Punjab-Haryana High Court
Joginder Singh vs Punjab National Bank And Anr on 19 July, 2022
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH
CWP No.22743 of 2019 (O&M)
Reserved on 13.07.2022.
Date of Decision: 19.07.2022
JOGINDER SINGH ........Petitioner
V/s.
PUNJAB NATIONAL BANK AND ANOTHER .....Respondents
CORAM: HON'BLE MR. JUSTICE M.S. RAMACHANDRA RAO
HON'BLE MR. JUSTICE HARMINDER SINGH MADAAN
Present: Mr. Ashish Gupta, Advocate,
for the petitioner.
Mr. Saurabh Kapoor, Advocate,
for the applicant (Proposed respondent No.3).
Mr. Gaurav Goel, Advocate
for the respondent-Bank.
***
M.S. RAMACHANDRA RAO, J.
Background facts
The petitioner herein had submitted a tender in response to a
public notice dt. 24.04.2019 inviting tenders under the provisions of the
SARFAESI Act, 2002 (hereinafter referred to as "the Act") for auction of
factory, land and building comprised of (a) Khata No.936, Khatauni No.1390
Khasra No.1980/306 (6-5) Lot:1 Factory Land and Building comprising of
(a) Khata No.936, Khatauni No.1980/306 (6-5) to the extent of 120/2500
share measuring 6 biswa (b) Khatauni No. 1408 Khasra No.1638/308 (2-0-0)
1639/308 (2-6-10) 1638/308 (0-9-10), 1637/308 (0-9-0), measuring 5 Bigha
5 Biswa (c) Khatauni No.1410 Khasra No. 1982/307 (1-16) measuring
1 bigha 16 biswa, Sale Deeds Nos. 920 dt 15.10.1974, Sale Deed No.208 dt.
17.05.1977, Sale deed No.759 dt. 11.06.1985, Sale Deed No.2494 dt.
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05.02.1986, Sale Deed No. 2496 dt. 05.02.1986 total measuring 7 bigha 7
biswa as per jamabandi for the year 2006-07, situated in the revenue limit of
village Kukar Majra, Hadbast No.64 Tehsil Amloh, District Fatehgarh
Sahib in the name of M/s Krishna Agricultural Steel Works, Mandi
Gobindgarh. Lot 2: Immovable property comprising of Khata No.936/1411,
Khasra No. 1981/307 (2-0) measuring 2 bigha as per jamabandi for the year
2006-07, Deed No.207 dt. 17.05.1977 situated in the revenue limits of
village Kukar Majra, Hadbast No.64, Tehsil Amloh, District Fatehgarh
Sahib in the name of M/s Pawan Engineering Works.
The 1st Lot property was owned by M/s Krishna Agricultural
Steelworks, Mandi Gobindgarh and the 2nd Lot property mentioned herein
above is owned by M/s Pawan Engineering Works.
As per the tender notice, the reserve price of the properties was
fixed at 3.95 Crores for the 1st Lot of property, and 1.10 Crores for the 2nd
Lot properties.
The petitioner submitted a bid on 24.05.2019, and made a
deposit of 10% of the reserve price amounting to 50,50,000/-.
The petitioner had quoted 7.22 Crores for both Lots, and
deposited on 27.05.2019 a further sum of 35 Lakhs.
Thereafter, the petitioner claims to have verified the records of
the property from the Tehsil office by securing copy of the jamabandi
(Annexure P- 2) of the above properties.
In the said jamabandi, there were certain entries qua the
properties mentioned above regarding orders passed by the High Court of
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Punjab and Haryana and the District Courts and certain interim orders
granted by the Courts.
In the tender, none of these facts have been disclosed by
respondent No.1-Bank (for short "the Bank').
The petitioner contends that when he approached the officials of
the Bank and pointed out this, he was informed that the Bank sells properties
on "as is where is basis" and they are not concerned with other
charges/claims on the property and the responsibility qua the same is upon
the purchaser only.
The petitioner deposited a further sum of 95 Lakh on
29.06.2019 i.e. 25% of the bid amount of 1.80 Crores ( 85 Lakhs + 95
Lakhs).
The petitioner contends that he was awaiting receipt of
information from the Bank about the Court litigation, but the Bank sent a
letter (Annexure P-4) dt. 23.07.2019 informing the petitioner that the initial
amount of 50,50,000/- paid by the petitioner as EMD for the tender stood
forfeited, and the balance amount would be credited in the account through
RTGS process.
