Auction Purchaser Must Exercise Complete Caution, Bank Not Liable For Undisclosed Liabilities: Allahabad High Court

The Allahabad High Court has held that it is the duty of the auction purchaser to exercise complete caution in checking dues and liabilities of the auctioned property and bank can't be made responsible for any undisclosed liability.

The Court was considering a Writ Petition seeking directions against the State in relation to the water supply problem, which was discovered post-sale in respect of a property purchased through SARFAESI e-auction.

The Division Bench of Justice Ajit Kumar and Justice Swarupama Chaturvedi observed, ".....once a person participates in any auction while having knowledge that the property is being e-auctioned having the condition "as is where is", "as is what is and "whatever there is" the duty is upon the prospective bidder, who is the purchaser in facts of the case, to exercise complete caution in checking dues and liabilities..."

The Petitioner was represented by Advocate Mohd. Sauood, while the Respondent was represented by C.S.C. Advocate Satish Chaturvedi. 

Facts of the Case

The Petitioner and his son were declared highest bidder for the flat and subsequently, certificate of sale was issued by the Bank. The property in question was put to auction by the Bank as per the published sale notice for E-Auction under the SARFAESI.

After execution of the sale deed, the Petitioner took possession of the flat in question, where he noticed that the water supply was disconnected and hence wrote letters to the resident welfare society with a request to restore the water supply.

The Petitioner had also sent a representation to the Bank stating that in the auction that no society dues were declared neither mentioned in the sale letter, to which the Bank replied that they sold the property on "as is where is”, “as is what is" and "whatever there is" through E-Auction nor the RWA (Society) of Saptrishi Apartment conveyed about the dues of the Society before the auction and as such he could not be intimated about the dues of the society and further it has been stated by the respondent Bank that the Bank is not liable to pay any dues of the society. 

The grievance of the Petitioner was that there is significant liability in terms of society dues, which had accrued under the account of the previous owner and that was neither disclosed by the Bank at the time of auction, nor was known to the Petitioner prior to taking possession. The main contention was that such liability was not reflected in any encumbrance certificate and, therefore, he approached the Court seeking restoration of water supply to his Flat.

Counsel for the Petitioner argued that it was incumbent upon the Bank prior to e-auctioning the property to obtain the NOC from the society and therefore, the Bank cannot escape now from the liability by merely saying that the Bank sold the property on a "as is where is", "as is what is and "whatever there is" through E-Auction.

Reasoning By Court 

The Court referred to the Supreme Court's decision in K. C. Ninan vs Kerala State Electricity Board and Others, (2023) wherein the implication of an auction sale of premises on an 'as-is-where-is' basis, in the context of electricity arrears, was considered by a three-judge Bench.

It thus held, "Applying the above principles of law to the facts of the case, we find that petitioner does not dispute this fact that he had participated in proceedings of E-Auction dated 27.12.2023 with the knowledge of the fact that the property in question was available on "as is where is", "as is what is and "whatever there is" basis. Hence, the facts of the case fall within the parameters of law laid down in the judgements cited above."

The Court also decided the other issue against the Petitioner as the grievance regarding non-compliance with the provisions of the Uttar Pradesh Apartment (Promotion of Construction, Ownership and Maintenance) Act, 2010 was raised only after the Petitioner had taken possession of the property, which was well after the execution of the sale.

The Petition was accordingly dismissed.

Cause Title: Mukesh Singh v. State Of U.P. And 3 Others 

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