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Introduction
When someone wins a case of mortgage or charge, then the property is put to sale by the Court. It happens by way of a Public Auction. In this sale a person , who is generally a stranger to the case, purchases the property and is called an Auction Purchaser. But the story does not end here and if the Auction Purchaser is not vigilant enough, he may have to suffer for someone else’s misdeeds. Imagine if the property is sold after SARFAESI proceedings or DRT proceedings by the Bank and you purchase it only to know that there is already a prior usufructuary mortgage created on the property, then despite depositing the sale price with the Bank or Court you are still in the middle of the desert.
That’s why in the advertisement for sale published in newspaper it is generally written “the property is sold on as is where is basis” i.e. purchaser will purchase the property with all liabilites attached to it. That’s why the purchasers of the property must be cautious when buying the property and hence the dictum “Caveat Emptor” meaning buyers beware is applicable here.
In this article we will see as to how a simple mistake by the Auction Purchaser landed him in trouble and despite purchasing the property he could not enjoy his purchase.
Brief Facts
Jadhav Chandra Roy (let’s say A), Satish Chandra Roy (let’s say B), and Purna Chandra Roy were 3 brothers. When Purna died his wife Shashi (let’s say C), was entitled to enjoy his husband’s property till her death. But Jadav and Satish proposed to Shashi, that if she relinquishes her share in the Joint Hindu Family property, she will be given Rs. 216 per annum for her maintenance (many a times it happens that when a Co-owner/sibling intends to sell a joint family property he obtains a Relinquishment Deed from the other Co-owners/ siblings in his name, so that the property can be sold easily. Otherwise when a property is in the name of let’s say 3 Co-owners/siblings its difficult to sell it, because either the purchaser is not interested in buying the property due to fear of legal issues in future or the purchaser proposes to purchase the property at a very low price).
Now let’s say C agrees to relinquish her share in the property, but what is the guarantee that A & B after getting the property will keep on paying maintenance to C and will not stop it? For this purpose an Ikrarnama (a kind of agreement) was executed between C on one hand and the brothers on the other, whereby the property (let’s say Vasant Kunj property) was charged for payment of maintenance.
But What Is A Charge?
A charge is a burden (also called encumbrance) on a property which is available when due payment is not made to a person. For example, if you sell your house to someone for Rs.100/- of which Rs.10/- is given to you in advance as Security Deposit and Rs. 90/- is to be given after one month. In the meantime let’s say you also gave possession of the house to the Purchaser. But even after one month the Purchaser does not give you the rest of the money and either out rightly denies to do so in the future or delays payment on one pretext on another. Then what are your remedies because as per law you are not entitled to take the possession of the house back form the Purchaser? But that doesn’t mean you are remediless. Though you cannot take the possession of the house, but you can certainly file a case whereby you will request the Court to either direct the Purchaser to pay Rs. 90/-(called “Money Suit”) and create a charge on the house for Rs.90 and if you win the case the house will be sold by the Court to pay you Rs.90 (called “Enforcement of Charge”).
Now as generally happens, A and B failed to pay C her maintenance. So she brought a suit for Recovery of Arrears of Maintenance and to enforce the Charge on the property. She won the case and subsequently the property was sold to (let’s say) E in a Court Auction.
How a Property Is Sold In Court Auction
Whenever a property is to be sold in a public auction the court issues a Proclamation under Order 21 Rule 66 of Civil Procedure Code, 1908 (in short CPC) whereby the property with its description, the amount for which the property is sold (like in the seller purchaser example above the sale will be for Rs.90), encumbrance on the property (like prior mortgage, charge etc.) are mentioned. This Proclamation can be often seen in newspapers. After this a date is fixed for the auction of the property. On the day of auction the highest bidder gets the property who is called the Auction Purchaser. Then the highest bidder deposits sale price in the Court (Order 21 Rule 85, CPC) but presently the property is not his, as a person who have an interest in the property can challenge the auction sale. Only after no such objection is raised or such objection having been raised is decided in favour of the Auction Purchaser, the auction sale becomes final under Order 21 Rule 92, CPC when the court confirms the sale and Sale Certificate is given to the Auction Purchaser declaring him to bet the owner of the property.
Brief Facts Continued:
Now in the instant case the sale proclamation mistakenly did not mention that there is a prior charge on the Vasant Kunj property in favour of C and anyone who purchases this property in court sale also have to pay the areas of maintenance to C.
