SARFAESI Act | 'As Is Where Is' Clause Cannot Override Secured Creditor's Duty to Disclose UEI Encumbrance : Delhi HC

The Delhi High Court has held that a secured creditor conducting a SARFAESI auction cannot rely on an "as is where is and as is what is" clause to avoid liability for unearned increase (UEI) charges payable to the lessor, where the creditor was aware of the leasehold condition but failed to disclose it in the sale notice. The Court directed Indian Bank to pay the UEI demanded by DDA within four weeks, after which both respondents must execute conveyance deeds in favour of the auction purchaser.

Background & Facts

The Dispute

The petitioner, Jaishree Industries Ltd., a private limited company engaged in granite and stone business, purchased four industrial plots (Nos. 43, 44, 45, 46) at Block A-1, WHS, Kirti Nagar, New Delhi, through a SARFAESI auction conducted by Indian Bank on 28.12.2009. The petitioner paid the full auction amount of Rs. 8.01 crores by March 2010 and obtained sale certificates. When the petitioner approached DDA for conversion from leasehold to freehold, DDA demanded unearned increase (UEI) of 50% of the plot value (approximately Rs. 2.25 crores) and proof of the corporate relationship between the original borrower (Saket India Ltd.) and the lessee (Saket Tiles Pvt. Ltd.). Indian Bank failed to provide the requisite documents or pay the UEI, leaving the petitioner unable to obtain conveyance deeds despite being a bona fide auction purchaser.

Key Facts

• In 1989, Indian Bank extended a loan facility to M/s Saket India Ltd. secured by mortgage of industrial plots at Block A-1, WHS, Kirti Nagar, bearing Nos. 43, 44, 45, 46 (each 250 sq. yards), allotted by DDA to M/s Saket Tiles Pvt. Ltd. (subsidiary of Saket India Ltd.).
• On default by Saket India Ltd., Indian Bank initiated SARFAESI proceedings culminating in auction on 28.12.2009.
• The petitioner participated and purchased the Subject Properties for Rs. 8.01 crores, paying the full amount by March 2010; sale certificates were issued and registered with sub-registrar on 25.10.2013.
• DDA informed the petitioner that UEI of 50% of plot value was payable per DDA policy and sought explanation on the Saket India - Saket Tiles relationship.
• The petitioner wrote to Indian Bank on 31.07.2010 and 03.06.2011 requesting payment of UEI (Rs. 2.25 crores); no response.
• DDA vide letter dated 28.07.2011 requested multiple documents including sale documents, consent to pay UEI, shareholding patterns of Saket Tiles up to mortgage date, and mutation request.
• Documents submitted to DDA on 19.09.2014; DDA responded that properties were allotted to Saket Tiles via open auction through its four shareholders, lease executed on 12.06.1984, mortgage permission granted on 05.10.1990.
• DDA noted Saket India's name did not appear in its records and sought Saket India's details.
• Petitioner requested documents from Indian Bank; copies of mortgage documents by Saket Tiles provided but found deficient.
• Petitioner addressed DDA on 26.05.2015 seeking execution of conveyance deeds and extension of time for construction.
• DDA vide letter dated 21.04.2016 sought documentary proof of date of possession and Registrar of Companies proof that Saket Tiles is subsidiary of Saket India.
• Petitioner actively sought clarification from Indian Bank; Bank failed to provide documents.
• Petitioner issued demand letter to Indian Bank on 31.07.2017 for documents or refund of auction amount with 18% interest and incidental charges of Rs. 74,07,000.
• Writ petition filed on 04.12.2017.

Procedural History

• 28.12.2009: Auction of Subject Properties by Indian Bank under SARFAESI Act.
• March 2010: Full auction amount of Rs. 8.01 crores paid by petitioner to Indian Bank.
• 25.10.2013: Sale certificates registered with sub-registrar.
• 31.07.2010: Petitioner's first letter to Indian Bank regarding UEI.
• 03.06.2011: Petitioner's second letter to Indian Bank regarding UEI.
• 28.07.2011: DDA letter requesting documents for mutation and UEI payment.
• 19.09.2014: Petitioner submitted documents to DDA.
• 21.04.2016: DDA letter seeking date of possession proof and ROC proof of subsidiary relationship.
• 13.06.2017: DDA reminder letter reiterating document requirements.
• 31.07.2017: Petitioner's demand letter to Indian Bank for documents or refund with 18% interest.
• 04.12.2017: Writ Petition (C) No. 10860/2017 filed before Delhi High Court.
• 13.05.2026: Judgment reserved.
• 08.09.2026: Judgment pronounced.

