SARFAESI Act | Auction Purchaser Entitled to Refund with 9% Interest for Defective Title : Andhra Pradesh HC

The Andhra Pradesh High Court has delivered a significant judgment on the rights of auction purchasers when the property title is defective. The Court held that a bank cannot insist on the purchaser retaining a property with latent title defects and must refund the auction amount with interest. This ruling clarifies the obligations of banks under the SARFAESI Act and Section 55(2) of the Transfer of Property Act, reinforcing the principle that vendors must ensure clear title before sale.

Background & Facts

The Dispute

The petitioner, V Amasa Reddy, participated in an e-auction conducted by Indian Bank (respondent) on 03.09.2021 for a property admeasuring Ac.0.40 cents in Sy.No.177/1P and 177/2P, Sri Kalahasthi Town, Tirupati District. He emerged as the successful bidder for Rs. 1,30,50,000 and paid Rs. 9,78,970 towards stamp duty and registration charges. A Sale Certificate was issued on 05.10.2021, and a Registered Sale Deed was executed. However, the petitioner later discovered multiple litigations affecting the property’s title, including objections from the Sri Kalahasthi Municipality and a pending suit for cancellation of the sale deed.

Key Facts

• 14.08.2021: Auction notice published.
• 03.09.2021: Petitioner participated in e-auction; bid amount Rs. 1,30,50,000.
• 04.09.2021: Petitioner remitted 25% of bid amount.
• 16.09.2021: Bank issued letter for remittance of balance.
• 05.10.2021: Sale Certificate issued and registered.
• 13.11.2018: Possession Certificate handed over (erroneously dated; likely a typographical error).
• 14.02.2022: Petitioner addressed letter to bank regarding pending litigation and sought refund.
• 04.05.2022: Petitioner filed complaint via CCTNS portal (C.No.517/CCB/COP/Visitor/2022).
• 04.08.2022: Petitioner sent another letter demanding refund with interest.
• 19.04.2023, 22.12.2023, 22.03.2024: Petitioner made representations to the bank.
• 15.07.2024: Bank responded stating steps were being taken for refund in consultation with higher authorities.

Litigation Background

• W.P.No.2430 of 2019: Filed by Sri Kalahasthi Electricity Employees’ Co-operative House Building Society against the Tahsildar and Commissioner, Sri Kalahasthi Municipality, challenging illegal constructions on land earmarked for a park. The High Court disposed of the writ on 18.11.2020, directing the Municipality to take necessary action within four weeks.
• O.S.No.15 of 2022: Suit filed before X Additional District and Sessions Judge, Tirupati, by Kalapati Babji and others for cancellation of the sale deed.
• W.P.No.14612 of 2022: Filed by plaintiffs in O.S.No.15 of 2022 for cancellation of Pattadar Passbooks and title deeds.
• W.P.No.4381 of 2025: Filed by the bank seeking NOC from Sri Kalahasthi Municipality to facilitate possession to the petitioner.

Procedural History

• 14.02.2022: Petitioner informed bank about litigation and sought refund.
• 04.05.2022: Complaint filed via CCTNS portal (no action taken).
• 04.08.2022: Another letter sent to bank for refund.
• 19.04.2023, 22.12.2023, 22.03.2024: Representations made to bank.
• 15.07.2024: Bank acknowledged representations and stated steps were being taken for refund.
• 2025: Petitioner filed W.P.No.14989 of 2025 seeking refund or possession of the property.

Relief Sought

The petitioner sought:

1. A Writ of Mandamus declaring the bank’s failure to hand over possession or refund the auction amount as illegal and arbitrary.
2. Refund of Rs. 1,30,50,000 (bid amount) and Rs. 9,78,970 (registration charges) with 24% interest from 16.10.2021 till realization.
3. Alternatively, delivery of possession of the property.

The Legal Issue

The central question was whether a bank, under the SARFAESI Act, can insist on an auction purchaser retaining a property with latent title defects, or whether the purchaser is entitled to a refund of the auction amount with interest under Section 55(2) of the Transfer of Property Act, 1882.

Arguments Presented

For the Petitioner

1. The petitioner participated in the auction in good faith, relying on the bank’s assurance of clear title.
2. Multiple litigations, including objections from the Municipality and a pending suit for cancellation of the sale deed, were not disclosed at the time of auction.
3. The bank failed to take necessary steps to clear the title or inform the petitioner about the pending litigations.
4. The petitioner suffered financial hardship due to the bank’s lapses, including borrowing from lenders and exhausting savings.
5. The principle of caveat emptor (buyer beware) does not apply to latent defects in title, especially when the purchaser is not aware of the defects at the time of sale.

For the Respondent Bank

1. The auction sale was completed, and the Sale Certificate and Registered Sale Deed were issued in favour of the petitioner.
2. The bank acted in good faith and adjusted the sale proceeds to the loan account of the principal borrower.
3. The petitioner was aware of the risks associated with purchasing auctioned properties and should have conducted due diligence.
4. The bank is making efforts to resolve the pending litigations, including filing W.P.No.4381 of 2025 for issuance of NOC from the Municipality.
5. The petitioner’s claim for 24% interest is excessive and unwarranted.

The Court's Analysis

The Court examined the obligations of the bank under Section 55(2) of the Transfer of Property Act, which imposes a duty on the seller to ensure that the property is free from reasonable doubt regarding title. The Court observed:

"The seller shall be deemed to contract with the buyer that the interest which the seller professes to transfer to the buyer subsists and that he has power to transfer the same."

The Court held that defects in title are latent defects, and in the absence of explicit disclaimers in the sale deed, the seller (bank) is presumed to have clear title. The Court rejected the bank’s reliance on the principle of caveat emptor