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Judgment
This Appeal is filed against the order passed by the Learned Presiding Officer, DRT-II, Chennai, in TSA No. 139/2023 on 28.07.2023.
The Appellant filed TSA No. 139/2023 (originally as filed SA 63/2020 on the file of DRT-I, Chennai) before DRT-II, Chennai, for the following reliefs:-
“i.Declare that the Defendant has published fraudulent information with respect to the nature of the Schedule Property and;
ii.Declare the action of the Defendant in forfeiting the earnest money deposit amount of Rs.37,50,000/- as null and void and;
iii.Direct the Defendant to refund of the earnest money deposit of Rs.37,50,000/- to the Applicant along with interest at the rate of 18% per annum and;
iv.Pass such further orders as this Hon’ble Tribunal deems fit in the interests of justice and equity.”
The case of the Appellant, in brief, is that the Respondent issued e-auction advertisement/notice for sale of 7.75 acres land at Tuticorin on 27.09.2019. The description of the property is given as follows:-
“Property in the name of the Managing Partner of Prabhat Saw Mill for Shivagan K Patel, Managing Partner of M/s. Saw Mill Mr. Nathu K. Patel, Managing Partner of M/s. Bhavani Saw Mill, Mr. Gopal Patel.
Property Type: Industrial, All that piece and parcel of land situated in Mullakkadu Village, Tuticorin Taluk, Tuticorin District comprised in the Survey No 135/3, 136/B3 extent of 7.75 acres all within the sub registration district of Tuticorin & Registration District of Tuticorin.”
The property was described as industrial nature. The Appellant intended to purchase this property for the purpose of setting up a storage space for storing goods delivered from the port. The Appellant paid a sum of Rs.37.50 Lakhs towards EMD. Appellant participated in the sale on the basis of representations made by the Respondent. After submission of the EMD, the Appellant visited the land and found the following inconsistencies with regard to the property:-
The sale deed for the property shows that the western boundary as a road. However, the Survey Nos.125/2, 135/2 of Mullakadu Village Part I, stand in the name of Mr. Hariharan and Mr. Piramanayagam Pillai. Therefore, it is clear that the road is a private road.
The property is not industrial property but an agricultural property.
Appellant sent a letter dated 11.11.2019 to the Authorised Officer seeking a clarification with regard to the land. Without clarifying the issue raised, the Respondent Bank issued a letter dated 18.11.2019 seeking payment of the balance 75% of the sale price. It was also informed that there is a pucca road approved by the Government. Despite request from the Appellant, the Respondent did not clear encumbrance in the property. The Respondent suppressing the material information that the road is not a public road but a private road, proceeded to issue sale notice and it is against the provisions of the SARFAESI Act, 2002 and Rules 8(7) of the SIE Rules, 2002. In the said circumstances, the Securitisation Application has been filed for the reliefs aforesaid.
The Leaned Presiding Officer observed that the Appellant visited the property on 04.09.2019 and was provided an opportunity to inspect the property prior to the sale. The property was sold on an “as is where is” basis. Therefore, the Appellant cannot now withdraw from the sale proceedings and seek to set aside the forfeiture order and refund of the EMD. Accordingly, the Securitisation Application was dismissed. Aggrieved by the said order, this Appeal is filed.
