Recovery of Debts Act – Auction Sale Without Disclosure of Lease Conditions and Unearned Increase Claim is Void; Restitution to Innocent Auction Purchaser
Case Name: Delhi Development Authority v. Corporation Bank & Others
Citation: Civil Appeal No. 11269 of 2016; 2025 INSC 1161
Date of Judgment: 25 September 2025
Bench: Justice Sanjay Kumar and Justice Alok Aradhe (DB)
Held: The Supreme Court held that an auction sale conducted by the Recovery Officer under the Recovery of Debts Act, 1993 is invalid where the proclamation of sale fails to disclose encumbrances such as the lessor’s right to unearned increase under the lease deed. The Bank, having accepted mortgage without valid consent of the lessor (DDA), could not lawfully auction the property. The doctrine of res judicata was inapplicable since the earlier writ petition had been withdrawn on the Bank’s undertaking that auction would be held in accordance with lease conditions, which was breached. The Court quashed the auction and directed restitution to the bona fide auction purchaser, including refund with 9% interest.
Summary: The Delhi Development Authority (DDA) had allotted a leasehold plot at Jasola to Sarita Vihar Club in 2001 with restrictions on mortgage requiring prior consent of the Lieutenant Governor. The club mortgaged the plot to Corporation Bank without such consent, and defaulted in repayment. The Bank obtained recovery orders from the DRT and initiated e-auction proceedings. Despite objections from DDA that its statutory rights of unearned increase and pre-emptive purchase were ignored, the Recovery Officer confirmed the auction in 2013 in favour of M/s Jay Bharat Commercial Enterprises for ₹13.15 crores.
DDA’s objections and writ petitions were rejected by the High Court on grounds of constructive res judicata. Before the Supreme Court, DDA argued that the auction was void ab initio as lease conditions were violated and the proclamation failed to disclose its claims. The Court agreed, finding that Rule 53 of the Second Schedule to the Income Tax Act, 1961 (made applicable under the 1993 Act) required disclosure of encumbrances material for purchasers. Failure to disclose DDA’s rights rendered the sale notice and confirmation unsustainable.
While invalidating the auction, the Court recognized the innocence of the auction purchaser who bid in good faith. Applying principles of restitution and unjust enrichment, it held that the Bank, which created and acted upon an unlawful mortgage, must refund the purchaser’s money with 9% interest from the date of deposit.
Decision: The Supreme Court allowed the appeal, set aside the Delhi High Court’s order dated 11.08.2014, quashed the e-auction notice dated 27.09.2012, the auction held on 09.11.2012, and the subsequent confirmation and sale certificate in favour of the auction purchaser. It directed the Bank to refund the entire deposited amount with 9% interest within one month.