Relief Sought

The petitioner sought: (a) direction to DDA and Indian Bank to execute conveyance deeds for the four plots; (b) direction to Indian Bank to pay all penalties and levies including UEI, composition charges, unearned increased charges proposed by DDA at the time of conveyance; (c) in the alternative, refund of auction amount of Rs. 8.01 crores with 18% interest per annum from auction date and incidental charges of Rs. 74,07,000. At hearing, senior counsel for petitioner pressed only prayers (a) and (b).

The Legal Issue

The central questions were: (1) Whether the writ petition is maintainable despite delay and laches and the availability of an alternative remedy under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal; (2) Whether the secured creditor (Indian Bank) is liable to pay unearned increase (UEI) charges to DDA despite the auction being conducted on an "as is where is and as is what is" basis; (3) Whether the statutory duty of disclosure under the SARFAESI Act and Rules overrides the contractual "as is" clause when the secured creditor knows of material encumbrances.

Arguments Presented

For the Petitioner

Senior counsel Mr. Ravinder Sethi submitted that the issue is covered by a catena of judgments including Indian Bank v. The Sub Registrar (Madras HC), Monoflex India (P) Ltd. v. CIT, Kalyani (India) (P) Ltd. v. Punjab National Bank, Rajesh Gems and Jewels Pvt. Ltd. v. India Overseas Bank, DDA v. Corporation Bank (SC), Capital Hotel v. DDA, and Royal Star Trading Co. v. IFCI Ltd. He argued Indian Bank failed to convey marketable title, withheld material facts (properties stood in name of Saket Tiles, not Saket India), violating Section 13(4) SARFAESI Act, proviso to Rules 8(6) and 8(7)(a) of the 2002 Rules. Rule 9(9) casts duty to deliver property free from encumbrances. The sale notice, auction terms, and sale certificate contained no stipulation making purchaser liable for UEI. The statutory vesting under Section 13(6) is rendered illusory without disclosure. Indian Bank, acting in fiduciary capacity under Sections 13(7) and 35, breached its obligation by retaining Rs. 8.01 crores for over 16 years without perfecting title. The "as is where is" clause cannot displace statutory obligations of disclosure, due diligence, and delivery free from encumbrances. DDA's mortgage permission letter dated 05.10.1990 itself recorded the corporate relationship and UEI clause. Section 55(1)(a) Transfer of Property Act imposes duty to disclose material defects; non-disclosure is fraudulent. The principle of caveat venditor supersedes caveat emptor. The petitioner was not sleeping on rights; delay is attributable to Indian Bank's failure to provide documents. Section 17 SARFAESI remedy is available only to "borrower", not auction purchaser aggrieved by failure to pass perfect title; DRT lacks jurisdiction over DDA.

For the Respondent No. 1 (DDA)

Standing counsel Mr. Sanjay Katyal submitted the petition lacks cause of action and is barred by delay and laches. The petition raises disputed questions of fact not adjudicable in writ jurisdiction. DDA vide letter dated 28.07.2011 sought relevant documents not furnished; petitioner sought repeated extensions. DDA intimated petitioner on 30.07.2014 and 16.09.2014 that properties were allotted to Saket Tiles through open auction, sold for dues of Saket India, but original lessee was Saket Tiles. DDA repeatedly sought proof of relationship, not provided. Conveyance deeds cannot be executed due to petitioner's failure to submit requisite documents.

