Mrs. Leelamma Mathew vs. M/s Indian Overseas Bank & Ors.
Background
Indian Overseas Bank took possession of a mortgaged property under the SARFAESI Act, 2002 and auctioned it, advertising 54 cents of land on an "as is where is" basis. The appellant bid and paid the full sale consideration for 54 cents, on the express condition that she receive absolute ownership and vacant possession of the whole 54 cents. A subsequent Tehsildar's survey revealed the actual area was only about 34.60/39.60 cents, since the original debtor had already transferred roughly 14.40 cents before the mortgage, yet the Bank still issued the sale certificate and later the sale deed for the full 54 cents while handing over possession of only the smaller actual area. The buyer sued for compensation for the shortfall; the Trial Court decreed in her favour, but the Kerala High Court reversed that decree on the Bank's appeal, leading to this further appeal to the Supreme Court.
Decision Breakdown
The Supreme Court held that once the Bank had invited bids for 54 cents, accepted payment calculated for 54 cents, and issued a sale certificate (and later a registered sale deed) for 54 cents, it could not later rely on the "as is where is, as is what is" auction condition to escape liability for the area shortfall, especially since the Bank itself became aware from the Tehsildar's 2007 report that the actual area was less, yet still issued the certificate for the full 54 cents. The Court also invoked Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, which requires an authorised officer to obtain a proper valuation before fixing the reserve price, and Section 55 of the Transfer of Property Act's disclosure obligations on a seller, to hold the Bank responsible for the shortfall. It found the High Court erred in overturning the Trial Court's decree, restored the Trial Court's judgment directing the Bank to pay the decretal amount (with interest) to the buyer, and additionally awarded costs of Rs. 25,000 to be paid within eight weeks.
Lesson Learnt
An "as is where is" clause in a bank auction does not shield the seller from liability where it knowingly issues a sale certificate and deed for a larger area than what it actually conveys: a secured creditor selling property under SARFAESI must accurately verify and disclose the true extent of the asset, and cannot recover full sale consideration for land it never delivers.