1. Leasehold plot mortgaged to bank without mandatory prior consent — Recovery proceedings under 1993 Act — Auction sale conducted without disclosing statutory encumbrances. (Para 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 )
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2025 Supreme(SC) 1741
SUPREME COURT OF INDIA
Sanjay Kumar, Alok Aradhe, JJ.
Delhi Development Authority – Appellant
Versus
Corporation Bank & Ors. – Respondents
Civil Appeal No. 11269 of 2016
Decided On : 25-09-2025
Advocates appeared:
For the Appellant(s) : Mr. C. Mohan Rao, Sr. Adv. Ms. Deeksha Ladi Kakar, AOR
For the Respondent(s): Mr. Arun Aggarwal, AOR Ms. Anshika Agarwal, Adv. Mr. Lovelesh Kukreja, Adv. Mr. Anmol Gupta, Adv. Mr. Preetesh Kapur, Sr. Adv. Mr. Bikash Mohanty, Adv. Ms. Pallavi Sharma, AOR Mr. Apratim Thakur, Adv. Mr. Shashwat Panda, Adv. Mr. Aiman Zameer, Adv.
For the Appellant(s) : Mr. C. Mohan Rao, Sr. Adv. Ms. Deeksha Ladi Kakar, AOR
For the Respondent(s): Mr. Arun Aggarwal, AOR Ms. Anshika Agarwal, Adv. Mr. Lovelesh Kukreja, Adv. Mr. Anmol Gupta, Adv. Mr. Preetesh Kapur, Sr. Adv. Mr. Bikash Mohanty, Adv. Ms. Pallavi Sharma, AOR Mr. Apratim Thakur, Adv. Mr. Shashwat Panda, Adv. Mr. Aiman Zameer, Adv.
The court established that an auction conducted in violation of lease terms is illegal, and that restitution principles mandate repayment to innocent parties affected by such illegality.
Headnote:(A) Recovery of Debts and Bankruptcy Act, 1993 - Section 29 - The principle of restitution prevents unjust enrichment and mandates remedies for those suffering without fault - The auction conducted on 09.11.2012 was held illegally as it violated lease terms and relevant statutory provisions. (Para 31)
(B) The doctrine of res judicata does not apply as the earlier writ petition was dismissed without merits and the auction process was fundamentally flawed. (Paras 28-30)
(C) The duties of the lessee, bank, and state instrumentality were emphasized, establishing expectations for due diligence and the sanctity of public property. (Para 1)
Facts of the case:
The DDA allotted a plot to the club which defaulted on a loan from the Bank, leading to an auction where the Auction Purchaser was declared the highest bidder. The DDA contested the legality of the mortgage and auction, lacking prior consent as per lease terms. (Paras 2-16)
Findings of Court:
The High Court's dismissal of the writ petition was erroneous; the auction and subsequent sale were illegal, requiring quashing of all actions and the Bank's obligation to refund. The Auction Purchaser is entitled to interest. (Paras 32-33)
Issues: Whether the auction sale was valid given the breach of lease terms and statutory obligations, and the applicability of res judicata.
Ratio Decidendi: The court reaffirmed the principle of restitution amidst illegal sale processes, highlighting the responsibility of the Bank for losses incurred by the Auction Purchaser. (Paras 31)
Result: Appeal allowed; auction sale and related orders quashed, requiring full refund to the Auction Purchaser with interest.
Legal Category Hierarchy
- administrative law
- banking law
- civil law
- practice and procedure
- equity
Table of Contents
2. Validity of mortgage without prior consent — Disclosure of statutory dues in auction proclamation — Applicability of res judicata to withdrawn writ petitions. (Para 18 , 19 , 20 , 21 )
3. Failure to disclose material encumbrances in sale proclamation violates Rule 53 of the Second Schedule to the 1961 Act and Rule 16 of the 1962 Rules. (Para 23 , 24 , 25 , 26 , 27 , 29 )
4. Sale proclamations must specify material facts affecting property value; non-disclosure of statutory encumbrances invalidates the auction. Restitution applies to innocent purchasers acting in good faith. (Para 27 , 30 , 31 )
5. Impugned order and auction sale set aside — Bank directed to refund auction proceeds with interest to the auction purchaser. (Para 32 , 33 )
6. What are the requirements for a sale proclamation of immovable property under the 1993 Act?
Under Rule 53 of the Second Schedule to the 1961 Act, the proclamation must specify the property, revenue assessed, the recovery amount, and any other material information necessary for a purchaser to judge the nature and value of the property. (Para 23 , 24 )
7. What is the legal consequence of failing to disclose material encumbrances in an e-auction notice?
Failure to disclose material encumbrances, such as statutory claims for unearned increase, violates Rule 53 of the Second Schedule to the 1961 Act and Rule 16 of the 1962 Rules, rendering the auction sale and subsequent sale certificate invalid. (Para 27 )
8. Does the principle of res judicata bar a subsequent petition if the previous one was withdrawn based on an undertaking?
