MRS. LEELAMMA MATHEW versus M/S INDIAN OVERSEAS BANK & ORS. on 17 November 2022

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SUPREME COURT REPORTS

[2022] 18 S.C.R.

MRS. LEELAMMA MATHEW

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M/S INDIAN OVERSEAS BANK & ORS.

(Civil Appeal No. 7128 Of 2022)

BNOVEMBER 17, 2022.

[M. R. SHAH AND KRISHNA MURARI, JJ.]

Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) –s.14 – Security Interest (Enforcement) Rules, 2002 (Rules) – r.8(6)(a)Cand (f) – Transfer of Property Act – ss.54,55(1)(a) – Defendant-Bank secured a property under the 2002 Act – Thereafter, the securedasset admeasuring 54 cents was put to auction – Appellant-plaintiffsubmitted quotation for sale – Bank took the possession of theproperty – Plaintiff paid total consideration amount – Thereafter,DTehsildar submitted report that actual measurement of land was 39.60cents and debtor had already transferred 14.40 cents out of totaladmeasuring 54 cents prior to the creation of the mortgage with theBank – Despite the findings, the Bank issued sale certificate for 54cents and handing over possession of the secured propertyadmeasuring 39.60 cents – Plaintiff instituted suit for recovery ofEdamages/compensation with respect to 14.40 cents – Trial Courtdecreed suit and directed the defendant-Bank to pay to the plaintiffa sum of Rs.58,10,000/- with 12% p.a. – High Court quashed andset aside the decree passed by the Trial Court inter alia on thegrounds (i) that as the fraud has not been established and provedFthe suit was barred in view of Section 34 of the SARFAESI Act; (ii)That the plaintiff was aware of the fact that the actual area of thesecured property put to auction is less than 54 cents and thereforeit cannot be said that there was any non-disclosure on the part ofthe Bank; (iii) that the property was put to auction “as is where is”and “as is what is” basis? – Held: High Court erred inGholding that the suit was barred by s. 34 of the SARFAESI Act – Atthe outset it is required to be noted that the suit was for damages/compensation, with respect to the balance land, which could nothave been decided by the DRT or Appellate Tribunal, s. 34 of theSARFAESI Act shall be applicable only in a case where the Debt H

Recovery Tribunal and/or Appellate Tribunal is empowered to decidethe matter under the SARFAESI Act – Auction notice was for 54cents; plaintiff paid total consideration for 54 cents; sale certificateissued was for 54 cents – So, it was not open to Bank to contendthat though Bank had handed over possession of 34.60 cents stillthe sale consideration recovered would be 54 cents – Section 54 ofTransfer of Property cast a duty on the seller to disclose any buyerany material defect in the property of which the buyer is not awareand which the buyer could not ordinarily discover – Under thecircumstances also the submission on behalf of the Bank that theproperty was put to auction on “as is where is”and “as is what is”condition, thereafter the plaintiff shall not be entitled tocompensation of the less area cannot be accepted.

Allowing the appeal, the Court

Held : 1.1 Actual possession was handed over to the Bankin the month of October, 2007 pursuant to the order passed bythe CJM - That thereafter the Tehsildar submitted the reportdated 21.11.2007 submitting that the actual measurement of theland is 39.60 cents and that the debtor had already transferred14.40 cents out of land admeasuring 54 cents prior to creation ofthe mortgage with the Bank. Despite the above the Bank issuedthe sale certificate dated 21.11.2007 for 54 cents of land, however,handed over the possession of the secured property admeasuring39.60 cents only. The sale consideration received by the Bankwas for 54 cents. That thereafter the sale certificate wasregistered in the month of October, 2010. Thereafter the plaintifffiled the suit for recovery of damages with respect to 14.40 cents.The final certificate was registered on 01.10.2010 and thereafterwhen the suit was filed in the year 2012 it cannot be said that thesuit was barred by limitation. [Para 5.1][705-D-G]

1.2 Finding recorded by the High Court that the suit wasbarred by Section 34 of the SARFAESI Act is concerned, at theoutset it is required to be noted that the suit was for damages/compensation, with respect to balance land, which could not havebeen decided by the DRT or Appellate Tribunal, Section 34 ofthe SARFAESI Act shall be applicable only in a case where the AB