The Leaned Senior Counsel for the Appellant submitted that the Respondent suppressed the material particulars in the sale notice with regard to existence of a road, especially, whether there is a public road, to have an access to the property? Through the sale notice, three properties were sought to be sold. The property concerned in this case is item No.2 of the sale notice. The item No. 2 of the property is shown as an industrial property. The survey number, extent and location of the property alone are given. No details are given with regard to the boundaries and access. In the valuation report, characteristics of land are shown as “mixed-agricultural and salt pan area”. The sale deed in respect of the property shows that the western boundary of the land is a road. However, there is no indication as to whether the road is a public road or a private road. After paying the EMD and verification, the Appellant came to know that the road shown as the western boundary stands in the name of two individuals. When clarification was sought in this regard, the Respondent has not given any proper reply and insisted on payment of balance sale consideration. The photographs filed to show that Appellant made inspection prior to the sale of the property is not correct. Photographs would not show the date and time of the visit. The Bank made a wrong claim through its reply that the western boundary is a road laid by the Government. In reality, it is a private land accessible only to certain individuals. In the subsequent sale held by the Bank, it is very clearly mentioned that the road on the western side of the property is a private road, confirming the case of the Appellant. The Bank has suppressed the material fact with regard to the nature of the road, as to whether it is a private road or public road. It materially impacts the sale in view of withholding an important information which is the basis for the decision making process of a prospective buyer. Thus, he submitted that, the order of the Learned Presiding Officer has to be set aside, along with the order of the forfeiture, and order has to be passed to repay the EMD amount.
Learned Senior Counsel for Appellant relied on the following decision in support of his submissions:-
I. Haryana Financial Corporation v. Rajesh Gupta reported in (2010) 1 SCC 655, for the proposition that it is the duty of the Bank to mention about the independent passage to the property to be sold. If that is not done, the seller is entitled for refund of amount forfeited with interest.
II. Leelamma Mathew v. Indian Overseas Bank reported in 2022 SCC OnLine SC 1601, is relied for the proposition that the seller is bound to disclose the buyer any material defect in the property of which the buyer is not aware and which buyer could not ordinarily discover. If not disclosed, the Bank cannot take arbitrarily the ground that the property was put to auction on “as is where is” and “as is what is” condition.
III. The decision in Jai Logistics v. The Authorized Officer, Syndicate Bank reported in 2010 SCC OnLine Mad 3830 is relied for the proposition that the Authorised Officer is required to comply Rule 8(6) of SIE Rules, 2002. The 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.
IV. For the same proposition, the decision in D. Karthikeyan v. The Chairman, Indian Bank and another reported in W.P. No.35513 of 2019 of Hon’ble High Court of Madras is relied. In this decision, the decision of Hon’ble Supreme Court in Mandava Krishna Chaitanya Vs. UCO Bank, reported in 2018 SCC Online 196, is referred wherein it was held in para 10 as follows:-
“10.The aforesaid statutory scheme demonstrates that the secured creditor may also sell a secured asset which is not free from encumbrances. However, an endeavour must necessarily be made by the secured creditor to know as to whether any encumbrances attach to the secured asset, as the rules stipulate delivery of the property to the purchaser free from encumbrances known to the secured creditor. The secured creditor cannot therefore blindly accept any property as security and go on to sell the same without even enquiring as to what encumbrances attach to it. Be it noted that a secured creditor and more particularly, a bank, offers loan facilities on the strength of such secured assets and, in most cases, such loan facilities are sourced from public funds garnered from the exchequer/common man and therefore, a high level of responsibility attaches to the secured creditors, especially banks, to ensure that the secured assets, on the strength of which they offer tax payers monies or customer deposits to borrowers, are worthy of being mortgaged as security for such loans. It is not open to a bank, such as the UCO Bank, to baldly state that it obtained the subject property as security for the loan sanctioned by it to a borrower and that once it proposed to sell it on an as is where is and as is what is basis, it is freed from all responsibility.” It is reitereated that the secured creditor cannot blindly accept any property as security and go on to sell the same without even enquiring as to what encumbrances attach to it. It is not open to a Bank to say that once it proposed to sell it on an “as is where is” and “as is what is” basis, it is freed from all responsibility.
V. The decision in Mandava Krishna Chaitanya v. UCO Bank reported in 2018 SCC OnLine Hyd 196 is relied for the proposition that, 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 rejecting the plea that a sale on “as is where is” basis constitutes a shield of protection. 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 venditor” is more on the rise as compared to the 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’s beware.
