Bank cannot add a community-hall restriction after auction; Madras HC orders full refund with 9% interest to buyer

Inno Infra Private Limited had availed credit facilities from Indian Overseas Bank, secured inter alia by a mortgage over 55,048 sq. ft. of vacant land forming part of the “Millennium Square” layout at Kattawakkam Village, Kancheepuram Taluk, standing in the name of its corporate guarantor, Inno Estates Private Limited.

The Bank issued a sale notice dated 07.03.2026 and conducted an e-auction on 26.03.2026. The sale notice, newspaper publication and the Bank’s initial confirmation communication described the property merely as “55048 sq.ft. or thereabouts of vacant site” and did not disclose that it was identified or reserved for a community hall.

The petitioner was the highest bidder for the property at Rs.2,69,00,000/- and paid Rs.67,25,000/-, representing 25% of the sale consideration, on the date of auction.

However, the Bank’s confirmation of sale dated 04.04.2026, issued after the auction and payment, for the first time inserted the words “identified for community hall site” in the property description.

The petitioner objected to the unilateral alteration, but the Bank did not respond.

During the writ proceedings, pursuant to the Court’s order, the petitioner deposited the balance 75% of the sale consideration, without prejudice to his challenge; no sale certificate was issued.

The Bank contested maintainability on the ground of the alternative remedy before the Debts Recovery Tribunal under Section 17(1) of the SARFAESI Act and contended that the omission was inadvertent and did not invalidate the sale.

Whether the writ petition was maintainable under Article 226 of the Constitution despite the alternative remedy available under Section 17(1) of the SARFAESI Act.

Whether the Bank’s failure to disclose in the sale notice that the property was identified or reserved for a community hall violated Rule 8(6) read with Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002.

Whether the Bank could insert the material restriction for the first time in the confirmation of sale after the auction and payment of 25% of the bid amount.

Whether the petitioner was entitled to rescission of the sale and restitution of the amounts deposited, with interest.

Section 17(1) of the SARFAESI Act permits “any person”, including an auction purchaser, aggrieved by measures taken under Section 13(4) to approach the DRT; however, the existence of an alternative remedy is not an absolute bar to the exercise of Article 226 jurisdiction, particularly where the relevant facts are admitted and the challenge concerns a statutory violation.

Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 requires publication of the sale notice in two leading newspapers, including one vernacular newspaper, setting out the terms of sale. Rule 8(7)(a) requires the notice to contain the description of the immovable property, including known encumbrances. These disclosure requirements are mandatory and bidder-protective.

A material omission concerning the permitted use or development of the property cannot be treated as a mere clerical error. The doctrine of caveat emptor cannot protect a statutory seller that has failed to make an accurate disclosure required by law.

Relying on Delhi Development Authority v. Corporation Bank, 2025 SCC OnLine SC 2071, the Court held that non-disclosure of a material encumbrance or restriction can invalidate the auction notice, confirmation of sale and sale certificate, and that restitution with interest may be warranted.

The Bank’s reliance on Rajendra Kumar Barjatya v. U.P. Avas Evam Vikas Parishad, 2024 SCC OnLine SC 3767, was distinguished because that case involved private purchasers of unauthorised construction and not a statutory auction in which the secured creditor owed a direct disclosure duty to the purchaser.

The Court found that the description of the property was materially altered between the auction and the confirmation of sale: the community-hall restriction appeared for the first time only on 04.04.2026, after the petitioner had bid and paid 25% of the consideration.

The Bank admitted the omission, although it characterised it as inadvertent.

Since reservation for a community hall substantially affected the property’s permissible use, development potential and marketability, it was not a trivial or clerical detail but a material restriction required to be disclosed under Rule 8(7)(a).

The petitioner was entitled to rely on the sale notice issued by the Bank, which acted as the statutory seller, and the Bank could not retrospectively introduce a material qualification after the petitioner had committed funds.

Accordingly, the Court rejected the caveat emptor defence and held that the admitted statutory breach justified writ intervention and restitution, making relegation to the DRT unnecessary.

The Bank was directed to refund the entire sale consideration deposited by the petitioner, together with interest at 9% per annum, calculated from the respective dates of deposit until repayment, within four weeks from receipt of the order.

There was no order as to costs, and the connected miscellaneous petition was closed.