(Judgment of the Court was delivered by M.M.SUNDRESH, J) The appellant is the bonafide purchaser of the property in question for valuable consideration. The property in question was mortgaged through the equitable mortgage with the first respondent by one V.Savuthiri on behalf of the M/s.K.V.S. & Co a partnership firm. It appears that the mortgage has been created based upon the opinion given by the respondents counsel.
2.Proceedings have been initiated under
Section 13(2) of the SARFAESI Act, which was followed by an action under
Section 13(4) of the SARFAESI Act. Thereafter, sale notice and paper publications were issued as per Rule 8(6) and 9 of the Security Interest (Enforcement) Rules, 2002.
3.The petitioner/Appellant went before the registering authority to register the sale deed, being a successful offerer, after making the payment of entire consideration of a sum of Rs.4,25,000/-. The Sub registrar had refused to register the document on the premise that it is a Boodhan land. The appellant in order to get a clarification, made an application under the Right Information Act and the Joint Commissioner, land reforms Chepauk, Chennai-5 by the proceedings in Na.Ka.270/12L5 dated 18.05.2012, has duly informed that the property in question is a Boodhan land and the same cannot be sold upon, in fact, including by way of mortgage and any subsequent purchaser will not have any title and if done so, action would be taken to recover the land by the Board.
4.Under those circumstances, the appellant has filed the present Writ Petition seeking a Writ of Mandamus directing the first respondent herein to return back the amount, namely, Rs.4,25,000/- with interest from 08.11.2011 onwards. Before the learned Single Judge, reliance has been made to the decision of the Division Bench in the case of Jai Logistics Vs. The Authorized Officer, Syndicate Bank reported in 2010 (4) CTC 627, wherein the Division Bench placed strong reliance upon Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002 to make it obligatory that the bank must ensure to convey the property without encumbrance and it was observed in paragraphs 5 and 6 as follows:
''5.We have considered the submissions. Of course, in the aforesaid judgment, the supreme Court, while considering a sale by the official Liquidator, has held that it is the duty of the intending purchaser to satisfy himself as to the encumbrance before participating in the bid. Having participated in the bid, the intending purchaser cannot later on turn around and question the Official Liquidator on the ground that the encumbrance was not notified. In that case, the provisions of the Rules as applicable in the present cases are not applicable to the Official Liquidator. But in the case on hand, once possession is taken over under
Section 13 (4) or under
Section 14 of the SARFAESI Act, whenever the secured creditor contemplates a sale of immovable property, they will have to follow Rule 8 of the Security Interest (Enforcement) Rules, 2002. Rule 8(6)(f) mandates the secured creditors to set out in the terms of sale notice any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. A reading of the said rule, in our opinion, would also include the encumbrance relating to the property. We are inclined to read the rule in that way keeping in mind the interest of the intending purchaser to be put on notice as to the encumbrance, as otherwise he/she will be purchasing the property and simultaneously buying the litigation as well and an intending purchaser may not bid in the event he/she came to know of any encumbrance over the property. That is why the rule specifically contemplates a provision for the authorised officer, while notifying the sale, to specifically state as to the encumbrance. It will be a different issue in the event the auction notice indicated that it is the duty of the intending purchaser to verify not only the encumbrance by way of alienation of the property, but also the other statutory liabilities and in that case, the intending purchaser cannot later on turn around and seek for either the refund of the earnest money deposited or insist the bank to clear the encumbrance. In the absence of such indication in the sale notice, in our considered view, the respondent-bank would not be justified in compelling a purchaser to go ahead with the sale by depositing the balance sale consideration together with the encumbrance.
6.In that view of the matter, the challenge in the writ petition merits acceptance. Accordingly, the impugned order of forfeiture is set aside and the writ petition is allowed. The respondent is directed to refund the earnest money to the petitioner. We also take this opportunity to suggest that it is for the banks and financial institutions to indicate the encumbrance both by way of alienation in respect of the property or other statutory liabilities of the company or the individual, as the case may be, in the sale notice itself to avoid a situation like this. Equally the banks and financial institutions could also make it clear in the auction notice in the case of no other liability by the company or individual. No costs.''
5. The Writ Petition was dismissed by the learned Single Judge by placing reliance upon the subsequent Judgment of the Division Bench of this Court in W.P.No.21364 of 2011, dated 12.09.2012 in R.Shanmugachandran (deceased) and others Vs.The Chief Manager, Indian Bank, Asset Recovery Management Branch, Coimbatore, wherein in paragraph Nos.17, 24 and 25, it was observed as follows:
''17.In Jai Logistics Vs. The Authorised Officer, Syndicate Bank (2010 (4) CTC 627), a Division Bench of this Court, to which one of us a party (D.Murugesan,J), had an occasion to consider the effect of Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002. It was held therein that the auction purchasers should also be put on notice of the encumbrances relating to the property, in the light of the said rule. Therefore, on the basis of the aforesaid decisions, it is contended by the learned counsel for the writ petitioner that the forfeiture of the Earnest Money Deposit by the respondent-Bank was illegal.
