Leelamma Mathew vs M/S. Indian Overseas Bank

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7128 OF 2022

Mrs. Leelamma Mathew …Appellant

Versus

M/s Indian Overseas Bank & Ors. …Respondents

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court of Kerala at

Ernakulam in RFA No.379 of 2014 by which the High Court

has allowed the said appeal preferred by respondent no.1 Signature Not Verified Digitally signed by R

herein – Bank and has quashed and set aside the judgment Natarajan Date: 2022.11.17 17:01:12 IST Reason:

and decree passed by the learned Trial Court dated 31.01.2014

1 in OS No.630 of 2012 directing the Bank to pay to the plaintiff

a sum of Rs.58,10,000/­ with interest at the rate of 12% per

annum from the date of suit till realization, the original plaintiff

has preferred the present appeal.

2. That the defendant ­ Bank secured the property in Survey

No.48/1 in Tirur Taluk, Tanur Village in exercise of powers

under the provisions of the Securitization and Reconstruction

of Financial Assets and Enforcement of Security Interest Act

2002 (hereinafter referred to as ‘SARFAESI Act, 2002’)

2.1 That the Bank secured the possession and thereafter by

notice for auction dated 23.01.2007 the secured asset

admeasuring 54 cents was put to auction. The appellant –

original plaintiff after inspection of the property submitted the

quotation for sale of 54 cents of land and offered

Rs.32,05,000/. It appears that in the quotation the original

plaintiff specifically stated that the offer of Rs.32,05,000/­ is

subject to the condition that absolute ownership and vacant

2 possession of full extent of property without encumbrances is

handed over. However, by communication dated 05.03.2007,

the Bank replied that as in the invitation to the public for

tenders, it is stated that the property would be sold in “as is

where is” and “as is what is” condition, the original plaintiff

may confirm that he is ready and willing to offer the bid and

take the property in the present condition. It appears that vide

communication dated 08.03.2007, the original plaintiff

reiterated that she is ready to purchase the property only if,

absolute ownership, vacant possession and full enjoyment of 54

cents of land, free from all encumbrances is given, otherwise,

she is not ready to purchase the property, if the Bank is not

able to assign absolute ownership, vacant possession and full

enjoyment of the property admeasuring 54 cents.

2.2 It appears that thereafter the Bank took the possession of

the property pursuant to the order passed by the CJM, Manjeri

in an application under Section 14 of the SARFAESI Act. That

thereafter the plaintiff paid a total sale consideration in the

3 month of October, 2007. That thereafter the Tehsildar

submitted the report dated 21.11.2007 submitting that the

actual measurement of the land is 39.60 cents and that the

debtor had already transferred 14.40 cents out of land

admeasuring 54 cents prior to the creation of the mortgage with

the Bank. Despite the above the Bank issued the sale

certificate for 54 cents dated 21.11.2007 and handed over the

possession of the secured property admeasuring 39.60 cents

only however, the sale consideration is issued for 54 cents.

That thereafter the sale deed on the basis of the sale certificate

was actually executed in favour of the plaintiff only on

01.10.2010 for 54 cents. That thereafter the plaintiff instituted

the suit for recovery of damages/compensation with respect to

14.40 cents. It was the case of the plaintiff that as the plaintiff

paid a total sale consideration for 54 cents of the land and even

the sale certificate and the sale deed was executed for 54 cents

the plaintiff has been handed over the possession of 39.60

cents of the land only and therefore the plaintiff is entitled to

the damages/compensation with respect to the 14.40 cents

4 which was less than the area for which the plaintiff paid the

amount i.e. 54 cents. It was the case on behalf of the plaintiff

that it was the duty of the bank when accepted the total sale

consideration for 54 cents, to hand over the peaceful and

vacant possession of the land admeasuring 54 cents. It was

also the case on behalf of the plaintiff that as the bank was

aware of the true facts that the area of the property/land is less

despite that the bank did not disclose the true facts to the

plaintiff and suppressed the material fact and played a fraud.