VI. The decision in Rekha Sahu v. UCO Bank, reported in 2013 SCC OnLine All 13203, is produced to reiterate the position that the Rule 8(6)(f) mandates additional duty on the Authorised Officer to make known to the bidders before auction 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. Therefore, it is evident that the immunity claimed by the Bank/Financial Institution on the pretext "as is where is" and "as is what is basis" is dying a slow death and the Bank/Financial Institution being secured creditor, have to make due diligence/make thorough search of the property before proposing for sale.
VII. The decision in Al Champdany Industries Ltd. v. Official Liquidator reported in (2009) 4 SCC 486 is relied to expound what is meant by the word “encumbrance”. The encumbrance must be capable of being found out either on inspection of the land or the office of Registrar or a statutory authority. A charge, burden or any other thing which impairs the use of the land or depreciates in its value may be a mortgage or a deed of trust or a lien or an easement.
VIII. The decision in S. Shanmuganathan v. Indian Overseas Bank reported in 2017 SCC OnLine Mad 1549 is relied for the proposition that the statement that the auction purchaser should be beware of the title, even though it is sold by Bank, does not also sound reasonable.
In reply, the Learned Counsel for Respondent Bank submitted that the Appellant was aware of the fact that there is a road on the western side of the land. The documents produced by the Respondent Bank would show that the Appellant inspected the property along with the Bank officials prior to the sale, and was apprised of the existence of the road. It was made a condition that, in the event of not paying the balance sale consideration after confirmation of sale, the successful bidder would suffer forfeiture of the EMD amount. The sale deed in respect of the property shows that there is a road on the western side, and therefore, the Appellant cannot backtrack from the sale after confirmation of the sale. The property was sold “as is where is”, “as is what is” condition. If he chooses to withdraw from the sale after sale confirmation, as he did in this case, the Appellant is not entitled for a refund of EMD amount and the forfeiture has to be confirmed.
In support of his submissions he pressed into the service the decision of the Hon’ble Supreme Court in The Authorised Officer, Central Bank of India Vs. Shanmugavelu, reported in 2024 INSC 80, for the proposition that any dilution of the forfeiture provided under Rule 9(5) of the SARFAESI Rules would result in the entire auction process under the SARFAESI Act being set at naught by mischievous auction purchaser(s) through sham bids, thereby undermining the overall object of the SARFAESI Act of promoting financial stability, reducing NPAs and fostering a more efficient and streamlined mechanism for recovery of bad debts.
Considered the rival submissions and perused the records.
Appellant has not produced the sale notice issued in this case but only produced copy of the paper publication of the e-auction sale notice. As per this notice, the description of the item No.2 is as follows.
Item No. 2: Property in the name of Managing Partner of Pradhat Saw Mill Mr. Shivagan K Patel, Managing Partner of M/s. Maruthi Saw Mill, Mr. Nathu K Patel, Managing Partner of M/s. Bhavani Saw Mill, Mr. Gopal K Patel.
Property Type: Industrial. All that piece and parcel of land situated in Mullakadu Village, Tuticorin Taluk, Tuticorin District comprised in the Survey No. 135/3, 136/B3, extent of 7.75 acres all within Sub Registration District of Tuticorin & Registration District Tuticorin.
It is not in dispute that the Appellant participated in the sale proceedings by paying EMD of Rs.37.50 Lakhs which is above 25% of the reserve price. After the sale, Appellant sent a letter to the Authorised Officer of the Respondent Bank on 11.11.2019. In the said letter, it is stated that in the sale notification, the description of the boundaries of the Schedule property are not given, but from the verification of the copy of the sale deed pertaining to the Schedule property the following description is given for survey No. 135/3 and 136/B3:
“Schedule of Property:
1.Vacant land measuring 4 acres 32 cents in Mullakadu Village, bearing S. No. 135/3, Tuticorin Circle, Tuticorin Joint No. 1, SRO Circle,bounded on East of : Manish Kumar and Abhisek Kumar Land West of : Road North of : Channel South of : S. No. 125/3A1A The northern boundary is the 2nd item whereas the northern boundary is shown as channel which is in fact the northern boundary of the 2nd item.
