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2017 Supreme(Mad) 925
IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. MANIKUMAR, M. GOVINDARAJ, JJ.
S. Shanmuganathan - Petitioner
VS.
The Authorized Officer Indian Overseas Bank Asset Recovery Management Branch - Respondent
W.P.NO.39199 OF 2016
Decided On : 28-04-2017
For the Petitioner: Ms. Asha for M/s. Sarvabhauman Associates
For the Respondent: Mr. F.B. Benjamine George
Headnote:
Constitution of India - Article 226 - SARFAESI Act - Section 13(2) - Security Interest (Enforcement) Rules, 2002 - Rule 9(9) - Second Schedule of Income Tax Rules 62 - Contract Act - Section 18 - Sale of secured asset - Sale certificate - Unreasonable attitude taken by bank in the matter of a sale of secured asset under the SARFAESI Act, by not putting the auction purchaser in vacant possession of the property or to return the sale consideration paid about nine years back, made petitioner to file this writ petition claiming return of the amount paid by him with interest at 24% per annum. The bank is resisting the writ petition notwithstanding the fact that encumbrances and pending litigations in respect of the property were not divulged in the auction notification and the purchaser was made to offer his bid on a bona fide belief that property is free from encumbrances and litigations – Held, Bank utilized the money - Bank charges different rates for different transactions. The Bank is charging 14% for mortgage loans. There are other transactions wherein the Bank charges even 18% interest per annum. Such being the factual position, the Bank cannot be heard to say that the applicant has to be satisfied only with principal amount – Court view that the Bank having kept the amount for years together, is bound to pay interest to the applicant - Petitioner is entitled to interest which we fix at 12% per annum – Court direct the bank to refund the sale consideration to the petitioner with interest at the rate of 12 % per annum, calculated within a period of four weeks from the date of receipt or production of a copy of this order. The bank is given liberty to cancel the sale certificate - Writ petition is allowed
Certainly. Based on the provided legal document, here are the key points:
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The petitioner participated in a public auction conducted by the bank, which was based on an auction notice claiming the property was free of encumbrances and pending litigations. The petitioner deposited the full sale consideration and received a sale certificate (!) (!) .
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Despite assurances and the deposit, the bank did not deliver vacant possession of the property to the petitioner, nor did it refund the amount paid, even after several years. The petitioner repeatedly requested either possession or refund, but the bank's responses were delayed and non-committal (!) (!) .
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Multiple pending litigations and encumbrances related to the property were not disclosed in the auction notice, which was a statutory obligation under the relevant rules. The non-disclosure was alleged to be a violation of mandatory statutory provisions (!) (!) .
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The petitioner was unaware of the ongoing litigations and encumbrances at the time of auction, and such nondisclosure influenced his decision to participate in good faith. The failure of the bank to disclose material facts is considered a statutory violation (!) (!) .
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The sale was conducted under the belief that the property was free from encumbrances, and the petitioner had relied on the bank’s assurances. The continued pendency of litigations and the absence of clear disclosure undermine the validity of the sale (!) (!) .
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The petitioner has a right to seek refund of the entire sale amount, along with interest, due to the bank's failure to deliver possession and the nondisclosure of encumbrances. The court held that the bank is liable to refund the amount with interest at a specified rate (!) (!) .
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The court emphasized that the bank's statutory obligation includes notifying all known encumbrances and litigations before the auction, and failure to do so invalidates the sale or entitles the purchaser to a refund (!) (!) .
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The petitioner is entitled to interest on the amount paid, calculated at a rate of 12% per annum from the date of deposit, due to the bank's retention of the funds without delivering possession for an extended period (!) (!) .
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The court directed the bank to refund the sale consideration with interest within four weeks of the order, and it retained the liberty to cancel the sale certificate if necessary (!) .
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The argument that the petitioner should have exhausted alternative remedies was rejected, as the petitioner was a third-party purchaser and the bank's statutory violations warranted direct judicial intervention (!) .
