JAI LOGISTICS Vs. AUTHORIZED OFFICER

JUDGEMENT

(1.) This writ petition raises an interesting question as to whether a bank or financial institution, while invoking the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Rules made thereunder, is entitled to bring the property for sale by way of auction without disclosing the encumbrance.

(2.) The petitioner is a firm engaged in the business of providing logistics services. They came across a publication in one of the issues of 'The Daily Thanthi' dated 7.10.2009 for the sale of an extent of 4.38 acres of land comprised in S.F. No. 291/2, Ichipatti Village, Kothumuttupalayam Road, Palladam Taluk, Tirupur District. That property belonged to one M/s Sowmya Textiles, which had availed loan from the respondent-Syndicate Bank. As there were defaulted repayments, the bank proceeded under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, "the SARFAESI Act"), which ultimately culminated into publication of the sale notice. The petitioner participated in the bid when the auction was conducted on 9.11.2009. They also paid the earnest money deposit of Rs. 2,63,000/- on the same day. When the petitioner applied for encumbrance on 10.11.2009, they came to know that a settlement deed had been executed by the owner of the said land on 21.9.2009. As there was encumbrance over the property, the petitioner did not pay the balance of sale consideration and approached the respondent-bank seeking as to why the encumbrance was not notified in the sale notice. The petitioner was informed orally that the bank itself was not aware of the encumbrance created upon the property and consequently it was further assured that the earnest money deposit would be refunded. Contrary to the said assurance, vide the impugned letter dated 21.11.2009, the petitioner was informed that as per the terms of the auction, the earnest money deposit stands forfeited.

(3.) While challenging the said order, the Learned Counsel for the petitioner would submit that had the respondent put the petitioner on notice as to the encumbrance, they would not have participated in the auction and therefore the failure on the part of the petitioner to deposit the balance sale consideration was not willful. Hence the impugned order of forfeiture is liable to be set aside.