For the Respondent No. 2 (Indian Bank)

Counsel Mr. Brijesh K. Tamber submitted the petition is barred by alternative efficacious remedy under Section 17 SARFAESI before DRT, citing Agarwal Tracom (P) Ltd. v. Punjab National Bank, United Bank of India v. Satyawati Tondon, CIT v. Chhabil Dass Agarwal, Phoenix ARC (P) Ltd. v. Vishwa Bharati Vidya Mandir, Varimadugu Obi Reddy v. B. Sreenivasulu, Celir LLP v. Bafna Motors (Mumbai) (P) Ltd., and P. Mohaideen Abdul Khathar v. Chief Manager Bank of Baroda. Prayer (a) not maintainable against Bank; refund must be sought via cancellation of sale certificate before DRT. Properties mortgaged by Saket Tiles (group company of Saket India) with DDA permission. Sale notice dated 25.11.2009 clearly specified "as is where is and as is what is" basis and mentioned properties owned by Saket Tiles. Petitioner participated after due diligence, checked all documents including perpetual lease deed, knew of UEI clause. Bank cannot be compelled to pay charges. Bank has no objection to refund but sale certificate must be cancelled before appropriate forum; petitioner seeks inconsistent reliefs. P. Mohaideen Abdul Khathar held auction purchaser falls within "any person aggrieved" under Section 17(1); refund denied. Petitioner should approach DRT.

The Court's Analysis

The Court first addressed maintainability. On delay and laches, the Court noted Indian Bank relied on the petitioner's letter dated 31.07.2010 showing awareness of UEI. However, the Court applied the principles from Mrinmoy Maity v. Chhanda Koley and Chennai Metropolitan Water Supply & Sewerage Board v. T.T. Murali Babu, holding that delay is not fatal if sufficiently explained. The petitioner was continuously communicating with DDA and Indian Bank, seeking documents to satisfy DDA's queries. The dispute regarding original lessee status and corporate nexus was itself in question. DDA's letters dated 21.04.2016 and 13.06.2017 raised further document requirements. The petitioner's demand letter of 31.07.2017 and filing of writ petition on 04.12.2017 (within six months of DDA's 13.06.2017 letter) showed no inordinate or unexplainable delay.

On alternative remedy, the Court held the objection unfounded. The reliefs against DDA (prayer A) and Indian Bank (prayer B) are intertwined; DRT cannot issue directions against DDA. The complexity involving all three parties requires comprehensive adjudication. The objection was rejected.

On liability, the Court examined the interplay between "as is where is" clauses and SARFAESI obligations, relying on the Division Bench judgment in Bank of Maharashtra v. Jai Kumar Bansal (2026 SCC OnLine Del 667). That judgment held: while SARFAESI sales are prima facie "as is", the protection is not absolute. Under Section 55(1)(a) Transfer of Property Act, a seller must disclose material defects in title known to seller but not buyer. Rules 8(6)(a) and (f) of the 2002 Rules mandate the authorised officer to include in the sale notice "any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property." Rekha Sahu v. UCO Bank clarified that "as is" terms cannot shield non-disclosure of material facts within the Bank's knowledge. DDA v. Corporation Bank (SC) held non-disclosure of DDA's UEI charge violated the requirement to inform bidders of material encumbrances, leading to quashing of auction. However, Kalyani (India) Pvt. Ltd. v. Punjab National Bank observed that if terms are clear and unambiguous, purchaser is bound. In Jai Kumar Bansal, the Division Bench distinguished the case because the public notice contained an explicit indemnity clause (Clause 12) warning that any dues/penalties/charges levied by any authority would be borne by purchaser, reinforced in the Letter of Acceptance.

Applying this to the present facts, the Court found: (A) Indian Bank admittedly possessed title documents including the lease deed at the time of mortgage and was fully conscious of the UEI clause and DDA's permission requirement, evident from DDA's letter dated 05.10.1990 permitting mortgage subject to inclusion of the UEI clause. (B) This condition was a material fact having substantial bearing on the petitioner's decision to participate and on the sale consideration. (C) The sale notice dated 25.11.2009, while stating properties were owned by Saket Tiles (subsidiary), contained no express stipulation regarding UEI liability. (D) The sale certificate's stipulation that properties are sold free from known encumbrances cannot substantiate the Bank's case, as Jai Kumar Bansal held such clause is only supplementary to the disclosure requirement. (E) The Coordinate Bench decision in Monoflex India is squarely applicable: absence of any stipulation in auction notice fixing liability on purchasers for UEI means liability cannot be fastened on purchasers. (F) The statutory scheme - Section 13(6) SARFAESI Act, Rules 8(7)(a), 8(7)(f), 9(9), 9(10) of the 2002 Rules - mandates sale free from encumbrances known to the secured creditor, with notice of sale including description of encumbrances known to the secured creditor and any other terms necessary for purchaser to know nature and value of property. The authorised officer must deliver property free from encumbrances known to the secured creditor, and the sale certificate must specifically mention whether the property is purchased free from encumbrances known to the secured creditor.