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The court also noted that the sale was conducted on an "as is" basis, and the petitioner had accepted the terms, but the bank's failure to disclose material encumbrances and litigations invalidated the basis of such acceptance (!) (!) .
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Overall, the court found that the bank's conduct in suppressing material information and delaying possession justified the petitioner’s claim for refund along with interest, and the writ petition was accordingly allowed (!) .
Please let me know if you need further analysis or specific legal advice based on these key points.
M. GOVINDARAJ, J.
1. The unreasonable attitude taken by the bank in the matter of a sale of secured asset under the SARFAESI Act, by not putting the auction purchaser in vacant possession of the property or to return the sale consideration paid about nine years back, made the petitioner to file this writ petition claiming return of the amount paid by him with interest at 24% per annum. The bank is resisting the writ petition notwithstanding the fact that encumbrances and pending litigations in respect of the property were not divulged in the auction notification and the purchaser was made to offer his bid on a bona fide belief that the property is free from encumbrances and litigations.
2. The petitioner participated in the public auction pursuant to the auction notice issued by the respondent (hereinafter referred to as “the Bank”) on 20.05.2008, in Daily Thanthi newspaper. In the said auction, the writ petitioner was declared as the successful bidder, as per the letter issued by the bank on 21.06.2008. The writ petitioner deposited a sum of Rs.15,50,000/-, being 25% of the bid amount on 21.06.2008 itself. The balance amount of Rs.46,50,000/- was deposited by the writ petitioner on 24.07.2008 as per schedule.
3. It is the grievance of the petitioner that at the time of auction and in the public notice, the Bank took a position that the Bank is in possession of the property and assured that physical possession will be delivered to him. Since the physical possession was not given by the Bank, the petitioner requested the Bank to refund the money. Thereafter, a reminder was sent on 21.05.2014. On 03.06.2014, the Bank gave a reply that they would initiate necessary proceedings under SARFAESI Act and deliver vacant possession. The officer in-charge of the bank was in regular touch with the writ petitioner. The writ petitioner waited endlessly with a hope that the bank would put him in vacant possession. The petitioner has been requesting the bank time and again either to deliver vacant possession or refund the amount deposited by him. Since nothing was heard from the bank, the writ petitioner by his letter dated 09.04.2015 requested for refund of Rs.62,00,000/- with interest, in order to give a quietus to the matter. The respondent, despite receipt of the letter, failed to respond positively, but was trying to convince the writ petitioner that they will take action under SARFAESI Act.
4. When the respondent was bringing the property for sale, one T.Harikrishna informed the Bank that he had a claim over the property and he filed a suit in O.S.No.7998 of 2008, against his father, one Vasantha, and the Bank, for declaration of title to the property, which is the subject matter of the auction sale dated 21.06.2008. The suit was pending on the file of XV Assistant Judge, City Civil Court, Chennai. Since there was no likelihood of disposal of the Civil Suit and the writ petitioner had to clear the outstanding liabilities, request was made to the Bank to refund Rs.62,00,000/-. Since the respondent refused to refund, the present writ petition has been filed.
5. The Bank has filed a counter affidavit controverting the averments.
(a) According to the bank, the writ petition is not maintainable in law. The amount was received from the petitioner, for sale of the subject property and accordingly, a sale certificate was issued in July 2008 followed by a revised sale certificate issued on 12.08.2014. Therefore, the sale subsists and it cannot be cancelled and that there is no question of returning the sale consideration to the petitioner.
(b) The property originally belonged to one Thulasinga Naicker and his wife Vasantha. On 20.08.2003, the property was given as security for sanctioning cash credit facility to the borrower company, namely M/s. T.W. Air Freight (Madras) Pvt. Ltd., and its Directors, namely, Y.Suri and his wife Vijayanthi Suri. Since the borrowers were irregular in payment, action under Section 13(2) of the SARFAESI Act was take
