JOGINDER vs PUNJAB NATIONAL BANK CWP 22743/19 19/07/22 [RAMACHANDRA JJ ]

PUNJAB AND HARYANA HIGH COURT 

• SARFAESI ACT Section 17 Tender for auction of two properties Undisclosed court orders and encumbrances related to properties after submitting bid Quashing of bank’s letter forfeiting their deposit, issuance of Sale confirmation letter No Objection Certificate for properties and clearance of entries in revenue records or refund of deposited amount Sought for Bank, as secured creditor, has duty to disclose all details regarding property including encumbrances, in auction notice Merely stating as is where is or as is what is does not absolve bank of its obligation to disclose encumbrances Transparency and free flow of information are essential in such transactions Further, bank cannot sell a property without informing bidders of any encumbrances attached to it Failure to disclose such information would invalidate sale Principle of caveat venditor (seller beware) applies and bank cannot take advantage of the as is where is clause to deny physical possession to the auction purchaser Moreover, bank’s cannot sell a property without informing bidders of any encumbrances attached to it Failure to disclose such information would invalidate sale Principle of caveat venditor (seller beware) applies, and bank cannot take advantage of the as is where is clause to deny physical possession to the auction purchaser – Moreover, bank’s responsibility extends to verifying encumbrances before putting property up for sale – Ignorance of encumbrances is not acceptable argument, and bank cannot hide behind the “as is where is” conditions – Bank must fulfill its duty to protect interests of both borrower and auction purchaser – Thus, bank failed to disclose existence of civil court decrees related to property, which would have influenced petitioner’s decision to participate in auction – Bank’s actions were deemed arbitrary and contrary to provisions of the law – Therefore, bank to refund deposited amount of Rs. 1.80 Crores to petitioner with 7% interest per annum from the respective dates of deposit and to pay costs of Rs. 25,000/to petitioner [Paras 31 to 53]

 

Relevant portion :

court observe that-

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.

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 theSecurity 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 :-

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 :-

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.

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

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.

For read the judgment click here 

CWP_22743_2019_19_07_2022_FINAL_ORDER JOGINDER SINGH vs PUNJAB NATIONAL BANK AND ANOTHER

all rights reserved (Vaibhav Tomar 𝔸𝕕𝕧)