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Informist, Thursday, Dec. 5, 2024

 

--HC to RBI: Conduct inquiry against Karur Vysya Bk in property auction case 

--HC: Karur Vysya Bk failed to do due diligence before auctioning property 

--CONTEXT: Property sold to petitioner by Karur Vysya Bank was encumbered 

 

By Surya Tripathi

 

NEW DELHI – The Delhi High Court has directed the Reserve Bank of India to initiate an inquiry and take appropriate action for the "arbitrary and unconscionable action" on the part of Karur Vysya Bank to auction an encumbered property with claims from other banks. The court has asked the central bank to take corrective measures by issuing appropriate guidelines in situations such as this.

 

The court said that Karur Vysya Bank had managed to sell the property to petitioner Pawan Kumar Taneja for a significant sum without conducting proper due diligence. This led to Taneja being trapped into entering a home loan agreement with the bank, leaving him a victim of the bank's "high-handed actions", the court said.

 

Under the Security Interest (Enforcement) Rules, 2002, Karur Vysya Bank failed to supply all the relevant details regarding encumbrances related to the scheduled property by or in favour of other financial institutions, the court said. There was patent failure on the part of the bank to conduct due diligence before auctioning the property, it added.

 

The high court quashed the sale certificate issued and signed by the authorised officer of Karur Vysya Bank in favour of Taneja, and declared it to be "null and void". It directed the bank to refund INR 993,752.94, along with interest at the rate of 12% per annum from 2013, till actual payment to the petitioner. 

 

The court ordered Karur Vysya Bank to foreclose the loan account of Taneja and return the amount of instalments, if any, paid by the petitioner to the bank with interest at the rate of 12% per annum from the date of each payment till the actual realisation. The court asked the bank to remove the freeze marked by it on the petitioner's savings account.

 

"Lastly, for the trial and travails suffered by the petitioner in this long 11 years of litigation, this is a fit case where respondent No.1 (Karur Vysya Bank) should be burdened with exemplary cost and pay the same to the petitioner as compensation including the cost of litigation, which is quantified at INR 500,000," the court said.

 

It said that the payment by the bank to the petitioner should be made within four weeks from its order, failing which the bank would be liable to pay interest on the amount under each head at the rate of 18% per annum, with compound interest from the date of the judgement till realisation.  

 

In 2013, Karur Vysya Bank had published an auction sale notice for a property in Delhi, wherein Taneja was the auction purchaser. Taneja had deposited INR 960,000, including the earnest money deposit with the bank, and for the remaining amount, he took a loan of INR 2 million from Karur Vysya Bank in 2013. The tenure of the loan was 15 years with equated monthly instalments of INR 22,721.94. 

 

Taneja said that upon reaching the property, he discovered that it was under the posession of Ranju Kumari, who claimed ownership through a purchase from Oriental Bank of Commerce. Taneja informed Karur Vysya Bank of this and requested a refund of the earnest money deposit paid by him, along with the loan charges imposed by the bank. However, Karur Vysya Bank continued to charge equated monthly instalments and impose interest. This was despite the bank auctioning a property that had already been sold, which resulted in the petitioner not receiving a clear title, Taneja said.

 

He also submitted a representation to the Reserve Bank of India's banking ombudsman, highlighting the alleged malpractices of Karur Vysya Bank and seeking appropriate intervention. However, no action was taken by the central bank, after which Taneja moved the high court. 

 

Taneja said that merely including a disclaimer stating that the property in question was being sold "as is, where is and what is where is" couldn't absolve Karur Vysya Bank from its responsibility for the defective title. The auction notice did not disclose any encumbrance or title issues with the property, Taneja said.

 

At 1210 IST, shares of Karur Vysya Bank were up 1.4% at INR 242.74 on the National Stock Exchange.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Avishek Dutta

 

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