The petitioner claims to have approached the Bank officials and
requested them not to do so stating that he would pay rest of the amount also,
with a little delay.
The petitioner contends that it was the duty of the Bank to
disclose any charge or encumbrance or litigation in respect of the properties
for which tenders were invited , that there was a material misrepresentation
in the tender notice that no encumbrances were known to the Bank, that the
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Bank should have done due diligence and discovered these facts before
giving the tender notice, that they have obviously not done any due diligence
as is now clear from the contents of the jamabandi (Annexure P-2), and the
Bank in these circumstances, cannot forfeit any amount deposited by the
petitioner.
The petitioner, therefore, prayed for quashing of letter
dt. 23.07.2019 (Annexure P-4) issued by the Bank, for issuance of a sale
confirmation letter in his favour, and also for a direction to the respondent-
Bank to issue a 'No Objection Certificate' of the properties in question in
favour of the petitioner and get the entries cleared in the revenue record.
Alternatively, petitioner also sought refund of 1.8 Crores deposited by the
him towards 25% of the bid amount.
Events After filing of the Writ Petition
While issuing notice of motion, this Court on 27.08.2019,
restrained the respondent-Bank from putting the above properties to sale,
either by way of tender and e-auction, and this order was extended from time
to time.
Reply Filed by the Respondent-Bank
The respondent-Bank has filed reply along with application for
vacating the stay.
According to the Bank, the e-Auction/Tender Notice issued by
it, contained the following conditions:-
"The Sale through e-Auction/by calling Tenders is being
held on "AS IS WHERE IS" and "AS IS WHAT IS BASIS".
Any other encumbrances know to the Bank- is not
known. The Authorized Officer of the Bank shall not be
responsible for any charge, lien, encumbrances, or any other
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dues to the Government or anyone else in respect of properties
auctioned. The Intending Bidder is advised to make their own
independent inquiries regarding the encumbrances on the
property including statutory liabilities, arrears of property tax,
electricity dues etc."
It is the contention of the respondent-Bank that in view of the
above condition, it was the duty of the intending bidder to make his own
independent enquiries regarding encumbrances on the property such as
statutory liabilities, arrears of property tax, electricity dues etc., and the
petitioner himself should have done proper due diligence before submitting
his tender.
It also justified the forfeiture of the Earnest Money Deposit of
50,50,000/- which had been deposited by the petitioner on 24.05.2019, on
the ground that 25% of the bid amount of 7.22 Crores i.e. 1,80,50,000/-
was not deposited before 28.05.2019, and petitioner had deposited it with a
delay only on 29.06.2019 and so it was justified in forfeiting the said amount
and putting the property for fresh auction subsequently on 28.08.2019.
It, however, stated that in view of the order dt. 28.07.2019 the
said auction of 28.8.2019 was deferred. It was also contended that the
petitioner should have availed the alternative remedy under Section 17 of the
Act before the Debts Recovery Tribunal, Chandigarh.
Learned counsel for the parties reiterated their respective
contentions.
The consideration by the Court
The questions for consideration in the light of the above said
pleadings are as under:-
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a) Whether the Writ Petition is maintainable and the
petitioner should be asked to avail alternative remedy
under Section 17 of the SARFAESI Act, 2002 and the
Writ Petition should be rejected on the ground of
non-availment of the alternative remedy by the
petitioner?
b) If not, whether the petitioner is entitled to any relief?
Question (a):
We shall first consider the question i.e.,
" a) Whether the Writ Petition is maintainable and
the petitioner should be asked to avail alternative remedy
under Section 17 of the SARFAESI Act, 2002 and the Writ
Petition should be rejected on the ground of non-
availment of the alternative remedy by the petitioner?"
We may point out that this Writ Petition had been filed on
29.07.2019, almost three years back, and this Court had entertained this Writ
Petition by issuing notice of motion, and granted interim relief which is
subsisting till date.
At this point of time, 3 years later, in our opinion, it would be a
travesty of justice to dismiss the Writ Petition on the ground of
non-availment of the alternative remedy by the petitioner.
Also, as we shall point out later in this judgment, if there is a
violation of the provisions of the Act by the respondent-Bank, the Writ
Petition can be entertained by this Court, and it is not necessary to relegate
the parties to avail alternative remedy.