2.Vacant land measuring 3 acres 43 cents in Mullakadu Village, bearing S. No. 136/B3, Tuticorin Circle, Tuticorin Joint No.1, SRO Circle, bounded on East of : Manish Kumar Land West of : Road North of : Channel South of : S. No. 135/3”
It is further stated that the western boundary of the property is shown as a road. Verification of the revenue records shows that the road is situated in Survey Nos. 125/2 and 135/2 of Mullakadu Village. These lands stand in the name of one Mr. Hariharan and Mr. Piramanayagam Pillai, and therefore, the Appellant sought clarification from the Respondent as to whether the road is a private or a public road and the right of the parties holding lands on either side of the road. It was also informed that the Appellant reserves her right to proceed with the sale transaction subject to clearance of encumbrance attached to the road shown as western boundary of the Schedule property.
On 18.11.2019, the Respondent Bank sent a letter to the Appellant stating that the sale is confirmed in favour of the Appellant for Rs.1.50 Crores and the Appellant has to remit the balance 75% of the sale price i.e. Rs.1,12,50,000/-. It was made clear that if the balance amount is not paid within 15 days, after sale confirmation, the sale is liable to be cancelled and the amount paid is liable to be forfeited. To the letter dated 11.11.2019 of the Appellant, the Respondent sent a reply on 19.11.2019 stating that there is pucca thar road from Veera Nayakkanthattu village towards Thoothukudi collector office. The said road has been formed at the cost of the Government expenses. As per the village map obtained, there is a pucca road in the relevant survey number. As per the usage, the road is having public access and so far there is no objection from any corner. Maybe due to some re-survey and or Sub-division, the road must have been established. For further clarification, Appellant was directed to approach the concerned survey office at Tuticorin for clarification. The Bank was also ready to send any communication or letter to the Government official for doing the needful in this regard.
Appellant sent a reply to this letter on 26.11.2019 stating that the encumbrance with regard to the road is not cleared, and therefore, request to ascertain the legal position of the road and clear the encumbrance or treat the sale as rescinded for non compliance of rectification of defects in the title of the property.
To the letter dated 18.11.2019, the Appellant sent a reply on 26.11.2019 stating that on personal verification of the property along with Mr. P. Madasamy, the then Deputy General Manager of the Respondent Bank, on 25.11.2019 and verifying with the Town Surveyor, it was found that the road portion stands in the names Mr. Piramanayaham Pillai and Mr. Hariharan. Thus, he stated that in view of dispute in the character of the land, the Appellant is unable to proceed with the sale. A request was made either to clear the encumbrance or to treat the sale as rescinded for not compliance of rectification of defects in the title.
On 29.11.2019, the Bank sent a reply stating that there is no encumbrance or defect in the property and the title is clear. The property was sold “as is where is”, “as is what is” and “whatever there is” basis. Therefore, the Appellant was directed to pay the balance sale consideration of 75% within 15 days, failing which it was warned that the EMD amount would be forfeited.
This letter was followed by a representation by the Appellant on 06.12.2019 reiterating the earlier grounds. On 19.12.2019, the Bank sent a letter informing the forfeiture of the amount paid.
This series of communications between the Appellant and the Bank shows that the Appellant has been taking consistent plea that the Respondent has to clarify as to whether the road on the western side of the property is a private road or a public road and the entitlement of the land owners on either side of the road for the use of this road.
