)t'()(.('ss.^{'l'ltCtr' :rc't.iorris r>1lCtl to judicial} revicu' ancl st:rutittv rtnrlct'lllc^{ttiglrl to Irlirrnr:rtioll Ac1 .2005.'} The contention of the counsel for the^{respondentsthat it was} notified to be sold in "as is where^{is basis", and it is deemedthat} the petitioners have knou,ledge^{part of the land in questionvests} with the Government cannot be countenanced^{for the simplereason} the purchaser (buyer) is not expected know^{and cannotknow the} defect which are not within his knowledge and^{even otherwise th9} buyer ts Qound to know^{patent defects and it is for the seller to} inform about any latent^{defects and the seileris under obligation to}

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'(lo^{to) s scc : ti}

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rveed out the defects in tile in their ou'n interest and to maintain their credibility. Even under Rule B (6) of the Security lnterest (Enforcement) Rules, 2OO2, the bank has^.-o disclose the encumbrances on the property that was plrt to auction. The said rule is mandatory and is required to be adhere,l and not to be ignored. Rule 8 (6) of the Rules reads as under:-

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"The authorized officer shall serve 1.o the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5); Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding ptrblic auction, the secured creditors shall cause a public notice in two leadir-rg newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,-

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a) Tite clescription of the immovab e propertv to be sol<l, including the details of the encumbrances knou,n to tire scc:rrrccl creditor

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b) The secured debt for recoverv of rvhich the property is to be soid

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c) Reserve price, below which the Jrroperty may not be sold

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d) Time and place of public auction or the time after which sale by any other mode shall be completed

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e) Depositing ea-rnest money as may be stipulated by the secured creditor

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0^{Any other thing which the arrthorized} officer considers it material for a purchaser to i<now in order to judge the nature and value of the property."

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ln Mathew Varghese u. M. Amritha Kurnar &ors2, lltr:

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Suprcrrrc Court u lrilt' corrsrtlcriug it sirniltrl issuc hclcl as unclcr.:-

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-rll)l.lrj S(( 010

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"secondlg, uLhen such a secured asset of art immouable propertA is brought for sale, the inLending purchasers.sffi know the nature of the property, the extent of trabititg'p;aniffi^-"'"" to the said prope,tl!1, any other encurn.brances peftaining to the said. propertg, th.e mitimum pice l:elou, which one can.not make a bid and the totct.l liabilittl o.f tlte borrcn.ue.r to the sec:urerl c:redilor. Srrrce', lhr: prottiso 1o sirb ntlc (6) ctlso nte:nlions lllel (unJ ()llt('r nt(tl('t'iui rtsltt r'l sltoulrl ttlso l;t,' rttude: lttt.<tutr) tultcn e.l.lerlintl lltt' lntltlirrrlion. it r.r,rntlrl ortlrl rnt'trn thnt lhe in.te:ndittg prtrr:ltctst,r :;ltoulrl ltrtt,r, r'iilrrc 11c:lrri1.s ttltottl l.lte:. property t:rottqh:( .for xtl<, in ortlr:r lo t'rtle tnt.l art.r1 possibilitll of thc: birlrlers lrtlc:t <ttt Ir)^{('-\1,r('.s.</sup> t(lnttrtit('? olttttt lhe. .la.clors co n n e c:t eci t u i t lt 1 I t e ./.>^.)^cl ir l qu e: s I i o r t . "}

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Though it is stated that the amounts deposited by the petitioners are not utilised by the bank and the amounts are held in ' no-lien account pending registration and refunded to the petitioners without gaining any benefit from it, but it is to be seen that the petitioners r,"'ere made to pool huge amounts of Rs.12 crores in order to deposit it as the bid amount and for no fault of them, they could not reap the fruits ol being successful bidders. Though the respondent-bank stated that the petitioners themselves rvanted relund of the amounts before the title issue could be resolved, but it is to be seen that there is no communication from the respondentbank informing them that the issue of title would be cleared muchless in a time frame and they themselves were not clear when it corrld be resolved. Section 72 of t]ne Indian Contract Act, 1872, states "a person to whom money has been paid or an1'thingⁱ delivered, by mistake or under coercion must repay or return it" and it has been held that retaining such money would lead to -