No. If a petition is withdrawn due to an undertaking that is subsequently breached, a fresh cause of action arises, and the principles of res judicata or Section 11 of the CPC do not apply. (Para 28 , 29 )
9. Is an innocent auction purchaser entitled to a refund if the sale is set aside due to the bank's illegality?
Yes. Based on the principle of restitution and preventing unjust enrichment, a purchaser who entered an auction in good faith is entitled to be restored to their original position, including a refund of the deposit with interest. (Para 30 , 31 )
JUDGMENT :
ALOK ARADHE, J.
1. This appeal emanates from an order dated 11.08.2014 passed in Writ Petition (C) No. 5005 of 2014 by which High Court of Delhi has dismissed the writ petition preferred by the appellant.
The present appeal brings before this Court a contest not merely of rights but of duties - the duty of the lessee to honour the covenants of the lease, the duty of a bank to exercise due diligence before advancing public money and the duty of an instrumentality of the state, as trustee of public property, to guard against encroachment upon its title. It also brings before us the plight of an Auction Purchaser who entered the field in good faith only to find the ground beneath its feet unstable.
2. The relevant facts leading to filing of this appeal are as under:-
(i) FACTS: -
3. The Delhi Development Authority-the Appellant (hereinafter referred to as “DDA”) on 01.10.2001 allotted Plot No. 25, Facility Centre-33 Kalindi Kunj Road, Jasola, New Delhi admeasuring 877.50 square metres (hereinafter referred to as “subject plot”) to Respondent No. 2 namely, Sarita Vihar Club (hereinafter referred to as “the club”) on leasehold basis. The subject plot was allotted to the club on a premium of Rs.62,96,664/- for construction of a recreational and sports club. The club was required to pay a provisional premium, in respect of subject plot, at the rate of Rs.2,90,40,000/- per acre with annual ground rent at the rate of Rs. 2.5 % per annum of the total premium. As per the letter of allotment dated 01.10.2001, the club, with previous consent in writing of the Lieutenant Governor of Delhi, could mortgage or charge the subject plot to such person as may be approved by the Lieutenant Governor in his absolute discretion.
4. The club on 28.11.2001 deposited a sum of Rs.29,50,000/- to the DDA. It appears that the club applied for sanction of loan for a sum of Rs.35,00,000/- to Respondent No. 1 namely, the Corporation Bank (hereinafter referred to as the “Bank”). The Bank thereafter by a communication dated 07.02.2002 informed the club that the proposal of sanction of loan is being forwarded to the higher authorities for consideration and requested the club to seek a permission for mortgaging the subject plot from the DDA. The club vide communication dated 11.02.2002, sought the permission of the DDA for mortgaging the subject plot for arranging the balance payment. The DDA, by a communication dated 22.02.2002, granted NOC to the club for applying loan to the Bank for making payment to the DDA, on account of the premium of the plot subject to the condition that permission for mortgage of the plot shall be issued only after execution/registration of the lease deed. The Bank thereafter by a communication dated 22.03.2002 sought the permission of the DDA for mortgage of the subject plot and to note lien of the Bank on the subject plot. The club on 12.04.2002 deposited an additional amount of Rs.2,05,000/- to the DDA which included the interest on the delayed payment as well. Thereupon DDA on 29.04.2002 issued a modified letter of allotment in favour of the club and the amount of initial premium of Rs.64,53,107/- was modified to Rs.64,54,126/-.
5. A perpetual lease deed in respect of subject plot was executed on 28.01.2005 between the DDA and the club. Clause 5(b) of the lease deed provided that previous consent in writing of Lieutenant Governor of Delhi for mortgage or charge of the subject plot was necessary. Clause (6) deals with DDA’s right to recover an unearned increase and pre- emptive right to purchase the subject plot. The club was under an obligation to complete the construction within a period of two years.
6. It appears that the subject plot was mortgaged with the Bank and original registered perpetual lease deed was deposited with the Bank. The Bank thereupon by a communication dated 09.03.2005 informed the DDA that the club has mortgaged the subject plot with it and the DDA was requested to take a note of mortgage of the subject plot
