After 11 years without possession, Gauhati High Court orders Central Bank to refund auction buyer ₹29.5 lakh with 12% compound interest

The Central Bank of India initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) against the borrower, Sri Rajkumar Shah, and took symbolic possession of the subject property.

The Bank issued an auction notice dated 7 April 2014, fixing the reserve price at ₹36.05 lakhs. The petitioner emerged as the successful bidder with an offer of ₹29.50 lakhs and deposited the entire auction amount. The Bank issued a Sale Certificate in his favour on 27 September 2014.

The petitioner had financed the purchase through a ₹25 lakh loan sanctioned by the Bank, secured by an equitable mortgage over another property belonging to him. However, physical possession of the auctioned property was never delivered.

The borrower’s proceedings, including W.P.(C) No. 6015/2014, subsequent proceedings before the Debts Recovery Tribunal, and Title Suit No. 108/2018, delayed possession. The title suit was ultimately rejected on the ground of the bar under Section 34 of the SARFAESI Act by order dated 5 June 2024, and was consequentially disposed of on 18 September 2024.

The Bank admitted that third-party alienation, construction and induction of tenants had subsequently encumbered the property. Although it claimed to have initiated proceedings under Section 14 of the SARFAESI Act in 2019, physical possession was never obtained or delivered to the petitioner.

Whether the petitioner, having paid the entire auction consideration and obtained a Sale Certificate, was entitled to delivery of physical possession of the subject property despite the Bank having only symbolic possession and the subsequent creation of third-party encumbrances?

Whether the Bank could require the petitioner to bear the consequences or costs of removing encumbrances under Rule 9(7)–(9) of the Security Interest (Enforcement) Rules, 2002, when the encumbrances were created after the auction and issuance of the Sale Certificate?

Whether the writ petition was barred by delay, laches or the existence of an alternative statutory remedy?

Whether the petitioner was entitled to refund of the auction amount with interest or compensation for the Bank’s failure to deliver possession for more than a decade?

The Court applied Article 226 of the Constitution, observing that the existence of an alternative remedy does not oust the High Court’s jurisdiction where the facts are undisputed and exceptional equitable relief is warranted.

Under Sections 13(4) and 14 of the SARFAESI Act, a secured creditor may take possession of secured assets, including with the assistance of the District Magistrate; symbolic possession, however, does not amount to physical possession.

Rule 9(7)–(9) of the Security Interest (Enforcement) Rules, 2002 concerns properties encumbered at the time of sale and permits arrangements for discharging such encumbrances; it does not make an auction purchaser responsible for encumbrances created after the sale.

The Court relied on the principle of restitution and unjust enrichment, as discussed in Delhi Development Authority v. Corporation Bank, that a bona fide auction purchaser who suffers without fault should be restored, so far as money can achieve it, to the position previously occupied.

It also relied on Govind Kumar Sharma v. Bank of Baroda, which recognised that refund of auction money with enhanced interest may be justified where the Bank’s default or illegality caused prolonged deprivation, and M.S. Sanjay v. India Bank, which affirmed that relief under Article 226 may be moulded on equitable considerations to secure substantial justice.

The Court found that the Bank had only symbolic possession when the auction notice was issued and could not, therefore, have delivered physical possession to the petitioner at the time of issuing the Sale Certificate.

The Bank’s assertion that possession had been delivered and subsequently lost by the petitioner was held to be inconsistent with the record and a misstatement.

The subsequent litigation and the borrower’s alienation of part of the property occurred after the auction and Sale Certificate; consequently, the petitioner was not at fault and Rule 9(7)–(9) could not be invoked to shift the burden of clearing those later encumbrances onto him.

The petitioner had actively pursued legal remedies and was not guilty of delay or laches.

Since the Bank retained ₹29.50 lakhs from 2014 without delivering possession or refunding the money, the Court treated the retention as deprivation of the use of money and applied restitutionary and equitable principles. The prolonged retention, the petitioner’s borrowing costs, and the Bank’s failure to take effective steps under Section 14 justified refund with compound interest rather than merely directing future delivery of possession.

The Bank was directed to recall the Sale Certificate dated 27 September 2014 and refund the entire auction amount of ₹29,50,000.

The Bank was directed to pay compound interest at 12% per annum, calculated from the date of receipt of the auction amount until payment.

The exercise was to be completed, preferably within 45 days from submission of a certified copy of the order to the Branch Manager.

No order as to costs was made.