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In a recent legal development, the 'as is where is' clause in a public auction has been brought under scrutiny, with a high court ruling that this clause does not necessarily absolve a property of having an absolute title. This decision has led to the directive for a nationalized bank to refund a substantial amount, specifically Rs 30.7 crore, to a successful bidder for a property.
All sales agreements entered into by a buyer and seller contain rights and responsibilities for both parties. However, a sale "without recourse" , “as is what is” "whatever there is," means a sale without liability. This means the buyer accepts all risks associated with the purchase. The buyer has "no recourse" against the seller if he or she goes on to incur any problem with the property. Further, the seller is not obligated to compensate the buyer for any damages, defects, or legal issues. Therefore, the rules of caveat emptor apply.
This significant legal outcome emerged from a petition presented by M/s Paramount Constructions, who successfully contended their case before Justice M Nagaprasanna. The verdict compelled Punjab National Bank (PNB) to disburse Rs 30,69,08,217 to the petitioner, encompassing the purchase price of the property in question, along with the stipulation of interest at the bank's lending rate and ancillary charges.
The legal framework of the ruling drew upon a precedent set by the Supreme Court in the Unitech Limited vs Telangana State Industrial Infrastructure case. This prior ruling asserted that even in cases concerning monetary claims, the writ could be maintained if state actions were perceived to be arbitrary in nature.
To contextualize the matter, the origin of this legal dispute can be traced back to October 2014 when the petitioner was granted a sale certificate for a mortgaged property located in Peenya. This certificate was a result of a successful bid amounting to Rs 15.2 crore in an e-auction. However, the subsequent attempt by the petitioner to transfer khata, a municipal account, was met with opposition from individuals asserting themselves as agreement holders of the property.
These objections prompted the Bruhat Bengaluru Mahanagara Palike (BBMP) to initiate proceedings against the auction purchaser, invoking the Karnataka Municipal Corporations Act. This legal escalation gave rise to a series of litigations, including one involving the legal heirs of Madhava Iyengar, the original property owner.
Amidst these legal intricacies, allegations of fraud and manipulation of facts in the property sale emerged. This property, which was pledged to PNB to secure a business loan, became embroiled in a complex legal quagmire. Subsequently, the petitioner turned to the bank to request a refund amounting to Rs 30,69,08,217. The bank's evasive response compelled the petitioner to seek recourse in the High Court.
Upon meticulous examination of the evidence, Justice Nagaprasanna underscored that the bank's failure to provide a property devoid of encumbrances unfairly burdened an innocent auction purchaser. The judge noted that had the bank exercised due diligence during the loan approval process in 2010, the present conundrum could have been averted. The bank's stance that the property was sold on an 'as is where is and as is what is' basis did not absolve it from ensuring that the property was unencumbered.
The judge emphasized that this clause did not grant the bank the right to place an auction purchaser in possession of a property entangled in encumbrances. It appeared that the bank's primary objective was to regain control of the property to redeem its financial stake and recoup the loan amount.
This landmark ruling serves as a reminder of the importance of thorough due diligence by financial institutions and highlights the potential legal consequences that can ensue from negligence in property transactions. It also establishes a precedent for auction purchasers' rights, ensuring that they are not unfairly burdened by encumbrances resulting from a lack of proper oversight by lending institutions.
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