The court clarified that the 'As is where is' auction terms do not absolve the seller from disclosing known encumbrances, but purchasers must conduct due diligence and accept contractual liabilities.

JUDGMENT :

ANIL KSHETARPAL, J.

1. Through the present Appeal, the Appellant assails the correctness of the judgment and decree dated 31.01.2023 [hereinafter referred to as the Impugned Judgment] passed by the Commercial Court, whereby the suit filed by the Respondent [Plaintiff before the Commercial Court] was partly decreed in CS(COMM) No.2243/2019.

FACTUAL BACKGROUND:

2. The brief facts necessary for the adjudication of the present Appeal are that the Appellant Bank, acting as a secured creditor under the SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT , 2002 [hereinafter referred to as 'SARFAESI Act'], issued a Public Notice on 28.11.2018 inviting bids for the sale of properties situated at H-3, H-3A, and H-4, UPSIDA Industrial Area, Sikandrabad, Uttar Pradesh. The properties had been given on lease by the U.P. State Industrial Development Authority (UPSIDA) to the Bank's borrower, M/s Ashoka Machine Tools International Pvt. Ltd., and served as collateral security for the repayment of dues.

3. On 28.11.2018, the Appellant issued a Public Notice for e- auction of the said properties. The notice unequivocally stipulated that the sale would be conducted on an “As is where is basis”, “As is what is basis”, and “Whatever there is basis”. Relevant to this dispute, Clause 12 of the Terms and Conditions of the auction notice provided:

“...if any tax liability, penalty or any kind of charges are levied by any authority on such kind of sale then that is to be borne by the purchaser in addition to sale price. Also if any dues or penalty or any charges are due/levied on the property by any authority then it will also be borne by the purchaser in addition to sale price.”

4. The Respondent participated in the e-auction held on 14.12.2018. The Respondent's bid of Rs. 6,07,12,000/- (Rupees Six Crore Seven Lakh Twelve Thousand Only) was declared successful. Following the confirmation of sale and payment of the full consideration, the Appellant Bank issued a Sale Certificate dated 29.12.2018. This certificate explicitly stated that the sale was free from all encumbrances “known to the secured creditor.” Physical possession of the plots was delivered to the Respondent on 01.01.2019.

5. Trouble brewed when the Respondent approached UPSIDA for the mutation/transfer of the leasehold rights. Vide letters dated 15.05.2019, UPSIDA informed the Respondent that the transfer could only be regularized upon payment of outstanding dues, including arrears of lease rent and transfer charges totalling Rs. 25,06,846/-. These dues primarily pertained to the period prior to the auction sale.

6. The Respondent demanded that the Appellant Bank clear these liabilities. The Bank refused, citing the “As-Is” nature of the sale and the specific indemnity clause in the auction notice. Consequently, the Respondent paid the amount to UPSIDA under protest and instituted the subject suit for recovery. The Commercial Court held that the Bank was duty-bound to deliver the property free of all pre-sale encumbrances and that the “As-Is” clause did not absolve the Bank of its duty of disclosure.

CONTENTIONS ON BEHALF OF THE APPELLANT:

7. The Appellant has assailed the Impugned Judgment primarily on the following grounds:

i. Contractual Binding of 'As-Is' Terms: Learned counsel representing the Appellant submitted that the Commercial Court failed to appreciate that the Public Notice dated 28.11.2018 and the subsequent Sale Certificates were governed by the explicit conditions of “as is where is” and “what is where is” basis. Clause 13 of the auction terms