2.3 The suit was resisted by the defendant – Bank by

submitting that the sale was on “as is where is” and “as is what

is” basis and that the plaintiff was aware that the area of the

property is less than 54 cents and still she purchased the

secured property. It was the case on behalf of the defendants

that there was no fraud committed by them. It was submitted

that the documents submitted to them by the borrowers were

relating 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 not entitled to any compensation from the

5 defendants. The learned Trial Court 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

the defendant – Bank to pay to the plaintiff a sum of

Rs.58,10,000/­ with future interest @ 12% pa from the date of

suit till realization.

2.5 Feeling aggrieved and dissatisfied with the judgment and

decree passed by the learned Trial Court, the defendant – Bank

filed the present appeal before the High Court. By the

impugned judgment and order the High Court has allowed the

appeal preferred by the defendants and has quashed and set

aside the decree passed by the learned Trial Court inter alia on

the grounds (i) that as the fraud has not been established and

proved the 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 the secured property put to auction is less

6 than 54 cents and therefore it cannot be said that there was

any non­disclosure on the part of the Bank; (iii) that the

property was put to auction “as is where is” and “as is what is”

basis?

2.6 Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court allowing the

appeal and quashing and setting aside the decree passed by the

learned Trial Court and consequently dismissing the suit, the

original plaintiff has preferred the present appeal.

3. Shri M.T. George, learned counsel appearing on behalf of

the appellant has vehemently submitted that in the facts and

circumstances of the case the Hon’ble High Court has seriously

erred in quashing and setting aside the decree passed by the

learned Trial Court. It is submitted that as the suit was for

damages/compensation the same cannot be barred under

Section 34 of the SARFAESI Act.

7 3.1 It is submitted that therefore the Hon’ble High Court has

materially erred in observing and holding that the suit was

barred by Section 34 of the SARFAESI Act.

3.2 It is further submitted by learned counsel for the

appellant that the appellant purchased 54 cents of the secured

property auctioned by the defendant – Bank in exercise of the

powers vested with it under the provisions of the SARFAESI

Act. That the offer made by the bank through the auction

notice dated 23.01.2007 was for sale of 54 cents of land in

Survey No.48/1. That the appellant offered Rs.32,05,000/­

specifically stating that the absolute ownership and possession

of 54 cents of lands would be transferred without any

encumbrances. It is submitted that as the offer was conditional

the bank by letter dated 05.03.2007 informed the appellant

that the bank had invited tenders on the basis of “as is where

is” and “as is what is” condition and if the appellant is willing to

buy the property on the said condition, she has to inform the

Bank. It is submitted that thereafter the appellant replied on

08.03.2007 the tender bid be considered only if the bank could

8 transfer absolute ownership and possession over the entire 54

cents of land without any encumbrances and if not, she would

withdraw her offer and the earnest money would be returned.

It is submitted that the bank took the possession of the

auctioned property through the intervention of the Court under

Section 14 of the SARFAESI Act and asked the appellant to pay

the balance sale consideration which was done by the appellant

on 17.10.2007. Consequently, the bank issued certificate of

sale for 54 cents of land on 21.11.2007 and thereafter the sale

certificate was registered and the sale deed was executed on

01.02.2010 for 54 cents of land. It is submitted that therefore

when the bank transferred to the appellant only 39.60 cents of

land a fact which was known to the bank and the appellant

paid an amount of Rs.32,05,000/­ for 54 cents of land the

appellant ­ 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.

9 3.3 Learned Counsel appearing on behalf of the appellant has

further submitted that the respondent – bank while exercising

the powers provided under the SARFAESI Act failed to comply

with Rule 8(6)(a) and (f) of the Security Interest (Enforcement)

Rules, 2002 (hereinafter referred to as Rules 2002) and Section

55(1)(a) of the Transfer of Property Act (hereinafter referred to

as ‘TP Act’). It is submitted that the disclosures can be said to

be fraudulent in view of Section 55(1)(a) of the TP Act and the

relevant provisions of the Rules, 2002 a duty is cast upon the

Authorised Officer to disclose to the auction purchaser any

material defect in the title failing which it could be construed

that the purchaser was misled. Reliance is placed on the

decision of this Court in the case of Haryana Financial

Corporation and Anr. Vs. Rajesh Gupta, (2010) 1 SCC 655.

