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of <h1>High Court upholds SIDBI auction under SARFAESI Act, dismisses challenges on disclosure, DRT application, property nature, lessor consent.</h1> The High Court upheld the auction sale conducted by SIDBI under the SARFAESI Act, dismissing challenges raised regarding disclosure of encumbrances, ... Auction purchaser wants to cancel the bid and claim refund of money deposited - Sale of the property by the SIDBI after taking possession of the mortgaged assets - Mortgage of the lease-hold property was subject to the condition that the plot demise in perpetuity cannot be sold without the prior permission of the lessor - The petitioner wanted to wriggle out of the sale and filed an application in SA No.311/2011. It prayed that ₹ 2 crores deposited by it with SIDBI be returned because the State of Himachal Pradesh raised a demand towards unearned increase and other outstanding dues payable by the lessee. Held that:- In the instant case, as noted above, there was a clear indication to the prospective bidders that encumbrances if any in the form of government dues have to be paid and thus the bidders knew very well that if there were encumbrances on the property the same had to be borne by them. The fact that the bidders knew that there are encumbrances has been captured very well by the learned DRT with reference to the post tender submission and bid opening date, when the bidders were requested to increase the bid offer and they informed that they cannot do so because infrastructure in the industrial area was not conducive and additionally the highest bidder would have to pay to the government authorities, before the title would be transferred in their name, and they estimated the final costs to the highest bidder to be within the range of ₹ 2.25 to ₹ 2.5 crores. Issues Involved:1. Validity of the auction sale under SARFAESI Act.2. Disclosure of encumbrances in the auction notice.3. Maintenance of the application before DRT.4. Impact of the lease-hold nature of the property on the auction sale.5. Requirement of lessor's consent for the sale of the mortgaged property.Issue-wise Detailed Analysis:1. Validity of the Auction Sale under SARFAESI Act:The property in question was mortgaged to SIDBI, and upon default, SIDBI proceeded under the SARFAESI Act, 2002. A public notice for the sale of the property was issued, and the petitioner emerged as the highest bidder, depositing the required amounts. However, the lessee company challenged the sale, which was ultimately dismissed by the DRT, finding no defect in the sale or valuation.2. Disclosure of Encumbrances in the Auction Notice:The petitioner argued that the auction notice did not disclose the lease-hold nature of the property and outstanding lease rentals, which should have been disclosed under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002. The court held that a lease-hold title is not an encumbrance as per the definition in Stroud’s Judicial Dictionary. The advertisement did not misinform that the property was free-hold, and the sale was on an 'As is Where is Basis', informing bidders of their responsibility to pay statutory/government dues.3. Maintenance of the Application before DRT:The DRT dismissed the petitioner's application, noting that the terms of the auction sale clearly informed bidders of their liabilities. The DRAT upheld this decision, stating that the application was not maintainable and the petitioner should resort to substantive proceedings. The High Court agreed with this observation but decided to address the merits of the dispute.4. Impact of the Lease-hold Nature of the Property on the Auction Sale:The court clarified that the lease-hold nature of the property did not constitute an encumbrance that needed to be disclosed in the auction notice. The bidders were informed that the property was being sold on an 'As is Where is Basis', and they were responsible for any statutory dues. The court referenced United Bank of India vs. Official Liquidator, emphasizing that it is the purchaser's duty to ascertain the title and encumbrances of the property.5. Requirement of Lessor's Consent for the Sale of the Mortgaged Property:The petitioner contended that the sale was vitiated due to the lack of the lessor's consent, as required by the lease agreement. The court noted that the lessor had granted permission to mortgage the property, which inherently included the right to enforce the mortgage through sale. The lessor's subsequent demand for unearned increase indicated acceptance of the sale. The court dismissed the argument, stating that the condition inserted by the bureaucrat was legally unsound and that ex-post facto permission is acceptable.Conclusion:The High Court dismissed the writ petition, upholding the auction sale conducted by SIDBI under the SARFAESI Act. The court found no violation of the Security Interest (Enforcement) Rules, 2002, and emphasized the purchaser's duty to ascertain encumbrances when a property is sold on an 'As is Where is Basis'. The requirement of lessor's consent was deemed satisfied by the lessor's actions post-auction. The petition was dismissed without any order as to costs.
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