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ADebt Recovery Tribunal and/or Appellate Tribunal is empoweredto decide the matter under the SARFAESI Act. [Para 5.2][705-H; 706-A-B]

1.3 Considering the fact that the auction notice was for 54cents; the plaintiff submitted the offer of Rs.32,05,000/- for 54Bcents; the plaintiff paid the actual amount of sale considerationi.e. Rs.32,05,000/- for 54 cents; the sale certificate was issuedfor 54 cents and even the sale certificate which was registered inthe year 2012 was for 54 cents, thereafter it was not open for theBank to contend that though the Bank had handed over thepossession of 34.60 cents still the sale consideration recoveredCwould be for 54 cents. It was not open for the financial institutionlike the Bank to take such a plea. Even otherwise it is requiredto be noted that at least in the month of November, 2007 whenthe Tehsildar submitted the report, the Bank was aware that theactual area is 34.60 cents and not 54 cents. Thereafter the BankDought not to have issued the sale certificate for 54 cents. TheBank ought to have been fair and ought to have issued the salecertificate only for 34.60 cents. This shows the conduct on thepart of the bank. [Para 5.3][706-E-H]

1.3 Rule 8 of the 2002 Rules cast a duty on the authorizedEofficer to take all precautions before putting the secured asset tosell. As per subrule 5 of Rule 8 before effecting sale of theimmovable property (secured assets) the authorised officer shallobtain valuation of the property from an approved valuer and inconsultation with the secured creditor and fix the reserve priceof the property and may sell the whole or any part of suchFimmovable secured asset. Therefore, when the reserve price wasfixed the same was for 54 cents. Therefore, it can be presumedthat the Bank was aware that the actual area of the secured assetis less than 54 cents. As per Section 54 of Transfer of Propertythe seller was bound to disclose any buyer any material defect inGthe property of which the buyer is not aware and which the buyercould not ordinarily discover. [Para 5.4][707-A-C]1.3 The impugned judgment and order passed by the HighCourt is hereby quashed and set aside. The judgment and decree H

MRS. LEELAMMA MATHEW v.

passed by the Learned Trial court decreeing the suit is herebyrestored. [Para 6][707-D-E]

Haryana Corporation and Anr. v. Rajesh Gupta (2010)1 SCC 655 : [2009] 16 SCR 456 – referred to.

Case Law Reference

[2009] 16 SCR 456 referred to Para 3.3

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7128of 2022.

From the Judgment and Order dated 17.03.2022 of the High Courtof Kerala at Ernakulam in RFA No. 379 of 2014.

Surendra Kumar, Sr. Adv., M. T. George, Mrs. Susy Abraham,Johns George, Advs. for the Appellant.

Kunal Tandon, Ms. Aanchal Khanna, Surendra Kumar, Ms.Priyashree Sharma P.H., Syed Faraz Alam, Kush Chaturvedi, Advs. forthe Respondents.

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court of Kerala at Ernakulam in RFANo.379 of 2014 by which the High Court has allowed the said appealpreferred by respondent no.1 herein – Bank and has quashed and setaside the judgment and decree passed by the learned Trial Court dated31.01.2014 in OS No.630 of 2012 directing the Bank to pay to the plaintiffa sum of Rs.58,10,000/- with interest at the rate of 12% per annum fromthe date of suit till realization, the original plaintiff has preferred thepresent appeal.

2. That the defendant - Bank secured the property in SurveyNo.48/1 in Tirur Taluk, Tanur Village in exercise of powers under theprovisions of the Securitization and Reconstruction of Financial Assetsand Enforcement of Security Interest Act 2002 (hereinafter referred toas ‘SARFAESI Act, 2002’)

2.1 That the Bank secured the possession and thereafter by noticefor auction dated 23.01.2007 the secured asset admeasuring 54 centswas put to auction. The appellant – original plaintiff after inspection of A