It is an admitted case of the parties that, after the Appellant failed to pay the balance 75% of the sale consideration, the amount paid by the Appellant was forfeited and a fresh sale was conducted. The fresh sale was held in favour of R. Ponventhan for a sum of Rs.2.10 Crores and sale certificate was issued. The description of the road in the sale certificate is mentioned as follows:-
DESCRIPTION OF PROPERTY
Vacant land measuring 4 acres 32 cents in Mullakadu Village, bearing S.No.135/3, Tuticorin Circle, Tuticorin Joint No.1, SRO Circle And Vacant land measuring 3 acres 43 cents in Mullakadu Village, bearing S.No.136/B3, Tuticorin Circle, Tuticorin Joint No.1, SRO Circle R.S.No.135/3 – bounded on the North of : Channel South of : R.S.No.125/3A1A – Property East of : Manishkumar and AbishekKumar Lands West of : Road
R.S.No.136/3B – bounded on the North : Channel South : S.No.135/3 – Property East : Manishkumar Property West : Road
Total extent of 2 items as above 7 acres 75 cents
Together with the right to use the road subject to the covenants described in the Common Road (Private) Agreement dated 17/7/2007 registered as Doc. No.2758/07.
From this description, it is clear that there is only a right to use the road subject to the covenants described in the Common Road (Private) Agreement dated 17.07.2007 registered as Doc. No.2758/07. This sale certificate is heavily relied on by the Learned Counsel for the Appellant to show that the road on the west is not a public road, but a common private road as per the Agreement dated 17.07.2007. This is a material and vital information that should have been given in the sale notice and sale notice published in the newspaper. Had it been mentioned in the sale notice, the Appellant would not have ventured to purchase this property. The Appellant genuinely thought that the road on the western side is a public road, and now it is confirmed that it is not a public road. By suppressing the material and vital information, the Respondent failed to comply with the mandatory requirement of Rule 8 (7) (a) and (f) of the SIE Rules, 2002. For this reason, the withdrawal of the Appellant from the sale is justified.
The Common Road (Private) Agreement dated 17.07.2007 shows that it was executed between A. Ganesan power agent of 1) V.S. A Jeyaraman, 2) J. Kesavan, 3) J. Mathavan, 4) J. Damodharan, 5) G. Balaji, 6) G. Badrinarayanan, 7) A. Radhakrishnan, 8) G. Balachandar, 9) G. Padmanaban, 10) P. Shenbagavalli, 11) G. Viswanathan, 12) D. Varadharajan, 13) D. Rengan, 14) B. Jeyalakshmi, the party of the first part and 1) Manish Kumar D. Jain, 2) R. Vipulkumar, 3) M. Hitesh, 4) M. Abhishek and 5) P. Shantilal Jain, party of the second part. This agreement shows that the party of the first part owns landed properties near harbor bypass road, Tuticorin and party of the second part owns landed properties south of the properties of first part. The party of the second part approached the party of the first part to have a private road access to their properties through the properties of first part. The party of the first part agreed for the proposal. They have mutually agreed to lay private common road as shown in the Schedule for the use of the parties of the first part and second part and for transportation of vehicles subject to certain conditions. Some of the important conditions are as follows:-
i)The road should be used as private common road and the measurements should not be altered or changed.
ii) The second party shall not dig any pit, put up any construction or bridge and the like thereby restraining the free movement in the pathway without obtaining any written consent from the party of the first part.
iii) The second party agrees to lay a road for transportation of heavy vehicles at their own cost after this agreement is registered with Registration Department.
iv) The first party has to set up a check-post at the entrance of the road and collect Rs.20/- per vehicle from the owners of the vehicles using the pathway and undertake to maintain the road and keep the road free from any obstruction.
v)The private common road shall be used only by the vehicles coming and going to the lands belonging to the party of the second part and the party of the second part is not conferred with any absolute right or title over the pathway, they cannot convert it as a public road or to create encumbrance or alienation over it.
vi) No vehicles belonging to any third parties can play through the schedule road without the written consent from the first party. Both the parties can take action against the trespassers.
vii) The second party agrees that they shall not involve the private common road in any legal intricacies.
viii) If the second party sells their land to any third parties, then the right to use the private common road shall continue to be used by the prospective buyers.
ix) The Second party paid Rs.5 Lakhs as non-refundable amount.