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ulljust clrrichment. lsce Ma.habir Kishore us. Sita.te of Ma.dhga. Pradesh, 1990 AIR 313). In the circumstances, t:re petitioners are entitled for payment of interest at commercial transaction ratd'.of lSYo per annum from the date of proportionate dr:posit of amounts ti1l the date of repayment of the principal arrounts. In matters arising under the provisions of the SARFAESI A.ct, the aggrieved have to approach the Tribunal constituted for that purpose, but this is a case of violation of breach of trust and the respondents have to pay for it. There are no intricate issues so ars to relegate the petitioners to approach the Tribunai, excel)t the issue of entitlement or otherwise of interest on the amount deposited by the petitioners there are r-ro questions of fact. In this connection, it is pertinent to refer to the Division Bench of this court in decision of Ambalauandn as. Canara Banl€ wherein a sirnilar question of payment of interest was considered and ma<le the following observation:-

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"The Bank issued the sale notice to auction the propertg mortgaged bg the fi.rst responde:nt. The applicant participated in the ctuction. '|'he bid submitted bg the upplica.nl u)us ucc:el)terl bg llte BurLh:. ctnd the snle rua.s c:ortJinnad lr /rrs rrctnrc.^'l-he opltlic.:t.rttt pakl ct sunt oJ' Rs.65.O7,OOO/to t!re: I3ortk:.^'|'he rtrnourtl tuos Ce.posited ort 27 ALLrlust )OlO.^'l'ltt: scle u.,a.>- strbs<rqrre'rrl111 set oside bg tLtis^{()ourt.'l'h<:} ISan.lt reJit ruled tl,te anto,-tnt cleposited bg llte t.Lytytlt<',tttl. Hr.tt.r,,t: t.tt- r. lltlr'res/ /i,(t.s /t() lluicl. 'l'he: Ban.k (rli ui1)i l.;r, lt.unl l() -,;(itl lLtul tlu, 1;rtrr..ltLts,,,r o.l tltt, propcrtrl is riol Irrii llr,rl 1r., ritle^,rt,.st. 'l'ltr.: rnL;rttli t.r,(.s t.lt7;<tsitc,tl tttttlr lltr: llrttth..^'t itt, l: trtk r_ur.t s hut.tirtq llte: rttrsrt,:11 l.ltrotulLruul the:

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I writ No. 302 of 2o l5

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proceedings. The Bank utilized the moneg. The Ba._ruk chqrges different rates for different transactions. The Bank is charging 14% for mortgage loans. There are other transactions uherein the Bank chargeS euen 18% interest per annum. Such being the factual position, the Bank cannot be heard to sag that the applicant has to be satisfi.ed only tuith the principal qmount. We are of the uiew that the Bank hauing kept the amount for years together is bound to paA interest to the applicant."

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The aforesaid principies when applied to the facts of the present case it sho',vs that no such encumbrance on part of the land rvhich purportedly vests ll,ith the Government has been pro;ecte d by the respondent-bank. Therelore, the bank as a linancial institution has failed to exercise the due diligence belore proceeding to conduct e-auction.

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In the result, the writ petition is allowed ald respondents are directed to remit the interest on the amount deposited by the petitioners @ 18 % per annum from the date of deposit of proportionate amounts till the date of refund of the principal amount by the respondent-bank. There shall be no order as to CO STS.

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That Rule Nisi has been made absolute as above.

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witness the Hon'ble the chief Justice HIMA KoHLl, on this Tuesday, The Twenty Fourth Day of August, Two Thousand and Twenty One.

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One fair copy to the HON'BLE SRt JUSTTCE A.RAJASHEKER REDDy (For His Lordship's Kind perusal)

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AND

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One fair copy to the HON'BLE Dr. JUSTTCE SHAMEEM AKTHER (For His Lordship's Kind^perusal)

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SDi- K.VENKAIAH ASSISTANT REGISTRAR

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,fu--

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To, I The Managing Director, State Bank of lndia, State Bank Bhawan, Madame Cama Marg, Nariman Point, Mumbai - 400 021 .

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IVP

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The- Authorized Officer . under SARFAESI Act, :.ZpO2, Stressed Assets Management Branch, State ei;t "i iilir':;. fr;

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. tiy^r-i*:1f t{:$,f,l^{r*t^" bu d, H yd ;;;'6;i ubiiS'olt"' r B roc k or H MWSs B} sartabad, Hyoerabad-505'o&^{ot''Reserve Bank of lndia secretariat} Road,

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4.^'10 L.R. Cooles

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u IH,y,i(ilB?%:"o, Union of tndia, Ministry of Lan,, Justice and company u ll:.?r"ot::"ry, Telangana Advocates Association Libraa, High courr Buildinss,

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