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Athe property submitted the quotation for sale of 54 cents of land andoffered Rs.32,05,000/. It appears that in the quotation the original plaintiffspecifically stated that the offer of Rs.32,05,000/- is subject to thecondition that absolute ownership and vacant possession of full extent ofproperty without encumbrances is handed over. However, bycommunication dated 05.03.2007, the Bank replied that as in the invitationBto the public for tenders, it is stated that the property would be sold in “asis where is” and “as is what is” condition, the original plaintiff may confirmthat he is ready and willing to offer the bid and take the property in thepresent condition. It appears that vide communication dated 08.03.2007,the original plaintiff reiterated that she is ready to purchase the propertyConly if, absolute ownership, vacant possession and full enjoyment of 54cents of land, free from all encumbrances is given, otherwise, she is notready to purchase the property, if the Bank is not able to assign absoluteownership, vacant possession and full enjoyment of the propertyadmeasuring 54 cents.

D2.2 It appears that thereafter the Bank took the possession of theproperty pursuant to the order passed by the CJM, Manjeri in anapplication under Section 14 of the SARFAESI Act. That thereafter theplaintiff paid a total sale consideration in the month of October, 2007.That thereafter the Tehsildar submitted the report dated 21.11.2007submitting that the actual measurement of the land is 39.60 cents andEthat the debtor had already transferred 14.40 cents out of landadmeasuring 54 cents prior to the creation of the mortgage with theBank. Despite the above the Bank issued the sale certificate for 54cents dated 21.11.2007 and handed over the possession of the securedproperty admeasuring 39.60 cents only however, the sale considerationFis issued for 54 cents. That thereafter the sale deed on the basis of thesale certificate was actually executed in favour of the plaintiff only on01.10.2010 for 54 cents. That thereafter the plaintiff instituted the suitfor recovery of damages/compensation with respect to 14.40 cents. Itwas the case of the plaintiff that as the plaintiff paid a total saleconsideration for 54 cents of the land and even the sale certificate andGthe sale deed was executed for 54 cents the plaintiff has been handedover the possession of 39.60 cents of the land only and therefore theplaintiff is entitled to the damages/compensation with respect to the 14.40cents which was less than the area for which the plaintiff paid the amounti.e. 54 cents. It was the case on behalf of the plaintiff that it was theHduty of the bank when accepted the total sale consideration for 54 cents, to hand over the peaceful and vacant possession of the land admeasuring54 cents. It was also the case on behalf of the plaintiff that as the bankwas aware of the true facts that the area of the property/land is lessdespite that the bank did not disclose the true facts to the plaintiff andsuppressed the material fact and played a fraud.

2.3 The suit was resisted by the defendant – Bank by submittingthat the sale was on “as is where is” and “as is what is” basis and thatthe plaintiff was aware that the area of the property is less than 54 centsand still she purchased the secured property. It was the case on behalfof the defendants that there was no fraud committed by them. It wassubmitted that the documents submitted to them by the borrowers wererelating to the total extent of 54 cents of land which was put to auction.That it was the case on behalf of the defendants that the plaintiff is notentitled to any compensation from the defendants. The learned TrialCourt framed the following issues:

“(i) Whether the suit is maintainable?

(ii) Whether the plaintiff is entitled to get a decree as prayed for?

(iii) Reliefs and Costs?”

2.4 That the learned Trial Court decreed the suit and directed thedefendant – Bank to pay to the plaintiff a sum of Rs.58,10,000/- withfuture interest @ 12% pa from the date of suit till realization.

2.5 Feeling aggrieved and dissatisfied with the judgment and decreepassed by the learned Trial Court, the defendant – Bank filed the presentappeal before the High Court. By the impugned judgment and order theHigh Court has allowed the appeal preferred by the defendants and hasquashed and set aside the decree passed by the learned Trial Courtinter alia on the grounds (i) that as the fraud has not been establishedand proved the suit was barred in view of Section 34 of the SARFAESIAct; (ii) That the plaintiff was aware of the fact that the actual area ofthe secured property put to auction is less than 54 cents and therefore itcannot be said that there was any non-disclosure on the part of theBank; (iii) that the property was put to auction “as is where is” and “asis what is” basis?

2.6 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court allowing the appeal and quashingand setting aside the decree passed by the learned Trial Court and A

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Aconsequently dismissing the suit, the original plaintiff has preferred thepresent appeal.

