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Judgment
S. Ravi Kumar, Chairperson
This Appeal is against Order dated 28.04.2010 of DRT-II, Chennai in SA 53/2009.
Brief facts leading to this Appeal are as follows:-
Appellant herein invoked Section 17 of SARFAESI Act, 2002, and prayed for return of Rs.2,94,250/-, which was paid towards 25% of bid amount, in respect of auction of property conducted by Respondent on 13.10.2008. Appellant contended that forfeiture of advance amount is opposed to public policy, and all the tender conditions are in contravention of provisions of SARFAESI Act, 2002. It is also contended that Respondent suppressed the fact that the Schedule property is in occupation of a tenant. It is also contended that terms and conditions of Auction Sale Notice are contrary to provisions of Act and Rules, and Respondent completely contravened mandatory provisions of Rule 9(4) of Security Interest (Enforcement) Rules, 2002 (hereinafter called Rules). It is also contended that as per said Rule, Appellant has to pay balance 75% of amount on or before 15th day of confirmation of sale, but sale has not been confirmed, therefore, Respondent has no right to forfeit the advance amount.
Respondent resisted Application contending that as per the terms and conditions of Sale, Appellant has to pay balance Sale amount on or before 28.10.2008, as she did not pay balance amount, Respondent has right to forfeit the amount. It is contended that Respondent rightly forfeited, therefore, it is not liable to refund. Respondent also contended that Appellant has no right to invoke Section 17 of SARFAESI Act, 2002, and Application, as filed, is not maintainable.
Tribunal below framed two points on the basis of contentions and rival contentions of both parties; first point is about maintainability of Application and second point is about return of amount claimed by Appellant. In respect of first point as to invoking SARFAESI Act, 2002, Tribunal below held in favour of Appellant, and in respect of second point, it held that Appellant contravened the terms and conditions of Sale, therefore, she is not entitled for refund of amount, holding that Respondent forfeited the amount in accordance with terms and conditions of Sale Notice, which is binding on Appellant. Aggrieved by said Order, present Appeal is preferred.
Heard both sides.
Advocate for Appellant submitted that Respondent has not clearly stated true factual position about possession of property, and it suppressed the fact that property is already in possession of a 3rd party in the capacity of a tenant. He submitted that it is the duty of Respondent to disclose encumbrance relating to property, and tenancy would also fall under word ‘encumbrance' as held by Hon’ble Supreme Court in Mange Ram Vs. Financial Commissioner and Ors., reported in (2003) 2 SCC 1. It is submitted, Appellant has not followed the provisions of SARFAESI Act and Rules, and terms and conditions of Sale, cannot override the statutory Rules. He submitted that only on confirmation of Sale, Appellant is bound to pay balance amount within 15 days from the date of confirmation, and on failure to do so, Respondent will get right of forfeiture, but here in this Appeal, Sale was not confirmed to the knowledge of Appellant till date, therefore, Order of forfeiture is in contravention of Rules, 2002. It is submitted Tribunal below, without examining Rules, 2002, only considered the terms and conditions of Sale, which are not in conformity with Rules, 2002, and rejected the claim of Appellant, which is not legal, therefore, Order of Tribunal is liable to be set aside.
On the other hand, Advocate for Respondent while supporting Order of Tribunal, submitted that Appellant participated in auction on 13.10.2008 for a sum of Rs.11.77 Lakhs, but failed to remit 75% of bid amount of Rs.8,82,750/-, and as per terms and conditions of Auction Sale, Respondent forfeited 25% of bid amount, and same cannot be interfered with. It is further submitted that Respondent conducted Sale subsequently on 24.01.2012, and property was sold for Rs.10.75 Lakhs, which is less than bid amount offered by Appellant. It is submitted Appeal is devoid of merits and liable to be dismissed.
It is not in dispute that Respondent herein auctioned a house property for Sale, and in pursuance of Sale Notice, Appellant herein participated in bid, and she became the highest bidder for a bid amount of Rs.11.77 Lakhs. It is also not in dispute that Appellant paid 25% of bid amount immediately, but the dispute is with regard to balance amount. According to Appellant, she has to pay balance amount within 15 days from the date of confirmation of Sale, and she has no intimation about confirmation of Sale. It is also the contention of Appellant that Respondent suppressed the fact that property is in possession and occupation of a 3rd party (tenant), and the same would amount to encumbrance, and Respondent is bound to disclose encumbrance over property. According to Respondent, as per terms and conditions of Sale, Respondent has right to forfeit the amount, if it is not paid on or before 28.10.2008. Advocate for Appellant contended that said clause is in contravention of Rules, 2002.
Now, it may be relevant to examine pleadings of Respondent in answer to Securitisation Application. In para 6 of Counter, it is stated that as per terms and conditions of Auction Sale Notice, Appellant was to pay balance 75% of bid amount, within 15 days from the date of public auction. So, according to Sale conditions, 75% has to be paid from the date of auction. On the basis of this only, Advocate for Appellant argued that Appellant has accepted to pay balance 75% on or before 28.10.2008 since auction was on 13.10.2008. Now, it has to be examined what Rules, 2002, contemplates. As per Rule 9(4) of Rules, 2002, the balance amount of purchase price payable, shall be paid by purchaser to Authorised Officer, on or before the fifteenth day of confirmation of Sale of immovable property or such extended period. So, this 15 days period is from the date of confirmation of Sale, but not from the date of auction. In this connection, it may be relevant to extract Rule 9(2), (4) and (5) of Rules, 2002, which are as follows:-
“Time of sale, issues of sale certificate and delivery of possession, etc.—
(1) …………..