3.4 It is submitted that Rule 8(6)(a) and (f) of the Rules 2002

mandates additional duty on the Authorised Officer to make

known to the bidders before auction any other thing which the

Authorised Officer considers it material for a purchaser to know

10 in order to judge the nature and value of the property. It is

submitted that therefore the immunity claimed 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

meters which portion consisted of 14.40 cents has captured

46.3 meters and remaining 39.60 cents were only 23.8 as road

frontage which has a direct bearing on the market value of the

property.

Making above submissions, it is prayed to allow the

present appeal and 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 is submitted that as the property in question was

put to auction on “as is where is” and “as is what is” basis and

the plaintiff – auction purchaser was from the very beginning

11 aware that the area of the land is less than what was advertised

and despite that the offer was made which was accepted, the

High Court has rightly set aside the judgment and decree

passed by the learned Trial Court.

4.1 It is submitted that as rightly observed by the High Court

it was not the case that the Bank had no saleable interest at

all. It is submitted that the Tehsildar gave its report on

21.11.2007 about the exact extent of the auction property.

Thus, no fault was said to the found with the Bank.

4.2 It is submitted that the Hon’ble High Court after looking at

the evidence as concluded that the original plaintiff was fully

aware of the deficiency in extent.

4.3 It is further submitted that even otherwise as observed

and held by Hon’ble High Court the suit itself was barred under

Section 34 of the SARFAESI Act.

12 4.4 It is submitted that in terms of Section 34 of the

SARFAESI Act, the jurisdiction of the Civil Court is absolute

barred except in case the plaintiff is able to show fraud or

misrepresentation. It is submitted that in the present case

from the communications on record and that the possession

was handed over to the bank pursuant to the order under

Section 14 of the SARFAESI Act on 08.10.2007 and thereafter

the plaintiff made the payments on various dates, leading to the

issuance of the sale certificate on 21.11.2007, which was

registered almost 3 years later on 01.02.2010, it is very much

clear that the plaintiff was aware of the extent of the property

and no case of fraud is made out.

4.5 Even the claim of the plaintiff was barred by limitation. It

is submitted that the suit was filed in the year 2012 while the

auction sale took 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 the cause of action

arose on 05.02.2007 and thereafter on 21.11.2007. It is

submitted therefore as per Article 113 of the Limitation Act, the

13 suit was barred by limitation being beyond three years from the

first date of knowledge.

Making above submissions it is prayed to dismiss the

present appeal.

5. We have heard learned counsel appearing for the

respective parties at length.

5.1 At the outset, it is required to be noted that after the Bank

received the possession of the secured property in exercise of

powers under the SARFAESI Act, the property in question

admeasuring 54 cents was put to auction, by Auction Notice

dated 23.01.2007. The plaintiff on the basis of the

representation made and the auction notice in which the land

was put to auction was stated to be 54 cents submitted her

offer of Rs.32,05,000/­ for sale of 54 cents. At this stage, it is

required to be noted that in the quotation itself the plaintiff

specifically stated that the offer of Rs.32,05,000/­ is subject to

the condition that the absolute ownership and vacant

14 possession of full extent of property without encumbrances is

handed over. However, the Bank replied that as in the

invitation to the public for tenders, it is stated that the property

would be sold on “as is where is” and “as is what is” condition,

the plaintiff may confirm that the plaintiff is ready to offer the

bid and take the property in the present condition. However,

immediately vide communication dated 08.03.2007 the plaintiff

reiterated that she is ready to purchase the property only if,

absolute ownership, vacant possession and full enjoyment of 54

cents of land, free from all encumbrances is given, otherwise,

she is not ready to purchase the property, if the Bank is not

able to assign absolute ownership, vacant possession and full

enjoyment of the property admeasuring 54 cents. At this stage

it is required to be noted that the Bank took the possession of

the property auctioned on paper. However, the actual

possession was handed over to the Bank in the month of

October, 2007 pursuant to the order passed by the CJM,

Manjeri in an application under Section 14 of the SARFAESI

Act. That thereafter the Tehsildar submitted the report dated

15 21.11.2007 submitting that the actual measurement of the

land is 39.60 cents and that the debtor had already transferred

14.40 cents out of land admeasuring 54 cents prior to creation

of the mortgage with the Bank. Despite the above the Bank

issued the sale certificate dated 21.11.2007 for 54 cents of

land, however, handed over the possession of the secured

property admeasuring 39.60 cents only. 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

with respect to 14.40 cents. The final certificate was registered

on 01.10.2010 and thereafter when the suit was filed in the

year 2012 it cannot be said that the suit was barred by

limitation. At this stage, it is required to be noted that as such

no issue was framed by the learned Trial Court on whether the

suit is barred by limitation or not.

