Finality Of SARFAESI Auction Is Matter Of Public Policy: Delhi High Court Bars Recovery Of Pre-Sale Dues

Holding that the finality of a statutory auction is a matter of public policy, the Delhi High Court has ruled that an auction purchaser under the SARFAESI Act cannot recover pre-sale statutory dues after unconditionally accepting the sale certificate.

Allowing such recovery, the Court said, would render the “as is where is” clause meaningless and create uncertainty for secured creditors.

Setting aside the Commercial Court's January 31, 2023 judgment, a Division Bench of Justices Anil Kshetrapal and Amit Mahajan held that the purchaser was bound by the express “as is where is”, “as is what is” and “whatever there is” terms in the November 28, 2018 auction notice.

“The finality of a judicial or statutory auction is a matter of public policy. To allow a purchaser to recover pre-sale dues after accepting the sale certificate unconditionally would render the 'as is where is' clause otiose and create perpetual uncertainty for secured creditors,” the court observed.

The case arose from an e-auction conducted by Bank of Maharashtra as a secured creditor under the SARFAESI Act. The bank auctioned leasehold industrial plots H-3, H-3A and H-4 situated at UPSIDA Industrial Area, Sikandrabad. The plots had been mortgaged by its borrower.

Jai Kumar Bansal emerged as the successful bidder with an offer of Rs. 6,07,12,000. The sale certificate was issued on December 29, 2018. Possession was handed over on January 1, 2019.

The dispute began when the Uttar Pradesh State Industrial Development Authority, the original lessor, by letters dated May 15, 2019 demanded arrears of lease rent and transfer charges relating to the pre-auction period as a condition for mutation of the leasehold rights.

Bansal paid Rs. 25,06,846 under protest. He then filed a suit against Bank of Maharashtra seeking reimbursement. He contended that the property ought to have been delivered free from pre-sale encumbrances and that the bank had failed to disclose the outstanding statutory dues.

The Commercial Court, by its judgment dated January 31, 2023, held the bank liable to reimburse the amount.

The High Court, however, overturned the order. It noted that Clause 12 of the auction notice placed liability for statutory dues on the purchaser. The sale certificate clarified that the property was free only from encumbrances “known to the secured creditor.”

Finding no fraud or active concealment, the court allowed the appeal. It set aside the Commercial Court's decree and dismissed the suit.