Delhi High Court holds bank liable for undisclosed DDA unearned-increase charges in SARFAESI auction, directs execution of conveyance deeds

The petitioner purchased four industrial plots bearing Nos. 43–46, Block A-1, WHS, Kirti Nagar, New Delhi, in a SARFAESI auction conducted by Indian Bank on 28 December 2009 for ₹8.01 crore.

The plots had originally been allotted and leased by the DDA to Saket Tiles Pvt. Ltd., which had mortgaged them to Indian Bank as security for facilities advanced to Saket India Ltd.

The petitioner paid the entire auction consideration and obtained sale certificates, which were registered in 2013.

When the petitioner sought mutation, conversion and execution of conveyance deeds from the DDA, the DDA required payment of unearned increase (“UEI”) and documentary proof establishing the relationship between Saket Tiles and Saket India, as well as proof regarding possession.

The petitioner contended that Indian Bank had failed to disclose the UEI liability and had not furnished the documents required by the DDA, despite retaining the auction consideration.

The auction notice described the sale as being on an “as is where is and as is what is” basis, but did not expressly state that the purchaser would be liable for UEI or other charges; it nevertheless identified Saket Tiles as the owner/subsidiary connected with Saket India.

The petitioner sought directions for execution of conveyance deeds and payment of UEI and other levies by Indian Bank.

Although an alternative refund prayer was pleaded, it was not pressed at the hearing.

The Court applied Section 55(1)(a) of the Transfer of Property Act, 1882, which requires a seller to disclose material defects in the property or title known to the seller but not reasonably discoverable by the buyer.

It relied on Section 13(6) of the SARFAESI Act, under which transfer by a secured creditor vests in the transferee the rights in or relating to the secured asset as if the transfer were made by the owner, and on Rules 8(7)(a) and (f), 9(9) and 9(10) of the Security Interest (Enforcement) Rules, 2002, requiring disclosure of known encumbrances and material terms and delivery of the property free from encumbrances known to the secured creditor.

The Court held that an “as is where is and as is what is” clause does not protect a secured creditor from liability for concealing known material encumbrances or charges.

It relied on Bank of Maharashtra v. Jai Kumar Bansal for the distinction between a general “as is” clause and a specific contractual warning allocating statutory dues to the purchaser.

It relied on Monoflex India (P) Ltd. v. CIT for the proposition that, absent an auction stipulation fastening UEI on the purchaser, such liability cannot be imposed on the purchaser.

It relied on the principles against unjust enrichment and delay and laches as explained in Mrinmoy Maity v. Chhanda Koley.

The Court rejected the delay objection because the petitioner had continuously pursued the matter through correspondence with the DDA and Indian Bank, and the dispute regarding the corporate relationship between Saket Tiles and Saket India remained unresolved until the DDA’s subsequent communications in 2016 and 2017.

It also rejected the alternative-remedy objection because the reliefs against the DDA and Indian Bank were intertwined, while the DRT could not effectively issue directions to the DDA concerning execution of conveyance deeds.

On the merits, the Court found that Indian Bank possessed the relevant lease and mortgage documents and was aware of the DDA’s right to recover 50% of the unearned increase under the mortgage permission dated 5 October 1990.

The UEI liability was therefore a material fact requiring express disclosure.

Since the auction notice, terms and conditions, and sale certificate did not clearly state that the purchaser would bear UEI or other charges, the general “as is where is” clause could not shift that liability to the petitioner.

The Court distinguished Jai Kumar Bansal because, in that case, the auction documents contained a specific warning that statutory dues and charges would be borne by the purchaser.

Retention of the auction consideration without perfecting the purchaser’s title would, in the Court’s view, permit unjust enrichment by the Bank.

The Court directed the DDA to raise a demand for the UEI against Indian Bank; Indian Bank was directed to pay the demanded amount within four weeks.

Upon payment and completion of the remaining formalities, the DDA and Indian Bank were directed to execute conveyance deeds in favour of the petitioner within a further four weeks.

Indian Bank was left at liberty to pursue appropriate legal remedies in accordance with law.

The Court consequently held that the undisclosed UEI could not be imposed on the auction purchaser and that the secured creditor was responsible for clearing it.