Allahabad High Court Dismisses Petition on SARFAESI Auction Sale Liabilities

Court rules that auction purchasers are responsible for verifying property dues, absolving banks of liability for undisclosed encumbrances.

In a recent judgment, the Allahabad High Court dismissed a petition filed by Mukesh Singh, an auction purchaser, who sought relief from the court regarding undisclosed society dues discovered post the purchase of a property through a SARFAESI e-auction. The Division Bench, comprising Justices Ajit Kumar and Swarupama Chaturvedi, concluded that the responsibility to verify dues and liabilities before participating in an auction rests with the purchaser, not the bank.

The petitioner, Mukesh Singh, acquired a flat in Agra through an auction conducted by the respondent bank on an "as is where is," "as is what is," and "whatever there is" basis. After the sale, Singh discovered that the property was burdened with undisclosed society dues, leading to the disconnection of the water supply. Singh argued that these liabilities were not reflected in any encumbrance certificate and thus approached the court under Article 226 of the Constitution of India for relief.

The court, however, highlighted that the auction notice clearly stated the terms under which the property was sold, thereby placing the onus on the purchaser to exercise due diligence. Citing precedents, including the Supreme Court's ruling in K. C. Ninan v. Kerala State Electricity Board and the Calcutta High Court's decision in South Indian Bank Limited v. JAC Olivol Products Private Limited, the bench underscored that the "as is where is" condition implies that the seller does not assume responsibility for any dues related to the property.

The judgment further noted that Singh had accepted the terms and conditions of the sale, which included the absence of guarantees regarding the property's encumbrances. The court emphasized that the petitioner was aware of these conditions at the time of bidding and had the option to refrain from participating if the terms were unacceptable.

In light of these considerations, the court ruled against the petitioner, affirming that the bank was not liable for the society dues and dismissing the petition. However, the court granted the petitioner liberty to seek remedies under the Uttar Pradesh Apartment (Promotion of Construction, Ownership, and Maintenance) Act, 2010, if deemed necessary.

Bottom Line:

SARFAESI Act - Auction sale conducted on "as is where is", "as is what is", and "whatever there is" basis - Duty lies with prospective bidder to exercise caution in checking dues and liabilities before participating in the auction - Bank not liable for undisclosed dues of society after execution of sale deed.

Statutory provision(s): SARFAESI Act, Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010, Article 226 of the Constitution of India

Mukesh Singh v. State of U.P., (Allahabad)(DB) : Law Finder Doc Id # 2797720