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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. Ramachandra Rao, Harminder Singh Madaan, JJ.
Llovegeet Dhuria - Appellant
Versus
State Bank Of India & Ors. – Respondents
CWP No. 3748 of 2022 (O&M)
Decided On : 21-09-2022
Suppression of Litigation - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Rule 9(5) read with Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 - The court held that it was not proper for a secured creditor like SBI to suppress from persons intending to participate in the e-auction the factum of the pendency of litigation in respect of the secured asset being put to sale by it. The court directed the respondents to refund the amount deposited by the petitioner with interest and pay a cost to the petitioner.
Fact of the Case:
The petitioner participated in an e-auction for a residential property offered as security by a borrower. The petitioner later discovered a pending litigation related to the property and sought a refund of the amount deposited. The bank refused and forfeited the amount, leading to the petitioner filing a Writ Petition seeking a refund and quashing of the forfeiture.
Finding of the Court:
The court found that the bank had suppressed the fact of pending litigation in the e-auction notice, violating the provisions of the Act and Rules. The court held that the bank's action was improper and directed the refund of the deposited amount with interest and payment of costs to the petitioner.
Issues: The main issue was whether the bank's suppression of pending litigation in the e-auction notice was proper and whether the petitioner was entitled to a refund of the deposited amount.
Ratio Decidendi: The court held that the bank's suppression of pending litigation in the e-auction notice was improper and directed the refund of the deposited amount with interest and payment of costs to the petitioner. The court also emphasized the duty of the secured creditor to disclose encumbrances and pending litigation in the sale notice as per the Act and Rules.
Final Decision: The Writ Petition was allowed, the email issued by the respondent was set aside, and the respondents were directed to refund the amount deposited by the petitioner with interest and pay a cost to the petitioner.
JUDGMENT
M.S. Ramachandra Rao, J. - The background facts The petitioner is an Auction Purchaser in an e-auction held on 25.11.2021 of the subject secured asset which is a double storey residential house measuring 432 sq. yards situated in Gali No.11, Bhagu Road, Bhatinda, offered as a security by its borrower M/s Meridian Milk Products, a partnership firm.
2. The petitioner had quoted 67,37,000/- and had remitted 16,09,250/- i.e. 25% of the said amount, and he was to pay the balance of 48,27,750/- by 10.12.2021.
3. On 08.12.2021, the petitioner sent an e-mail to respondent No.2 stating that he came to know from the external sources that there is a stay order/litigation order in respect of the property put to sale, that the Bank had not revealed this fact in any communication, and asking respondent No.2 to confirm that there is no litigation or stay order or any other legal aspect pending against the said property.
4. The Chief Manager of the State Bank of India, SARB, Ludhiana (respondent No.2) replied to the petitioner stating that borrower had filed a Writ Petition against the SBI in this High Court, but there was no stay granted in respect of the subject property. The petitioner then sent another e-mail on 09.12.2021 to respondent No.2 stating that this information was very important and had been suppressed by the Bank, that it was misusing powers given to it under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the Act of 2002'), and respondent No.2 should share the complete details of litigation so that the petitioner can discuss the matter with his legal advisors, and then decide whether or not to purchase the property. He further sought 30 days' time for the said purpose while reserving his right to file criminal and civil proceedings against respondent No.2 and the Bank.
5. Respondent No.2 then replied to the same on 10.12.2021 stating that Writ Petition filed in the loan account relates to issues concerning two other mortgaged properties, and the petitioner has to deposit balance 75% amount by that day to avoid forfeiture 25% of the amount already deposited by him. The petitioner replied on 10.12.2021 that he has the money and had already taken a Demand Draft but he and his family do not want to get into litigation in any way, and so the respondents ought to refund 25% consideration amount already deposited.
6. The Bank replied on 13.12.2021 pointing out that the petitioner had failed to deposit the balance 75% consideration within the time given to the petitioner, but he is given one more opportunity to deposit the same, and asked the petitioner to pay the same on that day i.e. 13.12.2021 positively and threatened to forfeit the amount without any further notice.
7. The petitioner then replied to the same day on 13.12.2021 stating that there was a stay against e-auction of the residential property by this Court on 10.11.2021 in CM-91-CWP-PIL-2021 in/and CWP-PIL-77- 2021 titled as Court on its own motion Vs. Union of India and others in view of the COVID-19 pandemic in the States of Punjab and Haryana and Union Territory of Chandigarh, and so the Bank was not authorized to put up for e-auction the residential property in question, and it had violated the orders passed by this Court, and had thus committed an contempt. It was also stated that this order was in the knowledge of the Bank and as per the provisions of the Transfer of the Property Act, 1882 (hereinafter referred to as 'the Act of 1882') and allied laws/rules, the seller has to disclose the details of litigation even if there is no stay pending before any Court of law having competent jurisdiction, but the Bank had not disclosed the same in the advertisement it got published. It was also pointed out that earlier the Bank, on 31.12.2021, had conducted e-auction of the very same asset to someone else, by name Smt. Jaswinder Kaur, who had also deposited Earnest Money Deposit (EMD) of
Suppression of pending litigation in the e-auction notice by a secured creditor is improper and violates the duty to disclose encumbrances and pending litigation as per the Securitization and Reconst....
A secured creditor, who got registration of security interest, has priority in the matter of payment of the dues over all other debts and all revenues, taxes, cesses and other rates payable to the Ce....
A bank's misrepresentation of property details in an auction can invalidate the sale, and forfeiture of the deposit is unjustified if the sale is characterized by a lack of fair disclosure.
The court held that when a statute provides specific remedies, writ jurisdiction under Article 226 should not be exercised, affirming the precedence of statutory procedures over equitable remedies.
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