SARFAESI | Bought Bank-Auctioned Property For ₹6 Crore, Later Discovered Hidden Dues: Delhi High Court Refuses To Make Bank Pay

"To Allow A Purchaser To Recover Pre-Sale Dues After Accepting The Sale Certificate Would Render The 'As Is Where Is' Clause Otiose" — In a landmark ruling that will significantly shape the rights and responsibilities of auction purchasers and secured creditors under the SARFAESI Act, the Delhi High Court held that a successful bidder who purchases leasehold property in a bank auction on an "As Is Where Is" basis cannot subsequently demand reimbursement from the bank for pre-sale statutory dues that he was contractually bound to bear.

A Division Bench of Justice Anil Kshetarpal and Justice Amit Mahajan set aside the Commercial Court's decree that had held the Bank liable to refund outstanding lease arrears and transfer charges paid by the auction purchaser to the Uttar Pradesh State Industrial Development Authority (UPSIDA) — and in doing so, delivered a decisive verdict on the interplay between caveat emptor, duty of disclosure, and the finality of SARFAESI auctions.

The Bank of Maharashtra, acting as a secured creditor under the SARFAESI Act, issued a Public Notice on November 28, 2018 for the e-auction of three industrial plots situated at H-3, H-3A, and H-4, UPSIDA Industrial Area, Sikandrabad, Uttar Pradesh. These plots had been leased by UPSIDA to the Bank's borrower, M/s Ashoka Machine Tools International Pvt. Ltd., and had been mortgaged to the Bank as collateral security.

The auction notice left nothing to ambiguity. It declared that the sale would be conducted on an "As Is Where Is," "As Is What Is," and "Whatever There Is" basis. Clause 12 of the Terms and Conditions expressly warned all prospective bidders 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." Clause 13 placed the responsibility on bidders themselves to investigate title, statutory dues, and encumbrances before participating.

The Respondent, Jai Kumar Bansal, participated in the e-auction on December 14, 2018 and emerged as the successful bidder with a bid of ₹6,07,12,000. A Sale Certificate was issued on December 29, 2018, stating that the property was free from all encumbrances "known to the secured creditor." Physical possession of the plots was handed over on January 1, 2019, which the Respondent accepted without protest or reservation.

Trouble arose when the Respondent approached UPSIDA for mutation and transfer of leasehold rights. UPSIDA, vide letters dated May 15, 2019, informed him that the transfer could only be regularized upon payment of arrears of lease rent and transfer charges totalling ₹25,06,846 — dues pertaining to the pre-auction period. When the Bank refused to clear these liabilities, citing the "As Is" nature of the sale, the Respondent paid the amount under protest and filed a suit for recovery before the Commercial Court.

The Commercial Court partly decreed the suit, holding that the "As Is Where Is" clause did not absolve the Bank of its duty of disclosure and that it was bound to deliver the property free from pre-sale encumbrances. Aggrieved, the Bank filed the present appeal before the Delhi High Court.

Whether the "As Is Where Is" Clause in a SARFAESI Auction Absolutely Protects the Bank from Liability for Pre-Sale Dues

The Court began its analysis by examining the legal nature of "As Is Where Is" clauses in SARFAESI auctions. It acknowledged at the outset that such protection is not absolute — a secured creditor cannot use the clause as a shield to cover active concealment or deliberate suppression of material facts. The Court noted that the Allahabad High Court in Rekha Sahu vs. UCO Bank had correctly held that immunity provided by "as is where is" terms "cannot be used to shield the non-disclosure of material facts that are within the Bank's knowledge." The Supreme Court in Punjab National Bank vs. Mithilanchal Industries Pvt. Ltd. and in Delhi Development Authority vs. Corporation Bank & Ors. had similarly emphasized that secured creditors must act with full transparency.

However, the Court was careful to distinguish these precedents from the present facts. In the Delhi Development Authority case, the Supreme Court had quashed an auction on the ground that the bank had not disclosed the DDA's statutory "unearned increase" charge — a case of active non-disclosure of a known liability. The present case, the Court held, was materially different: the Respondent had failed to produce any evidence establishing that the Bank had actual knowledge of the specific UPSIDA dues and had deliberately suppressed them.

What Is The Extent of the Secured Creditor's Duty of Disclosure Under SARFAESI Rules and the Transfer of Property Act?

The Court examined this question with precision. Under Section 55(1)(a) of the Transfer of Property Act, 1882, a seller is bound to disclose to the buyer any material defect "of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover." Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002 obligates the authorized officer to disclose "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."

Critically, the Sale Certificate issued by the Bank qualified the encumbrance-free representation as being limited to encumbrances "known to the secured creditor." The Court held that this qualification was not a mere formality — it was a deliberate and accurate statement of what the Bank knew at the time. In the absence of proof of fraud or active misrepresentation, "the contractual terms must be enforced." The Bank, the Court concluded, "did not violate its statutory duty of disclosure under the SARFAESI Rules or the Transfer of Property Act."