In view of this agreement, this Tribunal, on 31.08.2026, directed the Learned Counsel for the Respondent Bank to inform this Tribunal as to whether the mortgagors of the Bank are parties to this document, along with two other queries. This query was not clarified by the Respondent till the final arguments were heard on 08.09.2026. Unless it is established that the mortgagor of the Respondent Bank is a party to this agreement and has right to use the private common road, or the mortgagor acquired such right from the agreement holders, it is no doubt that, the mortgagor cannot use this private common road to access the land in dispute. Admittedly, the road on the western side of the land is not a public road, but only a common private road and only the parties to the agreement can use this road. This aspect is mandatorily required to be indicated in the sale notice. Miserably, this vital and material information was omitted to be informed to the prospective buyer, in the sale notice and the sale notice was published in the newspaper.
Rule 8(7) of the Security Interest (Enforcement) Rules, 2002 reads as follows:-
(7)every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web-site of the secured creditor, which shall include;
(a)the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b)the secured debt for recovery of which the property is to be sold;
(c)reserve price of the immovable secured assets below which the property may not be sold;
(d)time and place of public auction or the time after which sale by any other mode shall be completed;
(e)deposit of earnest money as may be stipulated by the secured creditor;
(f)any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.
Thus, there is no hesitation to hold that the Respondent Bank has failed to give a proper description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor or any other terms and conditions which the Authorised Officer considers it necessary for a purchaser to know the nature and value of the property. Appellant participated in the sale, on the belief that there is a public road on the western side of the property. The claim of the Learned Counsel for the Respondent Bank that the Appellant had inspected the property prior to the sale and was apprised of the existence of the road, is not enough to rectify the defects. There is no dispute that there is a road on the western side of the land. The issue is whether it is a private road or a public road. The fact as to whether the road on the western side is a private road or a public road cannot be ascertained merely by personal inspection. In this view of the matter, it is evident that the Respondent Bank omitted to mention in the sale notice and the sale notice published in the newspaper with regard to the nature of the road on the western side of the land sought to be sold to the Appellant.
No boundaries, details of road, especially, public road access, is given. The road on the western side of the land sold is a private common road. The right of the mortgagor and the prospective buyer in this road is not mentioned. The sale notice is fundamentally defective and against law. The sale notice is not in conformation to the requirements of Rule 8 (7) (a) and (f) of the SIE Rules, 2002. As seen from the decision relied on by the Appellant, the concept of “as is where is” and “as is where is”, “as is what is” and “whatever there is” is facing slow death. The concept of caveat emptor is replaced by the concept of caveat venditor. The Bank is required to disclose all the information on encumbrances and also the information which is material to a purchaser to know before taking a decision to buy the property. That has not been done in this case.
Thus, this Tribunal is of the view that the withdrawal from the sale proceedings by the Appellant is justified. In view of the defective sale notice issued, the forfeiture of the EMD amount cannot be sustained, and is liable to be set aside, and accordingly set aside. As a consequence, the Appellant is entitled for refund of the amount deposited with 6% simple interest from the date of payment till the date of re-payment.
In this view of the matter, this Tribunal is of the view that the decisions relied on by the Learned Senior Counsel for Appellant suit the facts and circumstances of this case than the decision relied on by the Learned Counsel for Respondent Bank.
In the result, the action of the Respondent in forfeiting the EMD amount is set aside. The Respondent Bank is directed to refund the EMD amount of Rs.37,50,000/- along with interest at the rate of 6% per annum (simple) from the date of payment till the date of re-payment, to the Appellant. The order passed by the Learned Presiding Officer, DRT-II, Chennai, in TSA No. 139/2023 on 28.07.2023, is set aside. Consequently, the TSA No. 139/2023 and the Appeal in RA (SA) 62/2023 are allowed. Both the parties shall bear their own costs. All pending IAs, if any, stand closed.