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Judgment
Soumen Sen, C.J.
This appeal is arising out of the judgment delivered by the learned Single Judge on 31st March, 2026 in a writ petition filed by a prospective auction purchaser challenging the decision of the secured creditor to forfeit the Earnest Money Deposit (EMD). The learned Single Judge dismissed the writ petition on the ground of availability of an alternative remedy, relying upon the decision of the Apex Court in Agarwal Tracom Private Limited v. Punjab National Bank and Others1. Aggrieved by the said decision, this appeal is preferred.
The principal issue raised in the appeal is whether the secured creditor had committed fraud by suppressing material information regarding the property in question at the time of sale. It is contended that the sale notice did not disclose that the property was subject to an order of attachment and that, had this fact been known to the appellant, the appellant might not have participated in the tender process. It is submitted that as soon as the appellant became aware that the said property was subject to attachment, the appellant sought return of the EMD. The Bank, however, had wrongly and illegally forfeited the said amount.
The learned counsel for the Bank has submitted that there is a fundamental distinction between an order of attachment and an encumbrance. It is submitted that what is required and contemplated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), read with Rule 8(7) of the Security Interest (Enforcement) Rules, 2002 (2002 Rules), is that the sale notice must, inter alia, disclose the description of the immovable property proposed to be sold, including the details of the encumbrances known to the secured creditor. It is submitted that the decision of the Three-Judge Bench of this Court in Fathima v. Canara Bank2 has clarified the distinction between an encumbrance and an attachment. In this regard, the learned counsel has relied upon paragraphs 67 and 68 of the said judgment, which read as under:
“67.A learned Single Judge of this Court in Thiru Venkita Reddiar v. Noordeen, [1977 KLT 877] held that a sale in pursuance of an attachment will prevail over all other attachments over the property. It is explained that with the court sale, all attachments subsisting on the property will fall to the ground. The observations therein are profitably extracted below:
"3.xxxx The purpose of the attachment is solely for the purpose of protecting the attaching creditor's right to bring to sale in execution the right, title and interest in the attached property of the judgment-debtor and there is no reason for holding that it continued to affect the attached property in any way when the attached property no longer continues to be the property of the judgment-debtor. The auction purchaser takes the property free from attachment. The consequence no doubt to an earlier attaching creditor is very serious, but his rights are sufficiently safeguarded in such a situation by entitling him a ratable distribution of the proceeds of the sale. This is the only way left to a money-decree-holder when other like decree-holders proceed against the same property in execution. If this were not so, complications will arise between an earlier attaching creditor and a subsequent attaching creditor. If the sale was under a private alienation with the earlier sale there is nothing left with the transferor to transfer subsequently to another. In the same manner the prior sale in pursuance of an attachment will prevail over a subsequent sale even if the latter sale was in pursuance of an earlier attachment. In other words with the court sale all attachment subsisting on the property will fall to the ground."
68.The aforesaid view was reiterated by this Court in Francis v. Navodaya Kuries & Loans (P) Ltd., [(2010) 3 KLT 609] and Axis Bank v. Hilal Ahmed Bhat, [(2022) 4 KLT 406]. We find it to be the correct exposition of law. Thus, Section 64 of the Code does not create a total bar for a private alienation, but it enunciates only that any private transfer contrary to the attachment which matured into sale shall be void as against all claims enforceable under the attachment resulting in the sale. The subsequent private sale will therefore be void to the extent of enforceability of the claim arising from the attachment, which resulted in the sale. Once the sale is made in execution of the decree, all previous attachments effected upon the property sold would fall on the ground as well.”
The learned counsel has also relied upon the decisions in Authorised Officer, Central Bank of India v. Shanmugavelu3, Assistant Commissioner (CT) LTU, Kakinada and Others v. Glaxo Smith Kline Consumer Health Care Limited4 and Assistant Commissioner of Central Excise v. Krishna Poduval5 to contend that the appropriate remedy would be to prefer an appeal before the Debts Recovery Tribunal (‘DRT’, for short) and that the forfeiture of the earnest money in exercise of the power under Rule 9(5) is also approved by the said decisions.
It is submitted that, in any event, the appellant cannot now approach the Tribunal as the prescribed period of filing an application before the DRT has expired.
The learned counsel for the appellant has submitted that on a true and meaningful interpretation of Rule 8(7)(f) read with Rule 9(5) of the 2002 Rules, it is clear that the authorised officer is required to disclose all materials which are likely to influence the decision of an auction purchaser.
What constitutes the concealment of a material fact would depend upon the facts and circumstances of each case. If there is a requirement to disclose a fact that is likely to influence the decision of a person intending to participate in a proceeding, non-disclosure of such fact would amount to the concealment of a material fact.
In the present case, the property was sold on an 'as is where' and 'as is what is' basis. This means that the auction purchaser participated in the tender with his eyes wide open, fully aware that participation in such a tender involves an element of risk. By incorporating the expressions 'as is where is' and 'as is what is' in the sale notice, the Bank insulated itself from any claim regarding the perfection of title that might pass to the auction purchaser upon his becoming the successful bidder.