(2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor:
(3) ………….
(4) The balance amount of purchase price payable shall be paid by the purchaser to the authorised 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].
(5) In default of payment within the period mentioned in sub-rule (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.
6………………..
………………….”
From a reading of above, it is clear that acceptance of bid is subject to confirmation by Secured Creditor. So, 25% will be collected on the date of knocking down of bid in favour of purchaser, which has to be confirmed by Secured Creditor, and on that confirmation, Authorised Officer has to demand 75% of balance money from purchaser, and if that 75% of balance money is not paid by purchaser, Rule 9(5) of Rules, 2002, empowers Authorised Officer to forfeit the deposit. From the above three Rules, procedure to be followed is,
Authorised Officer has to declare highest bidder, collect 25% of purchase money including EMD immediately, then, obtain confirmation from Secured Creditor, thereafter, call upon purchaser to deposit balance 75%, and if the balance is not deposited within time, forfeit the money deposited and to resell the property. It is the specific contention of Appellant that Respondent has not intimated to her about confirmation of Sale. In the Counter filed to this Appeal, Respondent contended that confirmation Letter filed along with Appeal Memorandum, would prove the malafide intension of Appellant. As seen from record, no such confirmation Letter is filed along with Memorandum of Appeal, but one document is filed, and Advocate for Respondent might be referring to this document. It may be relevant to scan said document for better appreciation, which is as follows:-
From a reading of this document, it is not addressed to Appellant. It appears, it is addressed to general public, because, caption itself indicates “TO WHOM SO EVER IT MAY CONCERN”. In this, it is stated, on payment of balance sum, Sale will be confirmed in favour of Mrs. R. Rani, Appellant herein, and Sale Certificate will be issued with title deeds. This is quite contrary to the Rules, 2002. As per Rules, 2002, on confirmation of Sale, purchaser is expected to pay 75%, and on payment of such 75%, Authorised Officer is expected to issue Sale Certificate. So, as rightly pointed out by Advocate for Appellant, this document, which is issued by Authorised Officer, is completely in contravention of Rules, 2002. Further, this document does not contain any date and it is not known on what date it is issued. As already referred to above, it is not addressed to Appellant herein, and even copy is not marked to her, therefore, Respondent cannot be allowed to contend that this is a Letter of Confirmation.
As already referred to above, bid knocked down in favour of the highest bidder, has to be confirmed by Secured Creditor, and on such confirmation, purchaser has to be called upon to pay 75%, and on such demand, purchaser has to pay balance amount within 15 days or within extended period from the date of confirmation of Sale. It is the specific procedure contemplated under Rules, 2002, but here, Respondent ignores the statutory Rules, and incorporates a condition that balance amount has to be paid within 15 days from the date of auction. As rightly pointed out by Advocate for Appellant, terms and conditions of auction, cannot bypass statutory Rules, and if conditions are contrary to statutory Rules, those conditions will have no binding nature on Appellant. Unfortunately, Tribunal below, without examining statutory Rules, carried away with objection of Respondent and accepted terms and conditions of auction, and denied relief to Appellant. As rightly pointed out by Advocate for Appellant, Respondent cannot have unjust enrichment by virtue of this transaction. In fact, the forfeiture amount has to be paid to Government, and it cannot be appropriated by Respondent towards its income.
One of the contentions of Appellant is that Respondent suppressed the fact that a 3rd party, in the capacity of tenant, is in possession of Schedule property. Normally, intending purchaser should be put on notice of all the encumbrances relating to property. It is a common sense point that a party will come forward to purchase property, if it is free from encumbrance. Advocate for Appellant submitted that ‘tenancy’ would also fall under the category of ‘encumbrance’, and to support his argument, he relied on judgement of Hon’ble Supreme Court in Mange Ram Vs. Financial Commissioner and Ors., reported in (2003) 2 SCC 1. In that decision, the word ‘encumbrance’ is interpreted and lease or mortgage is termed as legal encumbrance. As per Rules, Respondent has to disclose all known encumbrances in Sale Notice, and when Appellant specifically raised a plea that Respondent suppressed the said fact, to this allegation, Respondent has not offered any satisfactory explanation nor it pleaded that it has no knowledge of it. So, as rightly pointed out by Advocate for Appellant, when property is not free from encumbrance, no bidder will come forward to purchase that property, and when Appellant came to know about that fact, after she was declared as highest bidder, she was very much justified in not paying balance amount. So, viewed in any angle, objection of Respondent is not sustainable.
On a scrutiny of entire material, I am of the considered view that Tribunal below completely erred in disallowing the claim of Appellant, as forfeiture is completely in contravention of Rules, 2002. For these reasons, Order of Tribunal below is liable to be set aside and Appeal has to be allowed.
In the result:- Appeal RA (SA) 72/2019 is allowed with costs and Respondent shall refund Rs.2,94,250/- with interest at 9% p.a. from the date of deposit till payment. All pending IAs, if any, stand closed.