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Though counsel for respondents have placed reliance on the
decision of the Supreme Court in the case of Aggarwal Tracom Pvt.Ltd.
vs. Punjab National Bank1 to contend that the Writ Petitions under Article
226 of the Constitution of India cannot be entertained when effective
statutory remedy is available to the aggrieved person, in a later judgment
rendered in the case of Authorized Officer, State Bank of Travancore and
Another Vs. Mathew K.C2, the Supreme Court held that there are well
defined exceptions to the rule of exhaustion of alternative remedy as laid
down in decision of Commissioner of Income Tax and Others vs. Chhabil
Dass Agarwal3 and one of such exceptions mentioned in Para 15 of the said
judgment is "where the statutory authority has not acted in accordance with
the provisions of the enactment in question."
Similar view has been taken by this Court also in the case of
M/s Skytone Electricals (India) Limited vs. Canara Bank and Others4.
Therefore we reject the plea of the respondent that the Writ
Petition ought to be dismissed in view of existence of alternative remedy
under Sec.17 of the Act. Point (a) is answered accordingly.
Question (b)
Now we shall consider question (b) i.e.,
"Whether the petitioner is entitled to any relief?"
Admittedly, under the provisions of the Act, the secured
creditor is enabled, in the event of default in payment of the loan, to sell the
secured asset under Section 13(4) of the Act read with Rules 8 and 9 of the
Order in SLP No.33514 of 2016
2018 (3) SCC 85
2014 (1) SCC 603
Passed in CWP No.12301 of 2020 on 14.07.2020, Division Bench of Punjab and Haryana High Court.
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Security Interest (Enforcement) Rules, 2002 (for short "the Rules") after
issuing notice under Sec.13(2) and taking symbolic possession by invoking
Sec.13(4)/physical possession under Sec.14 of the Act .
We may also point out that under Rule 8(5) of the Rules,
publication of the notice of sale is required to be made including mention
therein about the details of encumbrances known to the secured creditor
[Rule 8 (6) (a)], and any other thing which the Authorized Officer considers
material for a purchaser to know in order to judge the nature and value of
the property [Rule 8 (6) (f)]
Having regard to the above provisions contained in the Act, a
duty is cast upon the Authorized Officer to publish all details with regard to
the property including details of encumbrances, if any,such as (i) whether the
property is a vacant property or is in the occupation of a tenant, (ii) whether
there is any other charge on the said property, (iii) any other details which
are material for a purchaser to know in order to judge the nature and value of
the property etc.
Merely by inviting the tender notice on "as is where is basis",
"as it is where it is basis" and "whatever there is basis" the Bank is not
absolved of it's statutory obligation of disclosing the encumbrances attached
to the property brought for sale by way of tender or e-auction or sale by
public auction.
In the case of Rakesh Kumar Kaushal Vs. State of U.P. and
Others5, a Division Bench of the High Court of Allahabad High Court
(Lucknow Bench) held :-
Manu/UP/4944/2018
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"33....xxxxxxxxx
34. In this regard, we would like to mention that relevant
provisions of the SARFAESI Act and the Security Interest
(Enforcement) Rules have already been quoted wherein sub rule
(5) of Rule 8 of the Rules, 2002, provides for publication of the
notice into leading newspapers which shall include details as set
forth in sub-clause (a) to (f). Sub-clause 6 (f) of Rule 8 provides
for publishing of "any other thing which the authorized officer
considers it material for a purchaser to know in order to judge
the nature and value of the property". In these circumstances, a
duty is cast upon the Authorized Officer to publish all details
with regard to the property, whether the property has any
encumbrances or not, whether the property is a vacant property
or is tenanted, whether there is any other charge on the said
property, and all other details which is material for the
purchaser to know in order to judge the nature and value of the
property.
35. In the present case, the advertisement does not disclose any
such detail about the property from which it can be easily
inferred that the same is in possession of some third-party, or
that there is a litigation pending or for some material reason, it
would be difficult to obtain the vacant possession of the property.
A joint reading of section 13 (4) of the SARFAESI Act and Rule 9
(clauses 9 and 10) would clearly show that the Authorized
Officer, shall deliver the property to the purchaser, free from all
encumbrances, on deposit of money as specified in sub rule 2.
However, the aforesaid rule does not prevent the bank from
bringing the property for auction, when there are encumbrances
attached to the property. Merely, by including a clause "as is
where is basis or as is what is' condition stated in the sale notice
does not obviate the bank from disclosing the encumbrances
attached to the property, brought for auction.