24.In so far as the ratio laid down in Jai Logistics{2010 (4) CTC 627} is concerned, it must be clarified that the obligation on the part of the Authorised Officer to disclose the encumbrances, is limited only to ''those encumbrances known to the secured creditor''. Since the very wording of Clause (a) under the proviso to Rule 8(6) is of a restrictive nature, there is no scope for expanding the same to all kinds of encumbrances created by the borrower of guarantor behind the back of the secured creditor. The ratio laid down in Jai Logistics, cannot be understood to mean that the secured creditor has an obligation to obtain an encumbrance certificate upto the period one day preceding the date of publication of the auction sale notice. Reading such an obligation into Clause (a) under the proviso to Rule 8(6) would actually tantamount to some kind of a tacit approval of all illegal alienations made of encumbrances created by the mortgagor after the creation of the security interest.
25.As a matter of fact, the statutory provisions make it clear that a sale could take place only after the expiry of 30 days from the date of the public notice. This 30 days time is intended to serve two purposes. One for the borrower to gather resources and repay the loan the another for all intending purchasers to make sufficient enquiries as a person of normal diligence and ordinary prudence would do while buying any immovable property. The purport of Rule 8(6) cannot be extended to such an extent that it obliterates the liability of the purchaser to undertake due diligence and to scrutinise the title to the property. Therefore, the obligation of the Authorised Officer is only to disclose the encumbrance that had come to the notice of the secured creditor. It is for the auction purchaser to apply for encumbrance certificates, in the time of 30 days made available to the intending buyers to see if there are any encumbrances.'' Challenging the same, the present Writ Appeal has been filed.
6.The learned counsel for the appellant would submit that it is not a question of encumbrance involved, rather it is a question of title. The very act of the respondents in executing an equitable mortgage itself is wrong. Therefore, the entire issue goes into the route of the title to the party, who executed the mortgage deed. Under those circumstances, the entire proceedings, so far as it relates to the sale effected is a nullity and hence the appellant being the bonafide purchaser of the property for valuable consideration is entitled for refund.
7.The learned Counsel appearing for the respondent would submit that there is a due compliance of the rule 8(6) and Rule 9 of the Security Interest (Enforcement) Rule, 2002. It is also submitted that there is an alternative remedy available under the SARFAESI Act and hence the Writ Petition is not maintainable.
8.After considering the submissions made, we find that there is a considerable force in the submissions made by the learned counsel for the appellant. It is not a question of encumbrance involved, rather it is a question of title. To put it differently, the property involves is one belonging to a public authority or it is not meant to be alienated, in view of the rigour attached to the assignment made and the same also cannot be the subject matter of the mortgage.
9.Perhaps, the respondents ought to have vigilant in verifying the documents. The appellant is admittedly a bonafide purchaser for valuable consideration. The encumbrance as mentioned in Rule 8(6) is not with respect to the title but with respect to any activities attached to it. For example, if there is a subsequent sale or any incumbrance created, thereafter by way of mortgage list etc., then the rigour of Rule 8(6) will come. Further, Rule 8(6) is only a procedure in nature. What the appellant seeks is return of his money on the premise that there is no title available to the respondents and therefore, there is no enforcement of transfer of property.
10.In the absence of any contra material to the one produced by the appellant before us from a public authority holding that it is a Boodhan property, the condition attached would prevail with respect to mortgage lease or sale.
11.Hence, we are of the view that the appellant is entitled to succeed. After all an element of fairness is required, even in contract involving a public authority. The Division Bench judgement relied upon by the learned Single Judge, in our considered view does not apply to the facts of the present case. As stated above, we are not concerned with the encumbrance created.
12. Infact, the Division Bench Judgment referred supra, which has been taken note of the learned Single Judge did not find the earlier judgment rendered in Jai Logistics case (supra) as a bad law but distinguished it on the ground that the same will not be applicable to the encumbrance created after the creation of security interest to an illegal alienation, which is not the situation before us.
13.However, considering the facts and circumstances of the case, we do not find any reason to award interest. We are of the view that there is no willingness involved on the part of the respondents. In such view of the matter, we direct the respondents to return a sum of Rs.4,25,000/-, paid by the appellant in favour of the respondents within a period of eight weeks from the date of receipt of a copy of this order.
14. We also make it clear that the observation made by us with respect to the nature of the property is only a prima facie in nature. Therefore, it is well open to the respondents to proceed in accordance with law, if so advised. Similarly, we are also make it clear that this order will not create any right in favour of the mortgagor, since the proceedings under the SARFEASI Act, have become concluded as against the said person.
15.We rejected the contentions of the learned counsel appearing for the respondents that the appellant will have to work out his remedy under the SARFEASI Act, since he is not challenging the proceeding as such being the purchaser.
16. Accordingly, this Writ Appeal stands disposed of. However, this order cannot be construed as an order restraining the respondents from proceeding as per law, which also includes proceeding against the property in question for recovery of the due, after all, the lability of the borrower still stands. No costs.
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