Analysing the Legitimacy of Auctioning of Secured Assets in an ‘As is, Where is, Whatever is’ Manner: A Call for Adopting the Doctrine of Caveat Venditor – Part II

[Sourav Paul]

The author is a student of West Bengal National University of Juridical Sciences.

Tracing the Judicial Approach to Sale of Secured Assets: A Marked Shift Towards the Doctrine of Caveat Venditor

Traditionally, the Indian courts have applied the caveat emptor doctrine while adjudicating the on the part of the secured creditors. The Indian courts adopted this position, i.e., to protect the secured creditors, primarily because it was a part of the larger policy plan to resolve the NPA crisis.[[i]] An ‘as is, where is, whatever is’ sale of the secured assets meant fast removal of NPAs .[[ii]] Consequently, the buyers of these secured assets in the auctions were denied relief. The courts have used caveat emptor as a ‘sword’ to deny any relief to the bonafide buyers.

In United Bank of India v. Official Liquidators and Others, the buyer was not aware of the liens and encumbrances on the property. However, the SC rejected the claim of the buyer for compensation, price , or damages. The SC argued that the official liquidator did not provide any guarantee or warranty to the buyer that the asset had a marketable title, and it was the responsibility of the buyer to undertake due diligence. A similar line of reasoning was followed in Delhi Developmental Authority v. Kenneth Builders and Developers Ltd. In Babu Bindeshri Prasad v. Mahant Jairamgir, the bonafide purchaser claimed specific performance of the contract since the seller failed to guarantee a good title. The Privy Council, while dismissing the suit, held that the seller is not obligated to provide any guarantee regarding the marketability of the title. It observed that the preamble of the SARFAESI Act and the guiding principles enshrined under §55 of the Act must be read harmoniously. In essence, the SC incorporated the mandate under §55 of the Act in the scheme of the SARFAESI Act.

However, gradually the judicial discourse changed in favour of the bonafide buyers when the courts started recognising that it has become an industry practice to use ‘as is, where is, whatever is’ clauses by the secured creditors. In Rekha Sahu v. UCO Bank, the Division Bench of the Allahabad High Court unequivocally held that the secured creditor is duty-bound to disclose all material information to the buyer while selling secured assets, as per §55 of the Act. Similarly, in Atishaya Construction Pvt. Ltd. v. Central Bank of India, while analysing the validity of ‘as is, where is, whatever is’ clauses, the Gujarat High Court noted that the clause could not grant immunity to the secured creditors and the buyers are liable to be compensated by the secured creditors.

Formal recognition of the principle of caveat venditor in the context of auctioning of secured assets happened in Mandava Krishna Chaitanya v. UCO Bank, Asset Management Branch. The Andhra Pradesh High Court opined that the “concept of as is where is and as is what is basis has lost its significance in the current commercial milieu, and the principle of caveat venditor is more on the rise as compared to the outdated principle of caveat emptor.” In this case, the bank completely relied on this clause for immunity and did not undertake the basic due diligence on the secured asset before the auction. In this case, the bank completely relied on this clause for immunity and did not undertake the basic due diligence on the secured asset before the auction. It further ruled that the secured creditor is barred from dealing with the secured asset arbitrarily. It held that Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 are mandatory provisions, which means that informing the purchaser of the secured asset about the nature of the property, liability, encumbrances, etc., is also mandatory.

In Jai Logistic v. The Authorised Officer, Syndicate Bank, the Madras High Court while ruling that the secured creditor must be aware and inform the buyer about all the material defects in the secured asset. However, it highlighted that if the auction notice specifically adds a certain additional due diligence burden on the buyer, such auction notice shall be deemed valid. Further, it also opined that delivery of encumbrance certificate post-execution of the transfer of the secured asset would not imply compliance with the principle of caveat venditor and §55 of the Act.

In Capital Hotel and Developers Ltd. v. Delhi Development Authority, the Delhi High Court ruled that the secured creditor is duty-bound to disclose all pending litigations to the bidders who are participating in the auction, and “it was the bidders to consider whether the same was a cloud on the title or not.” The Court emphasised the need for ‘informed’ consent on the part of the bonafide buyer and argued that any pending litigation pertaining to the secured asset is a material fact. The Court, while relying on §55 of the Act, opined that “[e]ven if there was no impediment to the transfer, the cloud arising from pendency of the appeal entitle the purchaser for disclosure of such information and the non-disclosure would give a right to the purchaser to back out of the transaction.

Recently, in Medineutrina (P) Ltd. v. District Industries Centre, the Bombay High Court reiterated that mere mention of ‘as is, where is, whatever is’ basis shall not absolve the secured creditor of its duty to – (a) to make adequate enquiries about the encumbrances regarding the property; (b) to disclose such information in the auction notice, thereby enabling the buyer to make a ‘conscious’ decision.


This article was a modest attempt to get the dice rolling on changing the perspective regarding the auction of secured assets from caveat emptor to caveat venditor. The primary aim of the article was to focus on the rights and liabilities of the secured creditors while transferring the secured assets to the bonafide purchaser and holding them liable for any material defect in the title of the secured assets. The author’s argument was bolstered by the recent jurisprudence on this issue, which witnesses a marked The author also invoked §55 of the Act to argue in favour of adopting the caveat venditor approach. The author also commented on the unenforceability of ‘as is, where is, whatever is’ clauses in auction notices. In view of the author, this is a step in the right direction. However, the work is far from over.

Currently, the application of the caveat venditor approach with respect to the sale of secured assets is premised on a bunch of High Court decisions. In the absence of any concrete SC decision or amendment to the SARFAESI Act on this matter, it is prone to distortion by Indian courts. Further, there is a lack of clarity among the stakeholders involved in the auctioning of secured assets, as we still observe the presence of ‘as is, where is, whatever is’ clauses in auction notices. Therefore, the Parliament must bring necessary amendments to the SARFAESI Act to codify the caveat venditor approach regarding the sale of secured assets. Furthermore, the RBI must issue Master Directions on the unenforceability of ‘as is, where is, whatever is’ clauses since banks or financial institutions use this clause to claim immunity. This move will instil confidence and clarity among the stakeholders involved in the process. It will also help India fulfil its twin policy goals, to make India – (a) an attractive destination for foreign . Thus, it remains to be seen how the jurisprudence on this issue develops in the future.


[ii] Id.


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