36. The bank cannot shrug off its responsibility in disclosing
the encumbrances in the advertisement when it is known that
transparency is the essence of good governance and fair play.
Concept of transparency is becoming a core value in democratic
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and participative governance. The public demand for
transparency is getting stronger in good governance.
Transparency is built on the basis of free flow of information and
the whole process of government, institutions and information
needs to be accessible to the interested parties, as well as the
information provided should be sufficient to be understood.
37. The undisputed fact in the case at hand is that when notice
under section 13(4) of the SARFAESI Act was issued by the
Bank, the physical possession of the mortgaged property was not
taken. There is a duty cast upon the Bank under clause (9) of rule
9 of the Rules, 2002 to deliver the property to the purchaser free
from encumbrances known to the secured creditor on deposit of
money as specified in sub rule (7). In the writ petition it has
rightly been asserted by the petitioner that he was shocked when
he came to know that there were some defects in title of the
aforesaid property and the same is defective, which was not
disclosed by the Bank at any stage, rather it suppressed the
material information.
38. It may be noted that when a person participates in auction
to purchase a property, he relies on the auction notice and the
documents shown to him by the secured creditor, as he is under a
bona fide belief that any material aspect of the property must
have been disclosed by the secured creditor inasmuch as the
secured creditor is under a mandate to disclose any aspect which
the Authorized Officer considers it material for the purchaser to
know in order to judge the nature and value of the property as
mandated under rule 8(6). The respondent bank has failed to
disclose any such circumstance or material fact from which it
could be gathered that the physical possession of the property
would be difficult or near impossible. In the aforesaid
circumstances the respondent Bank cannot take umbrage of the
clause "as is where is" "as it is where it is" in order to deny
physical possession of the auction property to the petitioner and
to non-suit him. In other words, the respondent cannot shirk
away the statutory responsibility to deliver possession of the
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property free from all encumbrances, to the person who was paid
full consideration for the said property.
39. Accepting the contention of the Bank would be absolutely
inequitable, wholly arbitrary and may on the contrary permit
withholding of necessary information by the secured creditor in
relation to its valuation in order to seek a higher price of the
property. If such an advantage is permitted, it would directly
affect the credibility of the entire process and the object of the
SARFAESI Act, which is sought to be achieved.
40. The third-party, who comes forward to purchase the
secured asset must have the confidence that he would get the
property at the earliest and in case, considerable long time is
consumed in transferring the property not only it would defeat
the purpose of the Act but would also cause colossal loss and
injury to a auction-purchaser, like the petitioner.
41. In light of the above, we are of the considered opinion that
by merely inserting a clause "as is where is" and "as is what is"
the responsibility of the Bank does not get diluted nor it can in
any manner assist the bank in denying physical possession to the
auction purchaser."( emphasis supplied)
This decision was also confirmed by the Supreme Court in SLP
No. 3493 of 2019 on 11.02.2019.
Similar view was also taken by the Division Bench of
Telangana and Andhra Pradesh High Court in the case of Mandava Krishna
Chaitanya Vs. UCO Bank, Asset Management Branch6.
Even in the said case, the Division Bench of the High Court for
the States of Telangana and Andhra Pradesh held that a secured creditor,
who is empowered under the Act to enforce any secured interest created in
its favour, without intervention of a Court or a Tribunal has to act strictly in
accordance with the procedure prescribed therefor, and cannot take the
2018(2) ALT 640; passed in Writ Petition No.39084 of 2017 decided on 21.0.2018.
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responsibility resting upon it lightly; that such a secured creditor not only
owes a duty to protect the interest of the borrower by raising the best
possible price while selling his mortgaged properties, but also owes a duty to
the auction purchaser to verify the encumbrances that attach to the
mortgaged property proposed to be sold, so as to inform all intending bidders
of the same; Clauses (a) and (f) in the proviso to Rule 8(6) of the Rules of
2002 bear out this responsibility explicitly, as the secured creditor is
mandated thereunder to include the details of the encumbrances known to it
and also any other thing which may be considered material for a purchaser to
know in order to judge the nature and value of the property.
It held that these clauses impose a duty upon the secured
creditor to undertake due diligence at least at the stage of putting the secured
asset to sale, if not at the time of taking the said property as security while
granting loans, so that the bidders in the auction can rest assured that the
secured creditor has taken necessary measures in this regard and proceed to
participate in the auction sale.
It also held that ignorance of the secured creditor as to the
encumbrances on the property sold by it is no longer an acceptable argument
in the light of the decisions of various Courts rejecting the plea that a sale on
'as is where is' basis constitutes a shield of protection.
