High Court of Karnataka Examines Validity of SARFAESI Act Auction Sale Where Title Derived from Alleged Forged Documents. Court Considers Whether Auction Purchaser is Entitled to Refund of Sale Consideration on Ground of Fraud.

Writ petition under Articles 226 and 227 of the Constitution of India seeking quashing of sale certificate issued under the SARFAESI Act and mandamus for refund of auction amount with interest and expenses, alleging fraud and lack of clear title.

Quashing of sale certificate dated 10.10.2014 (Annexure-H) issued by the Authorised Officer of Punjab National Bank and a mandamus directing the bank to refund Rs. 30,69,08,217 along with interest and expenses incurred.

The auction purchaser discovered that the mortgagor (respondent No. 3) had acquired title through forged and fabricated documents; the property was not free from encumbrances; the bank failed to disclose the existence of a confirmation deed and other encumbrances; leading to litigation and inability to develop or dispose of the property.

WP No. 38932/2016 disposed with directions for khata transfer; WA No. 5671/2017 clarified no prejudice to 5th respondent's rights; BBMP transferred khata after four years; Crime No. 593/2018 registered for forgery; OS No. 1775/2019 filed with status quo order.

Whether the sale certificate issued under the SARFAESI Act can be quashed on grounds that the title of the mortgagor was defective due to forged documents and fraud? Whether the auction purchaser is entitled to refund of the entire purchase amount with interest if the title is found to be defective or fraudulent? Whether a writ petition under Article 226 is the appropriate remedy for recovering money and declaring title when facts are disputed and require evidence? Whether the petition is barred by delay and laches as the sale certificate was issued in 2014 and the petition filed in 2019?

Petitioner's arguments: The bank officials played fraud by knowingly selling a property whose title derived from forged documents; the original owner died in 1976 but a GPA was executed in 1989, impossible; the bank assured clear title; the petitioner relied on that and invested huge sums; physical possession was handed over but due to third party claims and litigation, the property could not be developed; the bank's reply to legal notice was evasive; therefore, the sale certificate should be quashed and refund ordered. Respondent Bank's arguments: The bank entered the picture in 2010 when loan was sought; due diligence was done based on documents provided including a confirmation deed; the loan was sanctioned bona fide; the 3rd respondent had earlier challenged the e-auction in WP 14238/2014 but sale proceeded later; the petitioner verified and participated with eyes open; the bank delivered physical possession and sale certificate; no fraud attributable to the bank; the petition is grossly delayed. Respondent No. 4's arguments: The petitioner derived no title because the 3rd respondent had none; fraud and forgery are matters of evidence to be proved in a competent civil court; the writ court cannot grant monetary relief without adjudication; the petition suffers from gross delay and the petitioner has not come with clean hands; however, it is contended that since there was fraud at the initial stage, the sale is void and the property should vest in the legal heirs, not the bank or petitioner.

The petitioner claims to have borrowed all the money from NBFC to fund auction purchase on certain rate of interest. On coming to know that the sale that took place in the year 2009 by which the 3rd respondent becomes owner of the property is itself fake and fabricated, the petitioner seeks refund... Madhava Iyengar could not have registered GPA pursuant to which the sale deed was registered, as Madhava Iyengar, the original owner of the property had died on 03-02-1976 and the GPA is said to have been executed by Madhava Iyengar in the year 1989. The Bank replies to the legal notice seeking refund of the entire amount by evasive reply.

One Madhava Iyengar, the original owner, died in 1976. In 1989, a GPA was allegedly executed in his favor of T. Selvaraju. In 2009, a sale deed was executed by the GPA holder in favor of Smt. Poonam Lakhani (respondent No.3). In 2010, the company of which respondent No.3 was a director obtained a loan of Rs. 15 crores from Punjab National Bank, and the property was mortgaged by deposit of title deeds. Upon default, the bank initiated SARFAESI proceedings: symbolic possession taken on 31.01.2013, e-auction notice on 05.08.2014. Petitioner purchased in auction and sale certificate issued on 10.10.2014. Physical possession handed over on 29.01.2015. Petitioner applied for khata transfer to BBMP; respondent No.5 filed objections. Petitioner filed WP 38932/2016, which was disposed on 18.01.2017 directing BBMP to pass orders. Respondent No.5 filed WA 5671/2017, which clarified no prejudice to his rights. Eventually, BBMP transferred khata after four years. In 2018, legal heirs of Madhava Iyengar registered Crime No.593/2018 for forgery. In 2019, respondent No.4 and his brother filed OS No.1775/2019 for declaration of title, and court ordered status quo. Petitioner issued legal notice for refund; bank replied evasively. The present writ petition was filed in 2019 challenging the sale certificate and seeking refund.

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act):
• Constitution of India: Article 226, Article 227
• Karnataka Municipal Corporations Act: