Bank must disclose known encumbrances in SARFAESI auction; failure entitles purchaser to refund with interest.

ORDER

The present writ petition has been filed seeking a direction to the first respondent Bank to refund a sum of Rs.31,47,000/- received by it pursuant to the e-auction held on 03.05.2024, along with registration expenses of Rs.2,73,940/-, aggregating to Rs.34,20,940/- (Rs.31,47,000/- + Rs.2,73,940/-), together with interest at the rate of

24% per annum from 03.05.2024 till the date of repayment.

2.The borrower having defaulted in repayment of the loan, the respondent Bank initiated proceedings under the SARFAESI Act and conducted an auction sale of the secured asset, namely, a vacant land in Survey No.871/2A1 measuring 21.5 cents situated at Eriodu Village, Vedasandur Taluk, Dindigul District. The auction was conducted on 26.03.2024, and the petitioner was declared as the successful bidder. In terms of the auction notice, the petitioner paid the entire sale consideration of Rs.31,47,000/- in instalments. A sale certificate was issued in favour of the petitioner on 22.05.2024, and the petitioner also deposited a sum of Rs.2,73,940/- towards registration expenses.

3.The petitioner states that he requested the respondent Bank to register the sale certificate. However, due to certain objections, the registration could not be completed. The petitioner was therefore constrained to approach the jurisdictional Sub-Registrar for registration of the sale certificate. At that stage, the petitioner was informed that a decree had been passed in O.S. No.156 of 2013 by the Principal District Munsif Court, Vedasandur, declaring that the plaintiff therein is the owner of the subject property and that the sale deed executed in favour of the borrower is null and void. Immediately thereafter, the petitioner submitted a representation to the respondent Bank seeking refund of the entire amount deposited. Since the respondent Bank did not accede to the said request, the petitioner has approached this Court.

4.Learned counsel for the petitioner contended that, as per the Security Interest (Enforcement) Rules, 2002, the Authorized Officer is under a statutory obligation to deliver the property to the purchaser free from encumbrances. In particular, Sub-rule (9) of Rule 9 mandates that the Authorized Officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor, upon deposit of the amount as specified under Sub-rule (7).

5.It was further contended that in the present case, the respondent Bank had been arrayed as defendant No.9 in the civil suit and had entered appearance through counsel. Therefore, the pendency of the suit was well within the knowledge of the respondent Bank. By failing to disclose the pendency of the suit in the sale notice, the respondent Bank has acted in clear contravention of the statutory requirements under the SARFAESI Act and the Rules framed thereunder. Hence, the petitioner is entitled to refund of the amount deposited. In support of the said contention, reliance was placed on the judgment of the Division Bench of this Court in S. Shanmuganathan vs. The Authorized Officer, Indian Overseas Bank (W.P. No.39199 of 2016, dated 28.04.2017).

6.Per contra, learned counsel for the respondent Bank submitted that, as per Clause (n) of the sale notice dated 26.03.2024, the intending bidders were required to conduct their own due diligence regarding title, encumbrances, and other relevant aspects. It was further submitted that although the Bank had been represented in the civil suit, the matter was not effectively pursued by the counsel and therefore knowledge of the pendency of the suit or the decree cannot be attri