Summary
Indian Overseas Bank auctioned a secured property in Tirur, Kerala, described as 54 cents, under the SARFAESI Act. The buyer bid Rs 32.05 lakh, insisting throughout on vacant possession of the full 54 cents. After a Tehsildar reported that the borrower had transferred 14.40 cents before the mortgage, the bank still issued a sale certificate for 54 cents but handed over only the smaller area. The trial court decreed damages of Rs 58.10 lakh. The Kerala High Court reversed it, holding the suit barred by Section 34 and the sale to be on an 'as is where is' basis. The Supreme Court restored the decree. A suit for damages for the shortfall, not challenging the sale, is outside the Debt Recovery Tribunal's jurisdiction and so not barred by Section 34. Having sold and taken the price for 54 cents, and knowing the shortfall, the bank could not shelter behind the 'as is where is' clause.
Issues
- Whether a civil suit by an auction purchaser for damages for a shortfall in the area sold under the SARFAESI Act is barred by Section 34 of that Act.
- Whether the 'as is where is' condition protects the bank where it sold and received the price for 54 cents but delivered a smaller area.
Provisions considered
- Section 34, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The civil court bar operates only on matters the Debt Recovery Tribunal or Appellate Tribunal is empowered to decide; a suit for damages for the deficient area that does not challenge the sale is not barred. (¶ 5.2)
- Rule 8, Security Interest (Enforcement) Rules, 2002The authorised officer must take precautions before sale, including valuation and fixing the reserve price for the property sold; together with the seller's statutory duty under the Transfer of Property Act to disclose material defects, this defeats the 'as is where is' defence. (¶ 5.4)
Held
- The suit sought damages for the shortfall in area, which the DRT could not decide, and did not challenge the sale or sale certificate; the High Court erred in holding it barred by Section 34; nor was it time-barred, having been filed within three years of registration of the sale certificate. (¶¶ 5.1, 5.2)
- The auction notice, the bid, the price paid and the sale certificate were all for 54 cents, the purchaser had insisted on the full extent, and the bank knew of the shortfall from the Tehsildar's report yet certified 54 cents; it could not then retain the price for 54 cents while delivering less, and the 'as is where is' condition is no defence. (¶¶ 5.3, 5.4)
Result
Civil Appeal No. 7128 of 2022 allowed; the Kerala High Court judgment dated 17.03.2022 in RFA No. 379 of 2014 set aside and the trial court decree for Rs 58,10,000 with 12% interest restored, payable within eight weeks with costs of Rs 25,000.