Was the Respondent, a ₹6 Crore Bidder, Expected to Have Done His Own Due Diligence on UPSIDA Dues?

The Court applied the principle of caveat emptor with full force to the facts of the case. It observed that the UPSIDA dues pertained to the leasehold nature of the property and were matters of public record — discoverable by a simple inquiry with UPSIDA as the lessor. The Respondent was "presumed to be a sophisticated commercial entity" who had placed a bid exceeding ₹6.07 crores, and was "expected to exercise due diligence commensurate with the value of the transaction." Clause 13 of the auction notice had squarely placed this investigative burden on bidders before they participated.

The Court drew an instructive distinction with Mandava Krishna Chaitanya vs. UCO Bank, where the bank had made "no exercise whatsoever to verify encumbrances." Here, the Bank had acted on the basis of its own records and had not been shown to have made any affirmative misrepresentation about the UPSIDA dues. This crucial factual difference, the Court held, made that precedent inapplicable.

Whether the Respondent Was Estopped From Claiming Reimbursement After Accepting the Sale Certificate Without Protest

This was among the most decisive grounds for the Court's ruling. The Respondent had accepted the Sale Certificate on December 29, 2018 and taken physical possession on January 1, 2019 — all without any protest, reservation, or demurrer about pending dues or title. The Court held that by doing so, the Respondent had entered into a binding contract to assume all "unknown" liabilities. Relying on Royal Star Trading Co. vs. IFCI Ltd., the Court held that "an auction purchaser cannot renege on a confirmed bid or seek modifications to the price by way of reimbursement of dues simply because of a subsequent discovery of liabilities that they had already contractually agreed to bear." The Respondent, the Court concluded, "having voluntarily accepted the risk of unknown encumbrances, is estopped from seeking reimbursement for the UPSIDA dues."

Did the Commercial Court Err in Applying an Absolute Warranty of Title Standard to a SARFAESI Auction?

The Court squarely held that the Commercial Court had fallen into legal error. It observed that the court below "erroneously applied the standard of an absolute warranty of title, which does not exist in SARFAESI auctions unless specifically promised." More importantly, it failed to appreciate that Clause 12 of the auction notice was "not a vague 'as is' clause but a specific contractual allocation of risk regarding statutory dues" — supplemented further in the Letter of Acceptance dated December 14, 2018, which again expressly advised the Respondent that all pending charges and taxes on the property were to be borne by him.

"The Finality of a Judicial or Statutory Auction Is a Matter of Public Policy" — Delhi HC Warns Against Unravelling SARFAESI Sales

"Rendering the 'As Is Where Is' Clause Otiose Would Create Perpetual Uncertainty for Secured Creditors" — Court Sets Aside Commercial Court's Decree

On the broader policy dimension, the Court articulated a principle of significant importance for the banking and legal community. It held that "the finality of a judicial or statutory auction is a matter of public policy" and that to allow a purchaser to recover pre-sale dues after unconditionally accepting the sale certificate "would render the 'as is where is' clause otiose and create perpetual uncertainty for secured creditors." This observation sends a clear message: SARFAESI auctions cannot become a revolving door of post-sale litigation where successful bidders — after getting the property — seek to offload onto banks the very risks they contractually undertook.

The Division Bench allowed the Bank of Maharashtra's appeal in its entirety, set aside the Impugned Judgment and Decree dated January 31, 2023 of the Commercial Court, and dismissed the suit filed by the Respondent. The pending application was also closed. No opinion was expressed on any matter beyond the contractual and statutory issues decided.

The Court's ruling rested on four mutually reinforcing pillars: first, that the Bank had not been shown to have had actual knowledge of the UPSIDA dues or to have deliberately concealed them; second, that Clause 12 of the auction notice constituted a specific and unambiguous contractual allocation of risk regarding all authority dues; third, that the Respondent, as a sophisticated commercial bidder, was expected to have inquired with UPSIDA before placing a bid of over ₹6 crores; and fourth, that the unconditional acceptance of the Sale Certificate and possession without protest operated as a final estoppel against any subsequent claim for reimbursement.

The Delhi High Court's ruling in Bank of Maharashtra vs. Jai Kumar Bansal is a watershed moment for SARFAESI auction jurisprudence. It draws a nuanced but firm line between the two extremes — a bank that actively conceals known encumbrances, which must bear the consequences, and a bank that acts in good faith on its records, discloses the "as is" nature in specific terms, and yet is made to pay for dues it never knew about. The Court has firmly placed the responsibility of pre-bid due diligence on auction participants, particularly those placing bids running into crores, and has underscored that the finality of statutory auctions is not merely a contractual convenience but a matter of public policy. For advocates advising bidders in SARFAESI auctions, the message could not be clearer: investigate first, bid later — the "as is" clause means exactly what it says.

Date of Decision: February 20, 2026