3. Shri M.T. George, learned counsel appearing on behalf of theappellant has vehemently submitted that in the facts and circumstancesof the case the Hon’ble High Court has seriously erred in quashing andBsetting aside the decree passed by the learned Trial Court. It is submittedthat as the suit was for damages/compensation the same cannot be barredunder Section 34 of the SARFAESI Act.

3.1 It is submitted that therefore the Hon’ble High Court hasmaterially erred in observing and holding that the suit was barred byCSection 34 of the SARFAESI Act.

3.2 It is further submitted by learned counsel for the appellantthat the appellant purchased 54 cents of the secured property auctionedby the defendant – Bank in exercise of the powers vested with it underthe provisions of the SARFAESI Act. That the offer made by the bankDthrough the auction notice dated 23.01.2007 was for sale of 54 cents ofland in Survey No.48/1. That the appellant offered Rs.32,05,000/-specifically stating that the absolute ownership and possession of 54cents of lands would be transferred without any encumbrances. It issubmitted that as the offer was conditional the bank by letter dated05.03.2007 informed the appellant that the bank had invited tenders onEthe basis of “as is where is” and “as is what is” condition and if theappellant is willing to buy the property on the said condition, she has toinform the Bank. It is submitted that thereafter the appellant replied on08.03.2007 the tender bid be considered only if the bank could transferabsolute ownership and possession over the entire 54 cents of land withoutFany encumbrances and if not, she would withdraw her offer and theearnest money would be returned. It is submitted that the bank took thepossession of the auctioned property through the intervention of the Courtunder Section 14 of the SARFAESI Act and asked the appellant to paythe balance sale consideration which was done by the appellant on17.10.2007. Consequently, the bank issued certificate of sale for 54 centsGof land on 21.11.2007 and thereafter the sale certificate was registeredand the sale deed was executed on 01.02.2010 for 54 cents of land. It issubmitted that therefore when the bank transferred to the appellant only39.60 cents of land a fact which was known to the bank and the appellantpaid an amount of Rs.32,05,000/- for 54 cents of land the appellant - H

original plaintiff is entitled to the remaining area of land i.e. 14.40 cents.It is submitted that therefore the Trial Court had rightly decreed the suit.

3.3 Learned Counsel appearing on behalf of the appellant hasfurther submitted that the respondent – bank while exercising the powersprovided under the SARFAESI Act failed to comply with Rule 8(6)(a)and (f) of the Security Interest (Enforcement) Rules, 2002 (hereinafterreferred to as Rules 2002) and Section 55(1)(a) of the Transfer of PropertyAct (hereinafter referred to as ‘TP Act’). It is submitted that thedisclosures can be said to be fraudulent in view of Section 55(1)(a) ofthe TP Act and the relevant provisions of the Rules, 2002 a duty is castupon the Authorised Officer to disclose to the auction purchaser anymaterial defect in the title failing which it could be construed that thepurchaser was misled. Reliance is placed on the decision of this Court inthe case of Haryana Financial Corporation and Anr. Vs. RajeshGupta, (2010) 1 SCC 655.

3.4 It is submitted that Rule 8(6)(a) and (f) of the Rules 2002mandates additional duty on the Authorised Officer to make known tothe bidders before auction any other thing which the Authorised Officerconsiders it material for a purchaser to know in order to judge the natureand value of the property. It is submitted that therefore the immunityclaimed by the bank on the pretext “as is where is” and “as is what is”basis is no more a defence.

3.5 It is submitted that out of the total road frontage of 70.1 meterswhich portion consisted of 14.40 cents has captured 46.3 meters andremaining 39.60 cents were only 23.8 as road frontage which has adirect bearing on the market value of the property.

Making above submissions, it is prayed to allow the present appealand confirm the judgment and decree passed by the learned Trial Court.

4. Present appeal is vehemently opposed by Shri Kunal Tandon,learned counsel appearing on behalf of the Respondent – Bank. It issubmitted that as the property in question was put to auction on “as iswhere is” and “as is what is” basis and the plaintiff – auction purchaserwas from the very beginning aware that the area of the land is less thanwhat was advertised and despite that the offer was made which wasaccepted, the High Court has rightly set aside the judgment and decreepassed by the learned Trial Court.

