The obligation of the Authorised Officer to disclose encumbrances known to the secured creditor and the distinction between forfeiture of the earnest money and the deposit of 25% made under Rule 9(3) of the Security Interest (Enforcement) Rules, 2002.

V.RAMASUBRAMANIAN,J.

1. A person, who participated in an auction conducted by the respondent-Bank under th SARFAESI Act, came up with the above writ petition seeking refund of the earnest mone deposited by him. However, after the writ petition was filed, the writ petitioner died and his w and children have been substituted in his place.

2. We have heard Mr.T.Arockiadas, learned counsel for the petitioners and Mr.Jayesh B.Dol learned counsel for the respondent-Bank.

3. In respect of credit facilities availed by one K.P.Nagarajan, Proprietor of M/s.L.G. Textiles, the year 2001, the respondent-Bank initiated proceedings in O.A.No.360 of 2004 on the file the Debt Recovery Tribunal, Madurai, for recovery of a sum of Rs.74,98,000/-. Subsequent the Bank switched over to the SARFAESI Act and issued a demand notice under Section 13( on 27.8.2008. It was followed by a possession notice dated 28.02.2009. After takin possession, the Bank issued a sale notice dated 08.5.2009, fixing the auction sale o 15.6.2009. Since there was no bidders, another auction was fixed on 26.02.2010. Even th auction did not materialise. The properties were put up for auction for a third time on 02.8.2010

4. In the auction held on 02.8.2010, the petitioner was declared as the successful bidder respect of item Nos.1 and 5. In respect of item No.4, a person by name Karthik was th successful bidder.

5. On the date of the auction, namely 02.8.2010, the Bank called upon the petitioner to pay 25 of the bid amount immediately. The bid amount offered by the petitioner for item No.1 wa Rs.44,80,000/-. Therefore, as per the terms and conditions of the auction sale, the w petitioner was supposed to pay immediately, 25% of the bid amount, namely, Rs.11,20,000 and he was supposed to pay the balance amount within 15 days. Similarly, the highest bid f item No.5 was Rs.27,55,000/- and the petitioner was supposed to pay 25% of the sam immediately.

6. The writ petitioner did not pay 25% of the bid amount. On the contrary, the writ petition issued a legal notice dated 07.8.2010 calling upon the Bank to refund the amount paid on th date of the auction, namely Rs.3,57,000/-, on the ground that the properties were encumbere and that the encumbrances were not notified. However, the respondent-Bank forfeited th earnest money deposit made by the writ petitioner, on 16.8.2010. Therefore, after making representation dated 19.4.2011, the writ petitioner came up with the above writ petition.

7. The main ground on which the writ petitioner seeks refund of the earnest money depo made by him is that the property did not even stand in the name of the defaulter and that it ha already been alienated. According to the writ petitioner, the Bank failed to disclos encumbrances and that the provisions of Rule 8(6)(f) of the Security Interest (Enforcemen Rules, 2002, stood violated.

8. Per contra, it is the contention of the Bank that a sale made by a secured creditor in terms the provisions of the SARFAESI Act, would always convey a title free of encumbrances. A encumbrances made after the creation of the security interest in favour of the Bank, are of n consequence. More over, it is also contended by the Bank that the auction sale was only in "a is where is and as is what is" basis and that therefore, a person who participated in the auctio subject to such terms and conditions, cannot go back and seek refund of the part payment.

9. In the light of the rival contentions, the question that arises for consideration is as to wheth the Earnest Money Deposit made by the writ petitioner is liable to be refunded to the w petitioner or forfeited by the Bank.

10. A perusal of the auction sale notice shows that five items of properties were brought to sa The upset price in respect of item No.1 was fixed at Rs.44,00,000/- and the Earnest Mone Deposit for the same was fixed at Rs.2,20,000/-. Similarly, the upset price for item No.5 wa fixed as Rs.27,40,000/- and the Earnest Money Deposit was fi