The Court distinguished Jai Kumar Bansal on facts: there, the public notice contained a specific warning (Clause 12) that any dues/penalties/charges levied by any authority would be borne by purchaser, reinforced in the Letter of Acceptance. No such notice/warning exists in the present case. The argument that "as is where is" clause absolves the Bank cannot be countenanced. The Bank cannot be allowed to unjustly enrich itself by failing to perfect title.

The Verdict

The writ petition is allowed. The Court issued the following directions: (i) DDA shall make a demand from Indian Bank towards the UEI to execute conveyance deeds in favour of the petitioner; (ii) Indian Bank shall make payment of the requisite amount within 4 weeks of the demand; (iii) Upon payment and completion of other formalities, DDA along with Indian Bank shall execute conveyance deeds in favour of the petitioner within 4 weeks thereafter; (iv) Indian Bank is at liberty to take appropriate legal actions in accordance with law. The petitioner's alternative prayer for refund of Rs. 8.01 crores with 18% interest and Rs. 74,07,000 incidental charges was not pressed and not adjudicated.

What This Means For Similar Cases

As-Is Clause Does Not Override Statutory Disclosure Duty

The judgment reinforces that an "as is where is and as is what is" clause in a SARFAESI auction notice cannot be used as a shield to conceal material encumbrances known to the secured creditor. The statutory framework - Section 13(6) SARFAESI Act read with Rules 8(7)(a), 8(7)(f), 9(9), and 9(10) of the 2002 Rules - imposes a positive obligation on the authorised officer to disclose encumbrances known to the secured creditor in the sale notice and to deliver the property free from such encumbrances. Practitioners should scrutinise auction notices for specific disclosure of statutory dues (UEI, property tax, development charges) rather than relying on generic "as is" language.

Specific Warning Required to Shift Statutory Liability to Purchaser

Following Bank of Maharashtra v. Jai Kumar Bansal, the Court clarified that a generic "as is" clause is insufficient to allocate liability for statutory dues to the auction purchaser. There must be an explicit, wide-ranging indemnity clause in the public notice (such as Clause 12 in Jai Kumar Bansal warning that "if any dues or penalty or any charges are due/levied on the property by any authority then it will also be borne by the purchaser in addition to sale price") reinforced in the letter of acceptance. Absent such specific contractual allocation of risk, the secured creditor remains liable. Practitioners advising auction purchasers should verify whether the sale notice contains such specific indemnity language; if not, the purchaser has a strong claim against the secured creditor for undisclosed encumbrances.

Writ Jurisdiction Available for Auction Purchaser Against Secured Creditor and Lessor

The Court rejected the preliminary objections of delay/laches and alternative remedy under Section 17 SARFAESI. The petitioner's continuous engagement with both DDA and the Bank, and the intertwined nature of reliefs against both respondents (conveyance deed execution requiring DDA's action and UEI payment requiring Bank's action), justified invocation of writ jurisdiction. The DRT lacks jurisdiction to issue directions against a third-party lessor (DDA). This preserves the High Court's equitable jurisdiction for auction purchasers caught in multi-party title disputes where the secured creditor's failure to disclose material facts prevents perfecting of title.

• Auction purchasers should document all communications with the secured creditor and the lessor seeking disclosure and title perfection.
• Secured creditors must ensure sale notices explicitly disclose all known encumbrances, including statutory dues like UEI, leasehold conversion charges, and development charges.
• A sale certificate stating "free from encumbrances known to the secured creditor" is not a substitute for prior disclosure in the sale notice.
• The principle of caveat venditor applies: the seller (secured creditor) bears the duty of transparency; caveat emptor does not apply where material facts are within the seller's exclusive knowledge.