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4.1 It is submitted that as rightly observed by the High Court itwas not the case that the Bank had no saleable interest at all. It issubmitted that the Tehsildar gave its report on 21.11.2007 about the exactextent of the auction property. Thus, no fault was said to the found withthe Bank.

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B4.2 It is submitted that the Hon’ble High Court after looking at theevidence as concluded that the original plaintiff was fully aware of thedeficiency in extent.

4.3 It is further submitted that even otherwise as observed andheld by Hon’ble High Court the suit itself was barred under Section 34Cof the SARFAESI Act.

4.4 It is submitted that in terms of Section 34 of the SARFAESIAct, the jurisdiction of the Civil Court is absolute barred except in casethe plaintiff is able to show fraud or misrepresentation. It is submittedthat in the present case from the communications on record and that theDpossession was handed over to the bank pursuant to the order underSection 14 of the SARFAESI Act on 08.10.2007 and thereafter the plaintiffmade the payments on various dates, leading to the issuance of the salecertificate on 21.11.2007, which was registered almost 3 years later on01.02.2010, it is very much clear that the plaintiff was aware of theextent of the property and no case of fraud is made out.

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4.5 Even the claim of the plaintiff was barred by limitation. It issubmitted that the suit was filed in the year 2012 while the auction saletook place on 05.02.2007 and the sale certificate was issued on 21.11.2007.The payments were made on October, 2007. It is submitted that thus thecause of action arose on 05.02.2007 and thereafter on 21.11.2007. It isFsubmitted therefore as per Article 113 of the Limitation Act, the suit wasbarred by limitation being beyond three years from the first date ofknowledge.

Making above submissions it is prayed to dismiss the presentappeal.G5. We have heard learned counsel appearing for the respectiveparties at length.

5.1 At the outset, it is required to be noted that after the Bankreceived the possession of the secured property in exercise of powersunder the SARFAESI Act, the property in question admeasuring 54 centsH

was put to auction, by Auction Notice dated 23.01.2007. The plaintiff onthe basis of the representation made and the auction notice in which theland was put to auction was stated to be 54 cents submitted her offer ofRs.32,05,000/- for sale of 54 cents. At this stage, it is required to benoted that in the quotation itself the plaintiff specifically stated that theoffer of Rs.32,05,000/- is subject to the condition that the absoluteownership and vacant possession of full extent of property withoutencumbrances is handed over. However, the Bank replied that as in theinvitation to the public for tenders, it is stated that the property would besold on “as is where is” and “as is what is” condition, the plaintiff mayconfirm that the plaintiff is ready to offer the bid and take the property inthe present condition. However, immediately vide communication dated08.03.2007 the plaintiff reiterated that she is ready to purchase theproperty only if, absolute ownership, vacant possession and full enjoymentof 54 cents of land, free from all encumbrances is given, otherwise, sheis not ready to purchase the property, if the Bank is not able to assignabsolute ownership, vacant possession and full enjoyment of the propertyadmeasuring 54 cents. At this stage it is required to be noted that theBank took the possession of the property auctioned on paper. However,the actual possession was handed over to the Bank in the month ofOctober, 2007 pursuant to the order passed by the CJM, Manjeri in anapplication under Section 14 of the SARFAESI Act. That thereafter theTehsildar submitted the report dated 21.11.2007 submitting that the actualmeasurement of the land is 39.60 cents and that the debtor had alreadytransferred 14.40 cents out of land admeasuring 54 cents prior to creationof the mortgage with the Bank. Despite the above the Bank issued thesale certificate dated 21.11.2007 for 54 cents of land, however, handedover the possession of the secured property admeasuring 39.60 centsonly. The sale consideration received by the Bank was for 54 cents.That thereafter the sale certificate was registered in the month of October,2010. Thereafter the plaintiff filed the suit for recovery of damages withrespect to 14.40 cents. The final certificate was registered on 01.10.2010and thereafter when the suit was filed in the year 2012 it cannot be saidthat the suit was barred by limitation. At this stage, it is required to benoted that as such no issue was framed by the learned Trial Court onwhether the suit is barred by limitation or not.

