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1 - 6 of 6 (0.72 seconds)V.Sridhar vs The Authorized Officer on 23 January, 2018
In this context, it is relevant to refer to the judgement of this Court in V.
Sridhar v. The Authorized Officer [AIR 2018 Mad 87]. In that case, the earnest
money was forfeited due to non-payment of 75% of the sale auction consideration, as
the bank could not handover the possession of the property free of encumbrances
due to ongoing civil suits filed by the tenants of the said property. The respondent
bank invoked the ‘as is where is basis’ or ‘as is what is’ condition, contending that the
pendency of litigations concerning the property does not in any way affect the sale of
the property. Placing reliance on earlier judgments, the Division Bench reiterated that
the mere inclusion of ‘as is where is basis’ or ‘as is what is’ condition does not
exonerate the banks from disclosing any encumbrances on the property, and directed
the bank to refund the amount. For better appreciation, the relevant paragraph is
extracted hereunder:
Jai Logistics Rep.By Its vs The Authorized Officer on 12 July, 2010
10. Though the learned counsel for the respondent made a feeble attempt to
contend that the bank is not aware of the existence of such encumbrance on the
property and that, the attachment is subsequent to the mortgage and demand raised
by them, the same does not inspire the confidence of this court, in the light of
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https://www.mhc.tn.gov.in/judis
W.P(MD)No.20689 of 2022
decision of this court in Jai Logistics v. The Authorized Officer, Syndicate Bank
[2010 (4) CTC 627], in which, the Division Bench refused to accept the same and
differentiating the roles and responsibility of the official liquidator as opposed to an
authorized officer, held as follows:
United Bank Of India vs Official Liquidator on 6 October, 1993
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 case 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.
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W.P(MD)No.20689 of 2022
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.
Alisha Khan vs Indian Bank (Allahabad Bank) on 13 December, 2021
12. In the ultimate analysis, this court is of the opinion that the purpose of
forfeiture is in the interest of the secured creditor to protect it from adverse loss.
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W.P(MD)No.20689 of 2022
When there is no alleged loss to the respondent bank, the forfeited money may be
refunded. In any case, the respondent-bank will be able to recoup and not suffer a
loss in the event of the return of the Earnest Money Deposit, as they could recoup the
amount from the subsequent re-auction. Recently, the Apex court, in Alisha Khan v
Indian Bank (Allahabad Bank) and Ors [C.A. Nos. 7680-7681 of 2021],
allowed an appeal against the forfeiture of 25% of the auction sale consideration and
directed the bank/financial institution to refund the same on the ground that there
was no loss caused to the respondents on account of the subsequent re-auction.
Article 226 in Constitution of India [Constitution]
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