Authority: Madras High Court
Order Date: 20 August 2026
Case Overview
- Petitioners: K. Satheesh Babu (W.P. No.42471 of 2025) and Samuel Vijay Jayabal & Jansi (W.P. No.42479 of 2025), each represented by Mr. C. Umashankar.
- Respondents: The Authorised Officer, Punjab National Bank (Asset Recovery Management Branch, Coimbatore) and the Office of Tax Recovery Officer, Income Tax Department (TRO Central 2, Chennai), represented by Mr. M. L. Ganesh and Mr. S. Arunkumar.
- Both petitioners participated in e‑auctions conducted by PNB under the SARFAESI Act, emerged as highest bidders, and deposited 25% of the respective bid amounts (Rs 19,12,500 and Rs 21,62,500).
- After depositing, they discovered a subsisting Income Tax attachment on the secured properties, which was not disclosed in the e‑auction notices.
- The bank, insisting on payment of the remaining 75% balance, cancelled the auctions and forfeited the deposits through orders dated 30 July 2025.
- Petitioners filed writ petitions under Article 226 seeking quash of the forfeiture orders and refund of the deposits with interest, arguing non‑disclosure of a material encumbrance violated Rule 8(7)(a) of the Security Interest (Enforcement) Rules, 2002.
- The bank contended the writs were not maintainable (alternative remedy before DRT) and that its prior mortgage had statutory priority over the Income Tax attachment, invoking Rule 9(5) to justify forfeiture.
- The Court examined three issues: (i) maintainability of the writs, (ii) priority of the bank’s charge over the tax attachment, and (iii) effect of non‑disclosure of the attachment in the auction notice.
- The Court held that alternative‑remedy doctrine does not bar writ jurisdiction where procedural violations are alleged, thus the writs are maintainable.
- Citing Dena Bank v. Bhikhabhai Prabhudas Parekh and Connectwell Industries Private Ltd. v. Union of India, the Court affirmed that a secured creditor’s prior mortgage prevails over unsecured Crown debts, confirming the bank’s priority.
- However, the Court emphasized that Rule 8(7)(a) obliges the authorised officer to disclose all known encumbrances in the sale notice; failure to do so vitiates the auction.
- Relying on Jai Logistics v. The Authorized Officer, Syndicate Bank and Delhi Development Authority v. Corporation Bank, the Court concluded that non‑disclosure invalidates the forfeiture and entitles the purchaser to a full refund with 9% per annum interest from the date of deposit.
Final Outcome
- The forfeiture orders dated 30 July 2025 are quashed.
- Punjab National Bank is directed to refund the entire deposited amounts (Rs 19,12,500 and Rs 21,62,500) with interest at 9% per annum from the date of deposit until full repayment.
- Refund must be effected within four weeks of receipt of a copy of this order.
- No order as to costs.
- WMP No.47527 of 2025, filed to permit a single writ petition, is allowed; all other interim applications are closed.
Topics: Banking Regulation, SARFAESI Act, Court Order