Calcutta HC Orders PNB to Refund ₹5.53 Crore Plus Interest to Auction Buyer After Bank Failed to Disclose Litigation, Tenancy

Ambhi Impex Private Limited’s credit facilities from Punjab National Bank were secured by a mortgage over property owned by the guarantors.

While the borrowers’ challenge to the Bank’s SARFAESI measures was pending before the DRT, the Bank auctioned the property.

The auction notice disclosed symbolic possession but not the pending litigation or tenancy; it stated that no encumbrance was known to the Bank.

The auction purchaser paid ₹5,53,22,000 and received a sale certificate, but the Bank did not deliver physical possession.

The purchaser sought a refund with interest, while the Bank separately sought an order directing the District Magistrate to decide its pending application under Section 14 of the SARFAESI Act, 2002.

The borrowers objected to the Bank’s application, alleging, among other things, suppression and inaccuracies.

Under Sections 13(6) and 14 of the SARFAESI Act, 2002, and Rules 8(6), 8(7) and 9(6) of the Security Interest (Enforcement) Rules, 2002, an auction notice must comply with mandatory disclosure requirements concerning known encumbrances, and the sale process contemplates delivery of possession to the purchaser.

A sale affected by material irregularity or non-compliance with mandatory procedure is not protected merely because it has been confirmed; the secured creditor remains obliged to take appropriate steps to deliver possession.

The Court relied on Viney Kumar Sharma v. Improvement Trust, Mohd. Shariq v. Punjab National Bank, and Delhi Development Authority v. Corporation Bank for the duty to disclose known litigation and encumbrances; on Bali Ram for the limited exception permitting relief beyond deficient pleadings where the record establishes entitlement and no prejudice results; and on Balkrishna Rama Tarle v. Phoenix ARC (P) Ltd. for the principle that a Section 14 authority performs a ministerial, not adjudicatory, function.

The Bank knew of the pending DRT proceedings, which challenged its SARFAESI measures and the sale notice, and the record also established that the property was tenanted.

The sale notice’s silence about those matters, coupled with its representation that no encumbrance was known, constituted material non-disclosure and breached Rule 8(7).

The purchaser had paid the full price but remained without possession, while the Bank had not diligently pursued its Section 14 application before the interim status quo order.

The Court held that the sale certificate could not cure the defective sale process and that, on these undisputed facts, the purchaser need not be relegated to another forum.

Although the purchaser had not specifically pleaded misrepresentation or sought cancellation of the sale, the record established his entitlement to a refund, and the Bank could not rely on that pleading deficiency to avoid the consequences of its own statutory breach.

The borrowers’ objections did not prevent the District Magistrate from deciding the Section 14 application, whose function is ministerial rather than adjudicatory.

The sale certificate dated 28 February 2023 was declared to be of no consequence, and the Bank was permitted to sell the secured asset again in accordance with law.

WPA 15541 of 2025 was disposed of with a direction to the District Magistrate, Purba Burdwan, to decide the Bank’s Section 14 application, strictly in accordance with law, within one month.