E. Muthuraj Vs The Authorised Officer, Chief Manager and The General Manager

K. Chandru, J.@mdashBoth Writ Petitions came to be posted on being specially ordered by the Administrative Judge, dated 27.8.2012. Both Writ Petition as well as the Criminal Original Petition were filed by the same Petitioner. In the Writ Petition, the Petitioner seeks for a direction to return back the amount of Rs. 4,25,000/- with interest from 8.11.2011 to the Petitioner which was paid for the purchase of the property in S. No. 219/1A/2B2B in Sankaraperi village, Tirunelveli District. In the Writ Petition, notice regarding admission was granted on 26.4.2012. On notice from this Court, the First Respondent has filed a Counter Affidavit, dated 31.8.2012. Even while the pendency of the Writ Petition, the Petitioner filed a Criminal Original Petition u/s 482, Cr.P.C., seeking to set aside the order passed by the learned Judicial Magistrate No. 1, Thoothukudi District, dated 20.2.2012 made in Crl.M.P. No. 733 of 2012. When that Criminal Original Petition came up on 23.8.2012, this Court directed the matter to be tagged along with the Writ Petition. Thus, they were grouped together and posted for orders.

2. In the Criminal M.P. filed by the Petitioner before the learned Judicial Magistrate u/s 156(3), Cr.P.C., seeking to register a case against an Accused by name P.T. Kalaiselvan, who was the Chief Manager of Canara Bank, Melur Branch, Thoothukudi. The contention of the Petitioner in his Complaint before the Superintendent of Police, Thoothukudi District was that the Chief Manager, Canara Bank, Melur Branch made a paper publication relating to the public auction of the landed property to an extent of 10.107 cents in Sankaraperi village with reference to the Survey Number as noted above. The Petitioner wanted to purchase the property. He had participated in the auction that was held on 25.8.2011. The Petitioner had quoted Rs. 4,25,000/- for the purchase of the property and tendered his Application along with an EMD amount of Rs. 40,000/-. He had contacted the Chief Manager on 25.8.2011. He was again asked to pay Rs. 66,250/-. Subsequently, he was advised to pay the balance consideration of Rs. 3,18,750/- on or before 14.9.2011. He had pledged the jewels of his mother with a Financial Company and arranged to remit the amount through Bank challan. He had paid the entire sale price and that the Sale Certificate was issued in his favour. The Bank Manager came to the spot and identified the property mentioned in the sale notice. Subsequently, the Sale Deed was prepared in the stamp paper. When a draft Sale Deed was produced before the Sub-Registrar for verification, he was informed that the property belonged to the Government and no Sale Deed can be registered in favour of a third party. The Manager himself came to the Sub-Registrar Office and the Sub-Registrar informed the same stand.

3. The Petitioner on further enquiry came to know that the Bank officials knowing fully well from the beginning that the property is the Government property had colluded with the borrower, fabricated the documents and allowed the borrower to avail the loan from the Bank and cheated the Petitioner by suppressing the real fact. When he approached for the refund of Rs. 4,25,000/-, the Bank informed that they have no authority to refund the amount and that they will have to act as per the directions of the higher officials. The amount can be refunded only after recovery of the amount from the borrower after registration of the Criminal case against the borrower. Though the Petitioner told them that the amount was raised by pledging the jewels of his mother, the Respondents refused to return the amount. Therefore, he pleaded to the Superintendent of Police to register a case against the Chief Manager by name P.T. Kalaiselvan.

4. The then Chief Manager had issued a Reply Notice on 3.12.2011 contending that the property was brought under public auction by resorting to the proceedings under the SARFAESI Act. Since the Petitioner had participated in the auction and being the successful bidder, he was given the Sale Certificate. The Sale Certificate was issued by the Authorized Officer. The other allegation that they promised to register the Sale Deed and that the manager came to the spot to identify the property was denied. It was stated that u/s 35 of the SARFAESI Act, 2002, the Sale Certificate issued by the authorised officer is exempted from being registered under the provisions of the Registration Act. Further, the land in question was originally the subject mater of grant by the Boodhan Board and the grantee has become the absolute owner as the Board never made any objection within a period of limitation against the last registered sale effected in respect of the property. A clear title has been passed on to the Petitioner. The Petitioner having accepted the sale under the SARFAESI Act, cannot go back. In K. Chidambara Manickam Vs. Shakeena and Others, , a Division Bench has held that the sale of the secured asset in public auction as per Section 13(4) of the SARFAESI Act which ended in issuance of a Sale Certificate as per Rule 9(7) of the Security Interest (Enforcement) Rules is a complete and absolute sale for the purpose of SARFAESI Act. The registration of the Sale Certificate as per Section 17(2)(xii) of the Registration Act is not mandatory for the completion of such sale.

5. Notwithstanding the reply, the Petitioner filed the Complaint u/s 156(3), Cr.P.C. before the learned Judicial Magistrate, No. 1, Tuticorin. The learned Judicial Magistrate held that there was no fraudulent and dishonest intention at the time of transaction and there was no material to show that the respondent made any misrepresentation. The entire transaction was purely Civil in nature and no cognizable offence was made out. The Judicial Magistrate also found that the Bank officials had issued paper publication and conducted the auction and thereafter, issued the Sale Certificate. There was also no materials disclosed that the Chief Manager had colluded with the original borrower. Hence, the Complaint was dismissed stating that it was purely a mater of Civil nature and did not disclose any cognizable offence.