If the Auction Purchaser was not aware of such condition and purchased the property under the belief that it is free from any encumbrance (here encumbrance or burden means the arrears of maintenance), he would have been free to enjoy it without any reason to worry. It is because of the reason that when a property is sold in a court auction all encumbrances are extinguished and Auction Purchaser purchases the property free from any burden and he is not bound to pay any maintenance to C.
But this argument only applies when the Auction Purchaser is unaware of the existence of the burden as Section 100 of the Transfer of Property Act, 1882 states that if the Auction Purchaser purchasing a property has knowledge of the charge, charge is enforceable against him. Moreover if a Charge is Single (meaning only one time payment is required like in Purchaser Seller example given before where the seller have to pay Rs. 90/- for one time only and there will be no further payment required to be made) then the charge might extinguish on the auction sale but when the Charge Is Recurrent (meaning continous payments are to be made like the payment of maintenance in this case where maintenance have to be paid on First day of every month) even Auction Purchaser cannot deny to satisfy the charge.
Charge is entirely different from the a mortgage defined under Section 58 of Transfer of Property Act, 1882. If a mortgage (colloquially called “Girwi rakhna” in North India) of Rs.100 remains unpaid to the Mortgagee (the person who gives the loan on the security of the property) and the Mortgagee brings a suit for Foreclosure and Sale of the property whereby the property is sold for Rs.60 then the Auction Purchaser have to just pay the bidding amount to the Mortgagee and nothing more. For the rest of the mortgage money i.e. Rs.40 there will be a Personal Decree against the Mortgagor (namely the person who has mortgaged his property) under Order 34 Rule 6., CPC.
In essence we can say that in a sale to satisfy a Charge the Auction Purchaser have to pay again and again till whole of the charge is satisfied as the same came attached with the purchase of the property, but if the same would have been a purchase in mortgage sale then only one time payment is needed to be paid by the Auction Purchaser.
Effect of Knowledge or Notice
Now is it necessary that as the Sale Proclamation has not mentioned the existence of the Charge, it should be automatically assumed that the Auction Purchaser did not know about it? The plain answer is no. Here is why. Though the sale proclamation did not mention the Charge but Auction Purchaser should have seen the documents like Decree on the basis of which the sale is being made. Any person who is serious to buy a property will do so. And if due diligence would have been done by the Auction Purchaser he certainly would have found out about the existence of a Recurrent Charge on the property.
This in property law is called “Constructive Notice” which is different from an Actual Notice. Constructive Notice is defined in Section 3 of the Transfer of Property Act, 1882. Actual Notice denotes a situation where a person is fully aware of a fact and Constructive Notice means though a person is not aware of a fact, but if he would have tried hard he must have known it. So let’s say X goes to Y’s house to buy his property in Saket but meets a person Z who is living there. Now it is the duty of X to enquire as to who is living in this property which he is going to purchase. Suppose tomorrow after X purchases the Saket property and asks Z to vacate the said property but Z says that he is living at rent and have a lease deed for a period of 20 years in his name then X cannot throw him out of the property on the ground that neither Y nor Z ever mentioned anything to him about this fact of lease and the same is also not mentioned in the Sale Deed. As a prudent person X must have enquired as to who is Z and why is he living in this Saket property which he is going to purchase? So here he may not have actual notice of the fact of the tenancy but he will be deemed to have a constructive notice under above mentioned Section 3. That’s why Constructive Notice is also called “Deemed Notice”.
Hence it should be assumed that the Auction Purchaser has constructive notice of the maintenance to be given to C and hence the Court decided he have to pay extra money every month to C in lieu of her maintenance.
Conclusion
When someone purchases a property it is his/her life savings which is ploughed into buying the property. Hence it is essential that he/she should make the effective background checks, some of which have been explained by me in this Article. Moreover if the purchaser has made every effort to know everything about the property which he is going to purchase in future and some third party comes to disturb him after his purchase then the Court will be on his side and he will be protected as a Bona Fide purchaser. Like for due diligence a purchaser before purchasing a property can go to the Sub Registrar’s office to check on whose name property stands or check revenue records to see whether the mutatiion record bears seller’s name. Hence it is always required that the purchasers of property which include auction purchasers should not rush and take their time to vet the property fully and only thereafter make the purchase.
Hence th purchaser/auction purcahser must keep in mind the precept “Better Late than Never”.
Parveen Semwal
Advocate, High Court of Delhi and Supreme Court of India