For a better appreciation of the submissions made on behalf of the parties, it is necessary to refer to Rules 8(7) and 9(5) of the 2002 Rules. The said rules are set out below:
“Rule 8. Sale of Immovable secured assets.-
xxxxxxx xxxxxxx
(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.”
“Rule 9. Time of sale, issue of sale certificate and delivery of possession, etc.-
xxxx
(5)In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit to the secured creditor all claim to the property or to any part of the sum for which it may be subsequently sold.”
While clause (a) of Rule 8(7) clearly states that there is a requirement to mention the details of the encumbrances known to the secured creditor, clause (f) states that any other terms and conditions, which the authorised officer considers it necessary for a purchaser to know the nature and value of the property should also be disclosed.
The issue is not whether an encumbrance operates as an attachment, which in law it does not, but whether the order of attachment ought to have found place in the sale notice so as to enable the prospective bidder to take an informed decision.
Rule 8(7)(f) requires the authorised officer to disclose such other facts as may be necessary for a purchaser to know the nature and value of the property. Non-compliance with the statutory rules would be fatal for a secured creditor. A secured creditor cannot auction the asset and issue a sale certificate and thereafter simply wash its hands off the matter. Non-compliance of the statutory requirements may disentitle the secured creditor to get any relief from constitutional courts.
The Bank has filed an affidavit stating that, till the date of the filing of the said affidavit, i.e. 29th July, 2026, the Bank was unable to find out whether the order of attachment was prior to the sale notice. However, during the course of hearing, the learned counsel has submitted, on instruction, that the order of attachment was subsisting at the time of issuance of the sale notice.
Insofar as the reliefs in the writ petition are concerned, we are of the view that the Tribunal is best suited to decide the issue, in view of the decisions in Agarwal Tracom Private Limited (supra) read with M.Rajendran v. KPK Oils6 and Celir LLP v. Bafna Motors (Mumbai) Private Limited and Others7.
The remedy available under the SARFAESI Act being efficacious, the same needs to be exhausted. It is for the Tribunal to decide whether non-disclosure of the order of attachment would come within the purview of Rule 8(7)(f), which is the relevant sub-clause requiring consideration. Whether such disclosure is material for an intending auction purchaser in deciding whether he would participate in the tender process is for the Tribunal to consider and decide.
The writ petition was disposed of merely on the ground of availability of an efficacious alternative remedy. The Bank has not argued before the learned Single Judge that the said liberty cannot be granted to the writ petitioner as the remedy of the writ petitioner would be time barred. Considering the fact that the appellant has been pursuing a remedy with due diligence and there is some substance in the matter and that the writ petition was dismissed merely on the ground of availability of an efficacious alternative remedy and also having regard to the fact that the auction purchaser had deposited the amount and upon becoming aware of the attachment subsequently, sought refund thereof, we are of the view that the argument that the application under the SARFAESI Act is otherwise barred by limitation, should not stand in the way of the appellant approaching the DRT in view of paragraphs 33 and 34 of the judgment in Agarwal Tracom Private Limited (supra), which read as under:
“33.In the light of the foregoing discussion, we are of the considered opinion that the writ court as also the appellate court were justified in dismissing the appellant's writ petition on the ground of availability of alternative statutory remedy of filing an application under Section 17(1) of the SARFAESI Act before the Tribunal concerned to challenge the action of PNB in forfeiting the appellant's deposit under Rule 9(5). We find no ground to interfere with the impugned judgment of the High Court.
34.The appellant is, accordingly, granted liberty to file an application before the Tribunal concerned (DRT) under Section 17(1) of the SARFAESI Act, which has jurisdiction to entertain such application within 45 days from the date of this order. In case, if the appellant files any such application, the Tribunal shall decide the same on its merits in accordance with law uninfluenced by any of the observations made by this Court and the High Court in the impugned judgment.”
Moreover, the writ petition was filed on 29th August 2019 immediately after the Bank had refused to refund the amount. In any event provisions of Limitation Act apply to a proceeding under the SARFAESI Act. The appellant has an arguable case on merit and with a bonafide belief, approached the writ court without being aware of the decision of the Hon’ble Supreme Court in Agarwal Tracom Private Limited (supra). In any event the Bank has opposed the writ petition only on the ground of availability of an alternative remedy. The learned Single Judge, in fact, has disposed of the writ petition with the following observation:
“On an anxious consideration of the rival submissions and materials on record, I find considerable force in the submissions made by the learned counsel for the respondents. The Honourable Apex Court, in the decision in Agarwal Tracom Private Limited (supra), has categorically held that the remedy of the auction purchaser seeking refund of the EMD or the amount deposited, is to approach the DRT under Section 17 of the SARFAESI Act and not under Article 226 of the Constitution of India. In such circumstances, without going into the merits of the matter, I relegate the petitioner to approach the DRT and seek the reliefs now sought for in the writ petition.”
The respondent Bank has not preferred any cross-appeal.
Under such circumstances, we dispose of the writ appeal by granting liberty to the appellant to approach the DRT. In the event an application is filed before the DRT within a period of three weeks from the date, the same shall be accepted by the DRT without insisting for an application for condonation of delay and shall decide the matter in accordance with law.
The appeal is disposed of with the aforesaid modification of the impugned judgment. However, there shall be no order as to costs.