6. The Petitioner under the Right to Information Act had procured the village registered with reference to the Survey Number in question to show that the relevant entry showed the Survey Number as belonging to Boodhan Board. In the Writ Petition, he seeks for the refund of the amount paid by him based on the information obtained from the RTI Act from the District Registrar Office to show that the land belonged to Boodhan movement and no registration can be done in respect of the said land. Hence, he sought for refund of the amount already paid by him.

7. In the Counter Affidavit sworn to by the present Assistant Manager, Canara Bank, Melur Branch, it was stated that one M/s. KVS & Co., a Partnership firm had availed traders open cash credit advance from the Bank. As security for the due repayment, one of the partners V. Savithiri had deposited the original title deeds of her property and credited equitable mortgage on 8.8.2002. The Bank panel had opined that the mortgagor was having valid title to the property. Based on the legal opinion, equitable mortgage was created in favour of the Bank. The mortgagor had obtained title to the mortgage property by way of outright purchase. The property was purchased for the valuable consideration as early as on 31.5.1994 and it was registered as a document with the Joint Sub-Registrar, Thoothukudi. The Patta also stood in the name of the vendor. After the death of the vendor, his wife and his son had inherited the property and became the joint owners. They sold the property to the borrower. The Revenue records including the Patta were transferred in the name of the purchaser, who is the mortgagor. They also paid kist and produced the kist receipts. But when they were not regular in repaying the amount, their account was classified as non performing asset and a notice u/s SARFAESI Act was given. The sale was on the basis of "as is where is" condition including encumbrances if any. In the sale notice, it was stated that there was no encumbrance to the knowledge of the Bank. For details of encumbrance if any, the intended bidder was asked to contact the Authorised Officer before the deposit of the earnest money. It is pursuant to the same, the Petitioner had purchased the property. As per Rule 15(3) of the Tamil Nadu Boodan Yagna Rules, 1959, even the property belonged to the Bhoodan Board and was given as a grant, can be mortgaged with the nationalized Bank as security. Therefore, the Bank is entitled to proceed with the said asset.

8. It was further stated that when the borrower registered the Sale Deed, it was not objected to by the Boodhan Board. The mortgagor had also perfected her title by long possession beyond the statutory period of limitation. There was no necessity to register the Sale Certificate. Further question raised in the Writ Petition has to be considered only by the Civil Court by letting in evidence. Hence, the Writ Petition is not maintainable. Further, u/s 32 of the SARFAESI Act, no legal proceedings can lie against the secured creditor or any of the officers or manager exercising right of the secured creditor or borrower for anything done or omitted to be done in good faith under the Act.

9. It must be noted that such a Writ Petition is clearly not maintainable as the transaction the Petitioner had with the Bank is purely commercial. Even assuming the respondent is the nationalized Bank, such commercial transaction cannot be the subject matter of the Writ Petition. The Petitioner also failed in prosecuting the Bank official which is the subject matter of the Criminal Original Petition. In this context, it is necessary to refer to a judgment of the Supreme Court in Indian Bank Vs. Godhara Nagrik Cooperative Credit Society Ltd. and Another, , and in paragraph 16, it was observed as follows:

16. It is one thing to say that the Public Sector Banks having regard to the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 should discharge their functions keeping in mind the larger public interest but ordinarily in the matter of enforcement of contract, they are to be governed by the terms thereof, which would not be amenable to Writ jurisdiction of the High Court unless the actions of the Banks are found to be wholly arbitrary and unreasonable.

10. However, the learned Counsel for the Petitioner placed strong reliance upon a judgment of a Division Bench of this Court in Jai Logistics Vs. The Authorized Officer Syndicate Bank, 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 & 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 case are not applicable to the Official Liquidator. But in the case on hand, once possession is taken over u/s 13(4) or u/s 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.

11. But the said judgment came to be considered by a subsequent judgment of the Division Bench of this Court, presided by D. Murugesan, J. vide in W.P. No. 21364 of 2011, dated 12.9.2012 in R. Shanmugachandran (deceased) and others v. The R. Shanmugachandran (Deceased) and Others Vs. The Chief Manager Indian Bank Asset Recovery Management Branch III Floor, No. 31, Variety Hall Road Coimbatore 641001, In paragraph Nos. 17, 24 & 25, it was observed as follows:

17. In Jai Logistics Vs. The Authorized Officer Syndicate Bank, , a Division Bench of this Court, to which one of us was 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 Vs. The Authorized Officer Syndicate Bank, , 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 or guarantor behind the back of the secured creditor. The ratio laid down in Jai Logistics, cannot be understood to mean that the secured creditor as 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 or 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 and 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.

In the light of the clear pronouncement of the subsequent Division Bench, the Writ Petition is clearly not maintainable. Hence, the Writ Petition will stand dismissed. Likewise, there is no case for interfering with the order passed by the learned Judicial Magistrate, No. 1, Thoothukudi. Hence, the Criminal Original Petition also will stand dismissed. No costs.