Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) – s.14 – Security Interest (Enforcement) Rules, 2002 (Rules) – r.8(6)(a) and (f) – Transfer of Property Act – ss.54,55(1)(a) – DefendantBank secured a property under the 2002 Act – Thereafter, the secured asset admeasuring 54 cents was put to auction – Appellant-plaintiff submitted quotation for sale – Bank took the possession of the property – Plaintiff paid total consideration amount – Thereafter, Tehsildar submitted report that actual measurement of land was 39.60 cents and debtor had already transferred 14.40 cents out of total admeasuring 54 cents prior to the creation of the mortgage with the Bank – Despite the findings, the Bank issued sale certificate for 54 cents and handing over possession of the secured property admeasuring 39.60 cents – Plaintiff instituted suit for recovery of damages/compensation with respect to 14.40 cents – Trial Court decreed suit and directed the defendant-Bank to pay to the plaintiff a sum of Rs.58,10,000/- with 12% p.a. – High Court quashed and set aside the decree passed by the Trial Court inter alia on the grounds (i) that as the fraud has not been established and proved the suit was barred in view of Section 34 of the SARFAESI Act; (ii) That the plaintiff was aware of the fact that the actual area of the secured property put to auction is less than 54 cents and therefore it cannot be said that there was any non-disclosure on the part of the Bank; (iii) that the property was put to auction “as is where is” and “as is what is” basis? – Held: High Court erred in holding that the suit was barred by s. 34 of the SARFAESI Act – At the outset it is required to be noted that the suit was for damages/compensation, with respect to the balance land, which could not have been decided by the DRT or Appellate Tribunal, s. 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act – Auction notice was for 54 cents; plaintiff paid total consideration for 54 cents; sale certificate issued was for 54 cents – So, it was not open to Bank to contend that though Bank had handed over possession of 34.60 cents still the sale consideration recovered would be 54 cents – Section 54 of Transfer of Property cast a duty on the seller to disclose any buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover – Under the circumstances also the submission on behalf of the Bank that the property was put to auction on “as is where is”and “as is what is” condition, thereafter the plaintiff shall not be entitled to compensation of the less area cannot be accepted.
Allowing the appeal, the Court
Held : 1.1 Actual possession was handed over to the Bank in the month of October, 2007 pursuant to the order passed by the CJM - That thereafter the Tehsildar submitted the report dated 21.11.2007 submitting that the actual measurement of the land is 39.60 cents and that the debtor had already transferred
14.40 cents out of land admeasuring 54 cents prior to creation of the mortgage with the Bank. Despite the above the Bank issued the sale certificate dated 21.11.2007 for 54 cents of land, however, handed over the possession of the secured property admeasuring
39.60 cents only. The sale consideration received by the Bank was for 54 cents. That thereafter the sale certificate was registered in the month of October, 2010. Thereafter the plaintiff filed the suit for recovery of damages with respect to 14.40 cents. The final certificate was registered on 01.10.2010 and thereafter when the suit was filed in the year 2012 it cannot be said that the suit was barred by limitation. [Para 5.1][705-D-G]
1.2 Finding recorded by the High Court that the suit was barred by Section 34 of the SARFAESI Act is concerned, at the outset it is required to be noted that the suit was for damages/compensation, with respect to balance land, which could not have been decided by the DRT or Appellate Tribunal, Section 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act. [Para 5.2][705H; 706-A-B]
1.3 Considering the fact that the auction notice was for 54 cents; the plaintiff submitted the offer of Rs.32,05,000/- for 54 cents; the plaintiff paid the actual amount of sale consideration i.e. Rs.32,05,000/- for 54 cents; the sale certificate was issued for 54 cents and even the sale certificate which was registered in the year 2012 was for 54 cents, thereafter it was not open for the Bank to contend that though the Bank had handed over the possession of 34.60 cents still the sale consideration recovered would be for 54 cents. It was not open for the financial institution like the Bank to take such a plea. Even otherwise it is required to be noted that at least in the month of November, 2007 when the Tehsildar submitted the report, the Bank was aware that the actual area is 34.60 cents and not 54 cents. Thereafter the Bank ought not to have issued the sale certificate for 54 cents. The Bank ought to have been fair and ought to have issued the sale certificate only for 34.60 cents. This shows the conduct on the part of the bank. [Para 5.3][706-E-H]
1.3 Rule 8 of the 2002 Rules cast a duty on the authorized officer to take all precautions before putting the secured asset to sell. As per subrule 5 of Rule 8 before effecting sale of the immovable property (secured assets) the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor and fix the reserve price of the property and may sell the whole or any part of such immovable secured asset. Therefore, when the reserve price was fixed the same was for 54 cents. Therefore, it can be presumed that the Bank was aware that the actual area of the secured asset is less than 54 cents. As per Section 54 of Transfer of Property the seller was bound to disclose any buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover. [Para 5.4][707-A-C]
1.3 The impugned judgment and order passed by the High Court is hereby quashed and set aside. The judgment and decree passed by the Learned Trial court decreeing the suit is hereby restored. [Para 6][707-D-E]
Haryana Corporation and Anr. v. Rajesh Gupta (2010)
1 SCC 655 : [2009] 16 SCR 456 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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