Court’s Decision
The Delhi High Court exercised its writ jurisdiction under Article 226 of the Constitution, quashing the sale certificate issued to the petitioner. It ordered the respondent bank to:
- Refund ₹9,93,752.94 paid by the petitioner with 12% annual interest from 2013.
- Close the loan account and refund any installments paid with 12% interest.
- Remove restrictions placed on the petitioner’s savings account.
- Initiate an inquiry against the respondent bank for its arbitrary conduct and issue corrective measures to prevent such occurrences.
- Pay ₹5,00,000 as compensation for mental trauma, litigation costs, and exemplary damages.
Facts
- Auction and Purchase:
- In 2013, the respondent bank auctioned a property under the SARFAESI Act, stating the property was free of encumbrances.
- The petitioner purchased the property for ₹28,42,000, partly financed by a loan of ₹20,00,000 from the same bank.
- Dispute Arises:
- Upon attempting possession, the petitioner discovered the property was already occupied by a third party who had purchased it earlier in an auction conducted by another bank.
- The petitioner informed the respondent bank of the issue but received no satisfactory resolution.
- Bank’s Response:
- The bank did not refund the petitioner or resolve the issue.
- Instead, it continued charging EMIs, demanding repayment of the loan.
- Prolonged Litigation:
- The petitioner engaged in prolonged litigation for over 11 years, seeking justice, while the respondent bank remained unresponsive and negligent.
Issues
- Maintainability of the Writ Petition:
- Whether the petitioner could approach the High Court under Article 226 when proceedings were pending before the DRT.
- Bank’s Liability:
- Whether the bank was responsible for selling a property with a defective title and failing to disclose encumbrances.
Petitioner’s Arguments
- Misrepresentation by the Bank:
- The bank sold the property as “free from encumbrances,” misleading the petitioner.
- It failed to disclose critical defects in the property’s title, violating its duty under Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002.
- Good Faith:
- The petitioner acted in good faith, relying on the bank’s declarations and suffered financial and emotional distress due to the bank’s negligence.
- Prolonged Hardship:
- The petitioner endured 11 years of litigation, causing mental trauma and financial burden.
Respondent’s Arguments
- Sub Judice:
- The respondent argued that since proceedings were pending before the DRT, the writ petition was not maintainable.
- Disclaimer Clause:
- The bank claimed the auction was conducted on an “as is where is” basis, absolving it of liability for encumbrances.
Analysis of the Law
- Maintainability:
- The Court held that writ jurisdiction under Article 226 was maintainable because:
- The bank failed to comply with statutory duties under the SARFAESI Act.
- The petitioner’s grievances were outside the scope of the SARFAESI Act and DRT proceedings.
- The Court held that writ jurisdiction under Article 226 was maintainable because:
- Bank’s Duties:
- Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, require banks to disclose all known encumbrances in auction notices.
- The bank failed to perform due diligence and withheld material information about the property’s title.
- Limitations of Disclaimers:
- The “as is where is” disclaimer does not absolve banks of their duty to disclose known defects.
- The sale certificate falsely declared the property to be free of encumbrances, misleading the petitioner.
Precedent Analysis
The Court referred to judgments emphasizing:
- PHR Invent Educational Society v. UCO Bank:
- High Courts should avoid exercising writ jurisdiction if an alternate remedy exists, except in cases of procedural violations or fundamental errors.
- Celir LLP v. Bafna Motors:
- Article 226 jurisdiction can be invoked when statutory authorities fail to act in accordance with the law.
The Court found the present case to fall under the exceptions, as the bank’s conduct involved blatant procedural violations.
Court’s Reasoning
- Bank’s Negligence:
- The bank misled the petitioner by issuing a defective sale certificate, causing severe harm.
- The auction notice failed to disclose prior encumbrances, violating the petitioner’s trust.
- Good Faith Purchaser:
- The petitioner was an innocent buyer, acting in reliance on the bank’s declarations.
- Prolonged Delay:
- The bank’s failure to resolve the issue for over 11 years was unjustifiable, causing irreparable harm to the petitioner.
Conclusion
The Court concluded that the bank’s actions were arbitrary, unconscionable, and deserving of exemplary costs. It ordered:
- Refund of the auction price with interest.
- Closure of the loan account and refund of EMIs paid.
- ₹5,00,000 as compensation for mental trauma and litigation costs.
Implications
- Accountability for Banks:
- The judgment reiterates the responsibility of banks to conduct due diligence and ensure transparency in property auctions.
- Consumer Protection:
- The ruling strengthens consumer rights, ensuring buyers are protected from misrepresentation and procedural lapses by financial institutions.
- High Court’s Role:
- The case emphasizes the High Court’s jurisdiction to address procedural violations even when alternate remedies exist.