Auction purchasers’ knowledge of recorded dues must be examined before applying secured-creditor priority.

Darshan Singh challenged communications issued by the Tehsildar in 2019, which declined to consider his request concerning the property until outstanding dues to the Excise and Taxation Department and the Electricity Board were paid.

The learned Single Judge allowed his writ petition, following an earlier decision that the Bank had priority over the State departments in respect of secured assets under the SARFAESI Act.

The State appealed. The Division Bench noted that revenue entries recording the departments’ claims had been made in 2014, before Darshan Singh purchased the property in 2018.

He had accepted the Bank’s offer to purchase it through private treaty for Rs. 1,04,50,000—Rs. 50,000 above the reserve price—on an “as is where is” and “as is what is” basis, undertaking to make his own inquiries and bear statutory and other dues.

The sale certificate, however, described the property as free from encumbrances known to the secured creditor.

Whether the learned Single Judge could dispose of the writ petition by applying the earlier ruling on the Bank’s priority without considering the pre-existing revenue entries recording the State departments’ dues.

Whether the purchaser’s acceptance of the property on an “as is where is” basis, in the circumstances of the sale and with the recorded dues, required examination before granting relief in writ jurisdiction.

The Court referred to the SARFAESI Act, under which the earlier ruling had held that the Bank had the first charge over secured assets; that ruling had been upheld by a Division Bench and, as the judgment records, had unsuccessfully been challenged before the Supreme Court.

It also considered Rule 8(8) of the Security Interest (Enforcement) Rules, 2002, under which the Bank’s offer described the sale as one by private treaty.

The Court invoked the principle that a writ court exercising extraordinary jurisdiction must guard against abuse of process where material facts have been concealed.

It did not finally determine the priority of the State departments’ claims or the effect of the purchaser’s acceptance of the sale terms.

The Division Bench considered the earlier ruling on secured-creditor priority insufficient to resolve this case without examining the circumstances specific to Darshan Singh’s purchase.

The revenue entries for the Electricity and Excise departments pre-dated the sale, and the Tehsildar’s communication stated that the purchaser had knowledge of those entries.

The purchaser had accepted the Bank’s offer on terms requiring his own inquiry into encumbrances and his assumption of statutory and other dues, while the sale certificate stated that the property was free from encumbrances known to the Bank.

In the Court’s view, these matters, together with the price paid relative to the reserve price, required consideration and had not been addressed by the learned Single Judge.

It did not decide the underlying priority dispute on its merits.