The duty of the bank to disclose encumbrances and material defects in the title of the auctioned property, as mandated by Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002, and the requirement for the bank to conduct due diligence before proposing a sale, as established in legal precedents, influenced the court's decision to direct the bank to refund the sale amount deposited by the petitioner with interest.

ORDER :

R. MAHADEVAN, J.

The relief sought in this writ petition is to issue a writ of mandamus, directing the second respondent Bank to refund a sum of Rs.55,50,000/- paid towards tender-cum-auction sale dated 17.09.2012, to the petitioner along with interest at 24% from the date of deposit of Earnest Money Deposit till refund.

2. According to the petitioner, he is the auction purchaser in respect of the land admeasuring 3250 sq.ft together with the building with a built up area of 1075 sq.ft. in ground floor at Door No.9, Jesudasan Street, Radha Nagar, Chrompet, Chennai 600 044, comprised in S.No.432/9 of Zameen Pallavaram Village, pursuant to the public auction conducted by the second respondent Bank on 17.08.2012. The bid amount was Rs.55,50,000/-. Originally, he deposited a sum of Rs.4,22,091.48 towards EMD on 16.08.2012 and an additional of Rs.9,68,000/- on 17.08.2012. After emerging him as a successful bidder, he deposited the remaining bid amount of Rs.41,62,000/- with the second respondent Bank on 24.08.2012. The respondent Bank issued the sale certificate in favour of the petitioner for the said property on 17.09.2012, however, possession was not handed over to him, till date, despite several requests made by the petitioner.

3. It is further stated by the petitioner that while so, on 02.05.2014, the second respondent sent a letter to the District Collector, Kanchipuram, requesting to initiate action under Section 14 of the SARFAESI Act, 2002 in respect of the subject property. The District Collector forwarded the said letter to the Tahsildar, Alandur and directed him to conduct an inspection, ascertain the details regarding the auctioned property and submit a report. At the time of inspection, it was found that the auctioned property belonged to the Government and was classified as a water body; and that, the original owners viz., Shanmugam and his wife Sumathi, who had mortgaged the property with the second respondent Bank, had illegally encroached the said Government land. The Tahsildar, Alandur, filed a report dated 06.11.2014 to the District Collector, to that effect. Upon coming to know about the same, the petitioner made a request to the respondent bank to refund the amount deposited by him and the same was not considered, which compelled him to file a complaint before the Judicial Magistrate Court, Tambaram against the Bank as well as the original owners of the subject property. The complaint was taken on file by the criminal court, but only against the original owners of the property and not against the bank. In such circumstances, finding no other alternative, the petitioner has preferred this writ petition for the aforesaid relief.

4. Adding further, the learned counsel for the petitioner would contend that as per Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002, it is the bounden duty of the Bank to comply with the terms and conditions stipulated in the auction notice and hand over the property to the auction purchaser without any encumbrances. Whereas, in the present case, the respondent bank failed to disclose the vital factor to the petitioner that the subject property belongs to the Government and is classified as a water body, which renders the sale of the property as void. That apart, they did not make any attempt to ascertain the actual position of the property, take physical possession and hand over the same to the petitioner, even after issuance of sale certificate in the year 2012. Thus, according to the learned counsel, the respondent bank has completely failed to adhere to a sine qua non to be followed while inviting bids from the public for the sale of secured assets and hence, they are liable to refund the amount deposited by the petitioner. It is also submitted that instead of purchasing the subject property from the respondent bank, had the petitioner invested such a huge amount in some other property with a valid and marketable title, the value of the same would have increased mu