Bona fide auction purchaser rights prevail where government-vested property is sold free from undisclosed mortgage objections.

Where property vested in the Central Government under Chapter XX-C and was sold by the Income-tax Department by public auction, a bona fide purchaser who paid the full consideration was entitled to completion of the conveyance, delivery of the original title deeds, and transfer free from an undisclosed prior mortgage objection. The bank's claim to remain a confirming party was rejected because it had not sold the property and stood only as a claimant to the title deeds. A separate condition requiring deposit of sale consideration in the ZAO (CBDT) account was also disallowed as inconsistent with the operative sale directions. The document emphasizes that prior undisclosed encumbrance claims should not obstruct completion of a valid auction sale.

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Issues: (i) whether a purchaser at an auction conducted by the Income-tax Department was entitled to execution of a final conveyance deed and delivery of title deeds free from objections based on a prior mortgage claim; (ii) whether the State Bank of India and its successor were entitled to insist on being retained as confirming party or to condition execution of the conveyance upon receipt of sale consideration in a different account.

Issue (i): Whether the auction purchaser was entitled to execution of a final conveyance deed and delivery of title deeds free from objections based on a prior mortgage claim.

Analysis: On the date of the pre-emptive purchase order under Chapter XX-C, the property vested in the Central Government under section 269UE(1) of the Income-tax Act, 1961. The record showed that no encumbrance was disclosed in the transfer documents and the subsequent mortgage-based objection could not defeat the vesting and sale undertaken by the Department. The petitioner had paid the full auction consideration and had complied with the auction conditions. A bona fide third-party purchaser who was not concerned with the inter se dispute between the Department and the bank could not be made to suffer further delay or uncertainty in title.

Conclusion: The petitioner was entitled to execution of the final conveyance deed and to receipt of the original title deeds, and the respondent authorities were bound to complete the transfer without insisting on any further encumbrance-based impediment.

Issue (ii): Whether the State Bank of India and its successor were entitled to be treated as confirming party or to impose a condition regarding deposit of sale consideration in the ZAO (CBDT) account.

Analysis: The order of the Debts Recovery Tribunal required the sale proceeds to be deposited with the applicant-bank in interest-bearing deposit, and that direction governed the transaction. The bank had not sold the property and had only claimed a right over the title deeds; its successor stood in no better position for insisting on confirmation status. The demand to route the consideration to the ZAO (CBDT) account was inconsistent with the operative directions already made and had no basis once the auction purchaser had fulfilled the terms of sale.

Conclusion: The request to treat the bank or its successor as confirming party was rejected, and the condition requiring receipt of consideration in the ZAO (CBDT) account was disallowed.

Final Conclusion: The writ petition succeeded, and the respondents were directed to complete the conveyance in favour of the auction purchaser, while the ancillary claims of the bank and its successor were rejected.

Ratio Decidendi: Where property vested in the Central Government under Chapter XX-C and was validly sold by public auction, a bona fide purchaser who has paid the full price is entitled to an unimpaired conveyance, and prior undisclosed encumbrance claims cannot obstruct completion of the sale.

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