SARFAESI auction disclosure duty: secured creditor must reveal municipal dues, and undisclosed charges cannot be shifted to purchaser.

In a SARFAESI auction, known encumbrances, including pre-sale municipal tax dues that constitute a first charge on the property, must be disclosed in the sale notice and sale certificate. The statutory auction framework under Rules 8 and 9 places the duty of clear disclosure on the secured creditor, so an undisclosed burden cannot be shifted to the auction purchaser after sale and delivery of possession. Where the purchaser pays the municipal dues to clear title, reimbursement may be claimed from the secured creditor because Rule 9 payment mechanisms apply only to disclosed encumbrances. The governing principle is caveat venditor, not caveat emptor.

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Issues: (i) Whether the secured creditor, while conducting an auction sale under the SARFAESI regime, was bound to disclose pre-sale municipal tax dues as an encumbrance in the sale notice and sale certificate. (ii) Whether, after sale and delivery of possession, the auction purchaser could be made liable to bear or reimburse the pre-sale municipal dues paid to the municipal corporation.

Issue (i): Whether the secured creditor, while conducting an auction sale under the SARFAESI regime, was bound to disclose pre-sale municipal tax dues as an encumbrance in the sale notice and sale certificate.

Analysis: Rule 8(6)(a) of the Security Interest (Enforcement) Rules, 2002 requires the sale notice to disclose the immovable property with the details of encumbrances known to the secured creditor, and Rule 8(6)(f) requires disclosure of other material matters affecting the nature and value of the property. Section 35 of the SARFAESI Act gives overriding effect to the SARFAESI mechanism, and the sale process is therefore governed by the statutory auction framework rather than general principles that would shift the burden to the purchaser. The Court treated municipal tax dues, which constitute a first charge under Section 232 of the Kolkata Municipal Corporation Act, 1980 and a burden on property within the meaning of Section 100 of the Transfer of Property Act, 1882, as an encumbrance that ought to have been disclosed. The statutory scheme of Rules 8 and 9 places the obligation of disclosure and clear conveyance on the secured creditor, replacing caveat emptor with caveat venditor.

Conclusion: The secured creditor was bound to disclose the pre-sale municipal dues as an encumbrance, and failure to do so amounted to breach of its statutory duty.

Issue (ii): Whether, after sale and delivery of possession, the auction purchaser could be made liable to bear or reimburse the pre-sale municipal dues paid to the municipal corporation.

Analysis: Rule 9(7) permits deposit by the purchaser for discharge of known encumbrances, but that mechanism operates only when the encumbrance is disclosed and the purchaser is allowed to deposit the amount for that purpose before completion of the sale process. Once the secured creditor failed to disclose the pre-sale dues and completed the sale without mentioning the encumbrance, the purchaser could not be saddled with the burden of discharging those dues after obtaining possession. The Court held that the bank, having sold the asset without disclosing the charge, could not rely on Rule 9 to defeat reimbursement, and the purchaser's payment to clear the municipal dues was recoverable from the bank.

Conclusion: The auction purchaser was not liable for the undisclosed pre-sale municipal dues, and reimbursement by the secured creditor was justified.

Final Conclusion: The appeal failed because the secured creditor did not comply with the statutory duty to disclose the pre-sale municipal charge, and the auction purchaser could not be burdened with that undisclosed liability after the sale.

Ratio Decidendi: In a SARFAESI auction, the secured creditor must disclose known encumbrances in the sale notice and cannot shift an undisclosed pre-sale charge on the auction purchaser after sale and delivery of possession.

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