Court’s Decision
The Bombay High Court denied Lemon Seeds Hospitality Pvt. Ltd.’s request for a refund of Rs. 8,13,60,000 with interest, paid for an auctioned property. The court emphasized that due diligence was mandatory given the auction’s clear disclaimer clauses, which warned participants of existing encumbrances, barring them from seeking a refund under writ jurisdiction.
Facts of the Case
Lemon Seeds Hospitality Pvt. Ltd. purchased property No. 193/1 in New Delhi through an auction conducted by the Deputy Collector under the Maharashtra Protection of Interest of Depositors (MPID) Act. The auction aimed to recover funds for depositors defrauded by National Spot Exchange Ltd. (NSEL). Despite knowing the property’s MPID Act attachment, Lemon Seeds completed the purchase but later sought a refund, citing undisclosed attachments by the Enforcement Directorate (ED) and Economic Offences Wing (EOW).
Issues
The core issue was whether the petitioner, having joined an auction with a disclaimer warning of possible encumbrances, could claim a refund due to the property’s lack of clear title.
Petitioner’s Arguments
The petitioner argued that the auction process breached Section 55 of the Transfer of Property Act, which mandates the disclosure of material defects. They asserted that the missing title documents limited their use of the property, justifying a refund.
Respondent’s Arguments
The Competent Authority contended that the auction terms, specifically clauses 2.2 and 2.3, clearly advised bidders to perform due diligence, including verifying any encumbrances. They argued that Lemon Seeds, despite the warnings, voluntarily paid the auction amount and accepted possession, thus forfeiting grounds for a refund.
Analysis of the Law
The court examined the disclaimer clauses, observing that auctions under the MPID Act differ from SARFAESI Act auctions involving secured assets. The MPID auction was intended to repay depositors, with no assurance of clear title, and the explicit terms of the auction overruled the disclosure obligations under Section 55 of the Transfer of Property Act.
Precedent Analysis
The court differentiated this case from SARFAESI-based precedents cited by the petitioner, noting the MPID Act’s depositor-focused purpose, unlike secured asset recovery laws.
Court’s Reasoning
The court stated, “Once the subject property vested in the Competent Authority and was sold following due process of law, nothing further is required for the Petitioner to enjoy the property.” Given the disclaimers, the petitioner’s post-auction claim was unfounded, especially as they had not appealed under Section 11 of the MPID Act, which barred relief through writ jurisdiction.
Conclusion
The court dismissed the petition, upholding the auction’s finality and affirming the petitioner’s duty of due diligence. The decision solidifies the importance of auction disclaimers and limits refund claims for buyers who fail to heed such warnings.
