Telangana High Court

J.Mahesh Babu And 3 Others vs The State Bank Of India And 2 Others on 24 August, 2021

Bench: A.Rajasheker Reddy, Shameem Akther

                                            1


          HON'BLE SRI JUSTICE A. RAJASHEKER REDDY
                                           &
            HON'BLE Dr. JUSTICE SHAMEEM AKTHER
                             WP No. 1778 of 2021
ORDER::   (per Hon'ble Sri Justice A. Rajasheker Reddy)

     This writ petition is filed by the petitioners who claim to be the

auction purchasers in respect of land in an extent of Ac.16.28

guntas situate in Sy.Nos.173, 334 (Part), 345, 347, 348 and 349,

Yedhira   village,    Mahabubnagar              mandal    and   District,   in   an

e-auction conducted on 01-02-2020 and were declared successful

bidders; pursuant thereto the sale in respect thereof was confirmed

in their favour. The total bid amount is Rs.12,10,00,000/- (Rupees

Twelve Crores Ten Lacs Only) and the petitioners paid the entire

amount in respect of the bid by 03-07-2020. However, before the

sale certificate could be issued, the petitioners came to know that a

part of auctioned land was found to be a surplus land under the

provisions of Telangana Land Reforms (Ceiling of Agricultural

Holdings) Act, 1973 and vests with the Government. Since the 2nd

respondent did not show prefect title of the land in question, the

petitioners made representation dated 01-10-2020 to refund the

amounts paid by them with interest @ 18% per annum. Pursuant to

the same, an amount of Rs.12,10,92,500/- (Rupees Twelve Crores

Ninety Two Thousands Five Hundred Only) was returned to the

petitioners after deducting TDS without paying any interest on

deposited amount. Hence, this writ petition for appropriate

direction to the respondents for payment of interest.

Sri P.Roy Reddy, learned counsel for the petitioners

strenuously contended that in the light of the statutory bar on sale

of the land in question by virtue of the claim that part of the land

vests with the Government and a writ petition being WP No.15201

of 2012 is pending before this Court, the respondents ought not to

have proceeded with the auction of the land and the mistake is

solely attributable to them, the amount deposited by the

petitioners with the 2nd respondent shall have to be construed as

"debt" within the meaning of Section 2 (C) of the Interest Act,

1978, and the petitioners are entitled for interest at the commercial

transaction rate i.e. @ 18% on the amount deposited by them. It is

also contended that the respondents being an instrumentality of the

State within the meaning of Article 12 of the Constitution of India,

are supposed to act fairly and paid interest having retained

substantial amounts for considerable period as the proceedings

could not attained finality for no fault of the petitioners. It is stated

that the respondent-bank is under obligation to notify the defects in

title if any before conducting e-auction which is statutory

requirement under Section 55 of the Transfer Property Act, 1880.

Sri Praveen Kumar Jain, learned standing counsel for the

respondents submitted that the petitioners have an efficacious

alternative remedy of redressing their grievance under Section 17 of

the SARFAESI Act, 2002, and without exhausting the alternate

remedy, the petitioners have straightaway rushed to this Court

under Article 226 of the Constitution of India and, therefore, the

writ petition is not maintainable. On facts it is stated that the

petitioners themselves wanted refund of the amount deposited by

them with the bank before the respondent-bank resolved the title

issue with the revenue authorities. It is also stated that writ

jurisdiction cannot be invoked for adjudication and enforcement of

contractual rights and for recovery of debts and even on that count

writ petition is not maintainable. It is lastly contended that the

provisions of the Land Reforms (Ceiling on Agricultural Holdings)

Act, 1973 are inapplicable to the land in question as any surplus

land vests in the Government only after taking physical possession

of the land by the Revenue Divisional Officer or his agent, however

in the instant case the land in question has been in the continuous

possession of its debtors.

The preliminary objection of the learned counsel for the

respondents is that in view of an alternative remedy being available

before the Debt Recovery Tribunal, the petitioners be relegated to

approach the Tribunal.

In Whirlpool Corporation v Registrar of Trademarks,

Mumbai, (1998) 8 SCC 1 it was observed thus:-

"Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation

of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged."

The same proposition is reiterated in Harbanslal Sahnia vs

Indian Oil Corpn. Ltd, (2003) 2 SCC 107) which is in the following

terms:-

"In an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged."

In this case, it is to be seen that the petitioners bona-fidely

participated in the e-auction and on being successful bidders

deposited the amounts. The respondents did not deny the fact that

the part of the land is question is subject matter of WP No.15201 of

2012 pending before this Court. There are claims that the land in

question vests with the Government being excess surplus land and

it is only when the petitioners approached the Registration

Department, they came to know about the defect in title of the land

as the Sub-Registrar purportedly refused to register the land on

their names as it is listed in prohibited list. The legitimate expectation

of the petitioners in the absence of any specific notification as to the

defects in title of the land being auctioned is that the land is free from all

encumbrances. As a general rule, the property that is put to auction

especially by the State or the instrumentalities of the State, it is the

understanding of the general public that the title is

free from all encumbrances as the auctioneer being creditor (bank)

at the time of mortgage of land under auction, the bank would

thoroughly verify the title and based on subjective satisfaction

including calling for a legal opinion from its attorney, it will lend

monies. In the circumstances, the respondents before proceeding

to conduct e-auctioning of the land in question ought to have cured

the defects if any more particularly in respect of land whose value is

in large sums. No prudent person would like to purchase a land

with defect in title that too by a successful bidder in an open public

auction.