5.2 Now so far as the submission on behalf of the plaintiff and

the finding recorded by the High Court that the suit was barred

16 by Section 34 of the SARFAESI Act is concerned, at the outset it

is required to be noted that the suit was for

damages/compensation, with respect to the balance land,

which could not have been decided by the DRT or Appellate

Tribunal, Section 34 of the SARFAESI Act shall be applicable

only in a case where the Debt Recovery Tribunal and/or

Appellate Tribunal is empowered to decide the matter under the

SARFAESI Act. The plaintiff was not challenging the sale/sale

certificate. The plaintiff claimed the damages/compensation

with respect to the less area. Therefore, the High Court has

seriously erred in holding that the suit was barred by Section

34 of the SARFAESI Act.

5.3 Now so far as the submission on behalf of the Bank that

as the property was put to auction on “as is where is” and “as is

what is” basis and the plaintiff was aware that the actual area

of the property auction is less and thereafter entered into the

transaction and therefore the plaintiff cannot claim/pray

compensation/damages with respect to the deficiency in the

17 area is concerned, at the outset, it is required to be noted that

right from the very beginning the plaintiff insisted for handing

over the possession of the 54 cents. When the property was

put to auction even the Bank was not in actual possession.

The Bank got possession pursuant to the order passed by the

District Magistrate and thereafter the measurement was done

by Tehsildar in which it was found that the actual area of the

land auctioned was 34.60 cents and 14.40 cents was already

transferred by the debtor much earlier. Therefore, at the

relevant time when the property was put to auction even the

Bank was not aware of the actual measurement and had gone

by the document and 54 cents was put to auction.

Considering the fact that the auction notice was for 54 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/­ for 54 cents; the sale certificate was issued for

54 cents and even the sale 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 Bank had handed over the

18 possession of 34.60 cents still the sale consideration recovered

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 required to be noted that at least in the month of November,

2007 when the Tehsildar submitted the report, the Bank was

aware that the actual area is 34.60 cents and not 54 cents.

Thereafter the Bank ought not to have issued the sale

certificate for 54 cents. The Bank ought to have been fair and

ought to have issued the sale certificate only for 34.60 cents.

This shows the conduct on the part of the bank.

5.4 Rule 8 of the 2002 Rules cast a duty on the authorized

officer to take all precautions before putting the secured asset

to sell. As per sub­rule 5 of Rule 8 before effecting sale of the

immovable property (secured assets) the authorised officer shall

obtain valuation of the property from an approved valuer and in

consultation with the secured creditor and fix the reserve price

of the property and may sell the whole or any part of such

immovable secured asset. Therefore, when the reserve price

19 was fixed the same was for 54 cents. Therefore, it can be

presumed that the Bank was aware that the actual area of the

secured asset is less than 54 cents. As per Section 54 of the

Transfer of Property Act the seller was bound to disclose any

buyer any material defect in the property of which the buyer is

not aware and which the buyer could not ordinarily discover.

Under the circumstances also the submission on behalf of the

Bank that the property was put to auction on “as is where is”

and “as is what is” condition, thereafter the plaintiff shall not

be entitled to compensation of the less area cannot be accepted.

6. In view of the above and for the reasons stated above, the

High Court has committed an error in allowing the appeal and

quashing and setting aside the judgment and decree passed by

the learned Trial Court. Consequently, the impugned judgment

and order passed by the High Court is hereby quashed and set

aside. The judgment and decree passed by the learned Trial

Court decreeing the suit is hereby restored. The respondent –

Bank to pay the decretal amount to the appellant with interest

20 as per the judgment and decree passed by the learned Trial

Court within a period of 8 weeks from today.

The present appeal is allowed with costs which is

quantified at Rs.25,000/­ which also shall be paid by the Bank

to the original plaintiff within a period of eight weeks from

today.

…………………………..J. (M. R. SHAH)

…………………………...J. (KRISHNA MURARI) New Delhi;

November 17, 2022.

21