Banks and financial institutions are obligated to disclose encumbrances in the sale notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act to protect the interests of intending purchasers.

(D.MURUGESAN, J.)

1. This writ petition raises an interesting question as to whether a bank or financial institution, while invoking the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Rules made thereunder, is entitled to bring the property for sale by way of auction without disclosing the encumbrance.

2. The petitioner is a firm engaged in the business of providing logistics services. They came across a publication in one of the issues of The Daily Thanthi dated 10. 2009 for the sale of an extent of 4.38 acres of land comprised in S.F.No.291/2, Ichipatti Village, Kothumuttupalayam Road, Palladam Taluk, Tirupur District. That property belonged to one M/s Sowmya Textiles, which had availed loan from the respondent-Syndicate Bank. As there were defaulted repayments, the bank proceeded under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the SARFAESI Act"), which ultimately culminated into publication of the sale notice. The petitioner participated in the bid when the auction was conducted on 11. 2009. They also paid the earnest money deposit of Rs.2,63,000/-on the same day. When the petitioner applied for encumbrance on 11. 2009, they came to know that a settlement deed had been executed by the owner of the said land on 29. 2009. As there was encumbrance over the property, the petitioner did not pay the balance of sale consideration and approached the respondent-bank seeking as to why the encumbrance was not notified in the sale notice. The petitioner was informed orally that the bank itself was not aware of the encumbrance created upon the property and consequently it was further assured that the earnest money deposit would be refunded. Contrary to the said assurance, vide the impugned letter dated 211. 2009, the petitioner was informed that as per the terms of the auction, the earnest money deposit stands forfeited.

3. While challenging the said order, the learned counsel for the petitioner would submit that had the respondent put the petitioner on notice as to the encumbrance, they would not have participated in the auction and therefore the failure on the part of the petitioner to deposit the balance sale consideration was not willful. Hence the impugned order of forfeiture is liable to be set aside.

4. On the other hand, the learned counsel for the respondent-bank would submit that even when the sale notice was issued, the bank was not aware of the encumbrance and therefore only the publication did not carry the encumbrance. As far as the bank is concerned, it is entitled to forfeit the earnest money deposit in the event the balance sale consideration is not paid in time. The auction bidder cannot have any right to seek for either the amount deposited towards earnest money to be refunded or to purchase the land after the clearance of encumbrance by the bank or financial institution. The learned counsel would rely upon the judgment of the Supreme Court in United Bank of India v. Official Liquidator and others, (1994) 1 SCC 575 and particularly, paragraphs 13 and 14 in this regard.

5. We have considered the submissions. Of course, in the aforesaid judgment, the Supreme Court, while considering a sale by the Official Liquidator, has held that it is the duty of the intending purchaser to satisfy himself as to the encumbrance before participating in the bid. Having participated in the bid, the intending purchaser cannot later on turn around and question the Official Liquidator on the ground that the encumbrance was not notified. In that case, the provisions of the Rules as applicable in the present case are not applicable to the Official Liquidator. But in the case on hand, once possession is taken over under Section 13(4) or under Section 14 of the SARFAESI Act, whenever the secured creditor contemplates a sale of immovable property, they will have