It went on the held that the concept of 'as is where is' and 'as is
what is' basis has lost its significance in the current commercial milieu and
the principle of caveat venditor is more on the rise as compared to the
outdated principle of caveat emptor; that the Transfer of Property Act, 1882,
requires the seller to own up to certain duties and it is not open to a
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responsible bank to take an innocent auction purchaser for a ride by selling
to him a tainted property and thereafter claim protection under the principles
of 'buyer beware'.
It held that the innocent Auction Purchasers cannot be
victimized by the Banks by the carelessness of exercising minimum care to
ascertain the encumbrances attached to the secured asset, and if it proceed to
sell the property without informing the bidders of the same, such a sale
would be vitiated.
This decision was also upheld by the Supreme Court in SLP No.
8022 of 2018 on 09.04.2018.
In another case Shaik Janimiya Vs. State Bank of India,
SAM Branch II, Rep by its Authorized Officer, Kachiguda, Hyderabad7
passed by the Division Bench of Telangana High Court, of which one of us
(M.S. Ramachandra Rao, J. is a member) the decision in Mandava Krishna
Chaitanya (Supra 6) has been followed and the principle that the Bank
cannot hide behind the conditions 'as is where is basis' mentioned in the sale
notice, and harass the innocent Auction Purchasers was reiterated.
There is a civil litigation in respect of these assets for which the
tender notice was given by the Bank and it is corroborated by the material
filed by it along with its reply.
According to the jamabandi in relation to both lots, there is an
order passed by the Additional Civil Judge, Amloh on 26.03.2013 and
another order dt. 21.01.2016 passed by this Court.
The latter order is in fact one wherein in the Civil Suit
C.S.No.201 of 15.10.2011 filed by a third party Gurdeep Singh against the
2020(4) Andh LD 397
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M/s Krishna Agricultural Steel Works and others, the trial Court i.e. Civil
Judge, Junior Division, Amloh had dismissed on 19.12.2012 an application
under Order 38 Rule 5 of the CPC for attachment of the property, but the
High Court in Civil Revision No.2147 of 2013 had reversed the same by
passing an order in the Civil Revision, and set aside the order of the Civil
Judge, Junior Division, dt. 19.10.2012 (Annexure R-8). The suit itself was
later decreed on 31.1.2017 ( Annexure R-9).
As per Or.XXXVIII Rule 11 CPC, where property is under
attachment by virtue of the provisions of the said Order XXXVIII CPC and a
decree is subsequently passed in favor of the plaintiff, it shall not be
necessary upon an application for execution of such decree to apply for re-
attachment of the property. So the attachment before judgment granted shall
be effective and operative even after passing of the decree and while
executing the decree it is not necessary to re-attach the property.
So if the petitioner had to get clear title from the Bank pursuant
to the tender /public notice dt.24.4.2019 (P4), he would have to satisfy the
said decree in the above suit as well. Had the petitioner been aware of this,
he might not have participated in the tender issued by the Bank at all.
No intending purchaser wants to buy fresh litigation or take on
other unknown liabilities against third parties, and it was the statutory duty
of the Bank to disclose them in the public notice/tender notice. So the action
of the respondent Bank is arbitrary and contrary to the provisions of the Act.
It is strange that these documents are disclosed along with reply
affidavit had not been taken into account for disclosing in the tender/public
notice dt.24.4.2019 (P4) (under Rule 8(6) (f)) the existence of civil court
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decree which undoubtedly would have a bearing on the willingness of the
bidder to participate in a Public Auction/Tender notification and would also
have impact on the price being offered.
For all these reasons, we are of the opinion that the Bank has
failed to act in a transparent manner, and had acted inequitably and
arbitrarily.
Accordingly, the Writ Petition is partly allowed and the
respondent-Bank is directed to refund to the petitioner a sum of 1.80 Crores
deposited by the petitioner with interest @ 7% per annum from the
respective dates of deposit of such amount within 4 weeks from today. It
shall also pay costs of 25,000/- to the petitioner.
In view of this relief being granted to the petitioner, the other
reliefs sought by the petitioner are rejected.
(M.S. RAMACHANDRA RAO)
JUDGE
(HARMINDER SINGH MADAAN)
JUDGE
19.07. 2022
Ess Kay
Whether speaking / reasoned : Yes /No.
Whether Reportable : Yes/No
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