The Supreme Court in Bharat Sanchar Nigam Ltd. vs.

Telephone Cables Ltd1. indicated the need for the public sector

undertakings to ensure fairness in all their transactions, it was

observed as under:-

"A public undertaking is required to ensure fairness, non-discrimination and non-arbitrariness in their dealings and decision making process. Their action is open to judicial review and scrutiny under the Right to Information Act, 2005."

The contention of the counsel for the respondents that it was

notified to be sold in "as is where is basis", and it is deemed that

the petitioners have knowledge part of the land in question vests

with the Government cannot be countenanced for the simple reason

the purchaser (buyer) is not expected know and cannot know the

defect which are not within his knowledge and even otherwise the

buyer is bound to know patent defects and it is for the seller to

inform about any latent defects and the seller is under obligation to

(2010) 5 SCC 213

weed out the defects in tile in their own interest and to maintain

their credibility. Even under Rule 8 (6) of the Security Interest

(Enforcement) Rules, 2002, the bank has to disclose the

encumbrances on the property that was put to auction. The said

rule is mandatory and is required to be adhered and not to be

ignored. Rule 8 (6) of the Rules reads as under:-

"The authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5); Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditors shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,-

a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor

b) The secured debt for recovery of which the property is to be sold

c) Reserve price, below which the property may not be sold

d) Time and place of public auction or the time after which sale by any other mode shall be completed

e) Depositing earnest money as may be stipulated by the secured creditor

f) 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 Mathew Varghese v. M. Amritha Kumar &ors2, the

Supreme Court while considering a similar issue held as under:-

(2014) 5 SCC 610

"Secondly, when such a secured asset of an immovable property is brought for sale, the intending purchasers should know the nature of the property, the extent of liability pertaining to the said property, any other encumbrances pertaining to the said property, the minimum price below which one cannot make a bid and the total liability of the borrower to the secured creditor. Since, the proviso to sub-rule (6) also mentions that any other material aspect should also be made known when effecting the publication, it would only mean that the intending purchaser should have entire details about the property brought for sale in order to rule out any possibility of the bidders later on to express ignorance about the factors connected with the asset in question."

Though it is stated that the amounts deposited by the

petitioners are not utilised by the bank and the amounts are held in

no-lien account pending registration and refunded to the petitioners

without gaining any benefit from it, but it is to be seen that the

petitioners were made to pool huge amounts of Rs.12 crores in

order to deposit it as the bid amount and for no fault of them, they

could not reap the fruits of being successful bidders. Though the

respondent-bank stated that the petitioners themselves wanted

refund of the amounts before the title issue could be resolved, but it

is to be seen that there is no communication from the respondent-

bank informing them that the issue of title would be cleared

muchless in a time frame and they themselves were not clear when

it could be resolved. Section 72 of the Indian Contract Act, 1872,

states "a person to whom money has been paid or anything

delivered, by mistake or under coercion must repay or return it"

and it has been held that retaining such money would lead to

unjust enrichment. (see Mahabir Kishore vs. State of Madhya

Pradesh, 1990 AIR 313). In the circumstances, the petitioners are

entitled for payment of interest at commercial transaction rate of

18% per annum from the date of proportionate deposit of amounts

till the date of repayment of the principal amounts. In matters

arising under the provisions of the SARFAESI Act, the aggrieved

have to approach the Tribunal constituted for that purpose, but this

is a case of violation of breach of trust and the respondents have to

pay for it. There are no intricate issues so as to relegate the

petitioners to approach the Tribunal, except the issue of

entitlement or otherwise of interest on the amount deposited by the

petitioners there are no questions of fact. In this connection, it is

pertinent to refer to the Division Bench of this Court in decision of

Ambalavanan vs. Canara Bank3 wherein a similar question of

payment of interest was considered and made the following

observation:-

"The Bank issued the sale notice to auction the property mortgaged by the first respondent. The applicant participated in the auction. The bid submitted by the applicant was accepted by the Bank and the sale was confirmed in his name. The applicant paid a sum of Rs.65,07,000/to the Bank. The amount was deposited on 27 August 2010. The sale was subsequently set aside by this Court. The Bank refunded the amount deposited by the applicant. However, interest was not paid. The Bank cannot be heard to say that the purchaser of the property is not entitled to interest. The money was deposited with the Bank. The Bank was having the money throughout the

Writ No. 302 of 2015

proceedings. The Bank utilized the money. The Bank charges different rates for different transactions. The Bank is charging 14% for mortgage loans. There are other transactions wherein the Bank charges even 18% interest per annum. Such being the factual position, the Bank cannot be heard to say that the applicant has to be satisfied only with the principal amount. We are of the view that the Bank having kept the amount for years together is bound to pay interest to the applicant."

The aforesaid principles when applied to the facts of the

present case and examined it shows that no such encumbrance as

part of the land purportedly vests the Government has been

projected by the respondent-bank. Therefore, the bank as a

financial institution has failed to exercise the due diligence before

proceeding to conduct e-auction.

In the result, the writ petition is allowed and respondents are

directed to remit the interest on the amount deposited by the

petitioners @ 18 % per annum from the date of deposit of

proportionate amounts till the date of refund of the principal

amount by the respondent-bank. There shall be no order as to

costs.