The Supreme Court held that the seller is bound to disclose to the buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover.
The Supreme Court Bench comprising Justices M.R. Shah and Krishna Murari on Thursday was hearing an Appeal by the auction purchaser on the auction sale of a secured asset and held that as per Section 54 of the Transfer of Property Act the seller is bound to disclose to buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover.
The Appellant was an auction purchaser feeling aggrieved and dissatisfied with the impugned order passed by the High Court by which the High Court allowed the said appeal preferred by respondent no.1/Bank and quashed and set aside the judgment and decree passed by the learned Trial Court, 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.
The Supreme Court observed that right from the very beginning the plaintiff insisted on 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 the 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 possession of 34.60 cents still the sale consideration recovered would be for 54 cents. The Supreme Court bench observed that It was not open for a financial institution like the bank to take such a plea.
Even otherwise it is required to be noted that in the month of November 2007 when the Tehsildar submitted the report, the Bank was aware that the actual area was 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. The Supreme Court noted the conduct on the part of the bank was not fair.
The Supreme Court noted that Rule 8 of the Security Interest (Enforcement) Rules, 2002, cast a duty on the authorized officer to take all precautions before putting the secured asset into the sale. As per sub-rule 5 of Rule 8 before effecting the sale of the secured assets the authorised officer shall obtain a 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 was fixed the same way for 54 cents, it can be presumed that the bank was aware that the actual area of the secured asset is less than 54 cents.
The Supreme Court bench noted that as per Section 54 of the Transfer of Property Act the seller was bound to disclose to the buyer any material defect in the property of which the buyer was not aware and which the buyer could not ordinarily discover. The bench observed that it was a mistake on the part of the bank that the facts about the secured assets could not be disclosed to the auction purchaser.
Under the circumstances, the submission on behalf of the bank that the property was put to auction on “as is where is” and “as is what is” conditions, thereafter the plaintiff shall not be entitled to compensation of the less area cannot be accepted by the Supreme Court.
The Supreme Court concluded that 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 were quashed and set aside. The judgment and decree passed by the learned Trial Court decreeing the suit was restored. The respondent/Bank was directed to pay the decretal amount to the appellant with interest.