5.2 Now so far as the submission on behalf of the plaintiff and thefinding recorded by the High Court that the suit was barred by Section34 of the SARFAESI Act is concerned, at the outset it is required to be ABCDEFG

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Anoted that the suit was for damages/compensation, with respect to thebalance land, which could not have been decided by the DRT or AppellateTribunal, Section 34 of the SARFAESI Act shall be applicable only in acase where the Debt Recovery Tribunal and/or Appellate Tribunal isempowered to decide the matter under the SARFAESI Act. The plaintiffwas not challenging the sale/sale certificate. The plaintiff claimed theBdamages/compensation with respect to the less area. Therefore, theHigh Court has seriously erred in holding that the suit was barred bySection 34 of the SARFAESI Act.

5.3 Now so far as the submission on behalf of the Bank that asthe property was put to auction on “as is where is” and “as is what is”Cbasis and the plaintiff was aware that the actual area of the propertyauction is less and thereafter entered into the transaction and thereforethe plaintiff cannot claim/pray compensation/damages with respect tothe deficiency in the area is concerned, at the outset, it is required to benoted that right from the very beginning the plaintiff insisted for handingDover the possession of the 54 cents. When the property was put to auctioneven the Bank was not in actual possession. The Bank got possessionpursuant to the order passed by the District Magistrate and thereafterthe measurement was done by Tehsildar in which it was found that theactual area of the land auctioned was 34.60 cents and 14.40 cents wasalready transferred by the debtor much earlier. Therefore, at the relevantEtime when the property was put to auction even the Bank was not awareof the actual measurement and had gone by the document and 54 centswas put to auction. Considering the fact that the auction notice was for54 cents; the plaintiff submitted the offer of Rs.32,05,000/- for 54 cents;the plaintiff paid the actual amount of sale consideration i.e. Rs.32,05,000/F- for 54 cents; the sale certificate was issued for 54 cents and even thesale certificate which was registered in the year 2012 was for 54 cents,thereafter it was not open for the Bank to contend that though the Bankhad handed over the possession of 34.60 cents still the sale considerationrecovered would be for 54 cents. It was not open for the financial institution like the Bank to take such a plea. Even otherwise it is requiredGto be noted that at least in the month of November, 2007 when theTehsildar submitted the report, the Bank was aware that the actual areais 34.60 cents and not 54 cents. Thereafter the Bank ought not to haveissued the sale certificate for 54 cents. The Bank ought to have beenfair and ought to have issued the sale certificate only for 34.60 cents.HThis shows the conduct on the part of the bank.

5.4 Rule 8 of the 2002 Rules cast a duty on the authorized officerto take all precautions before putting the secured asset to sell. As persub-rule 5 of Rule 8 before effecting sale of the immovable property(secured assets) the authorised officer shall obtain valuation of theproperty from an approved valuer and in consultation with the securedcreditor and fix the reserve price of the property and may sell the wholeor any part of such immovable secured asset. Therefore, when thereserve price was fixed the same was for 54 cents. Therefore, it can bepresumed that the Bank was aware that the actual area of the securedasset is less than 54 cents. As per Section 54 of the Transfer of PropertyAct the seller was bound to disclose any buyer any material defect inthe property of which the buyer is not aware and which the buyer couldnot ordinarily discover. Under the circumstances also the submission onbehalf of the Bank that the property was put to auction on “as is whereis” and “as is what is” condition, thereafter the plaintiff shall not beentitled to compensation of the less area cannot be accepted.

6. In view of the above and for the reasons stated above, theHigh Court has committed an error in allowing the appeal and quashingand setting aside the judgment and decree passed by the learned TrialCourt. Consequently, the impugned judgment and order passed by theHigh Court is hereby quashed and set aside. The judgment and decreepassed by the learned Trial Court decreeing the suit is hereby restored.The respondent – Bank to pay the decretal amount to the appellant withinterest as per the judgment and decree passed by the learned TrialCourt within a period of 8 weeks from today.

The present appeal is allowed with costs which is quantified atRs.25,000/- which also shall be paid by the Bank to the original plaintiffwithin a period of eight weeks from today.

Ankit Gyan

Appeal allowed.

(Assisted by : Priyanshu Agarwal, LCRA)

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