Judgment :- V.RAMASUBRAMANIAN,J. 1. A person, who participated in an auction conducted by the respondent-Bank under th SARFAESI Act, came up with the above writ petition seeking refund of the earnest mone deposited by him. However, after the writ petition was filed, the writ petitioner died and his w and children have been substituted in his place. 2. We have heard Mr.T.Arockiadas, learned counsel for the petitioners and Mr.Jayesh B.Dol learned counsel for the respondent-Bank. 3. In respect of credit facilities availed by one K.P.Nagarajan, Proprietor of M/s.L.G. Textiles, the year 2001, the respondent-Bank initiated proceedings in O.A.No.360 of 2004 on the file the Debt Recovery Tribunal, Madurai, for recovery of a sum of Rs.74,98,000/-. Subsequent the Bank switched over to the SARFAESI Act and issued a demand notice under Section 13( on 27.8.2008. It was followed by a possession notice dated 28.02.2009. After takin possession, the Bank issued a sale notice dated 08.5.2009, fixing the auction sale o 15.6.2009. Since there was no bidders, another auction was fixed on 26.02.2010. Even th auction did not materialise. The properties were put up for auction for a third time on 02.8.2010 4. In the auction held on 02.8.2010, the petitioner was declared as the successful bidder respect of item Nos.1 and 5. In respect of item No.4, a person by name Karthik was th successful bidder. 5. On the date of the auction, namely 02.8.2010, the Bank called upon the petitioner to pay 25 of the bid amount immediately. The bid amount offered by the petitioner for item No.1 wa Rs.44,80,000/-. Therefore, as per the terms and conditions of the auction sale, the w petitioner was supposed to pay immediately, 25% of the bid amount, namely, Rs.11,20,000 and he was supposed to pay the balance amount within 15 days. Similarly, the highest bid f item No.5 was Rs.27,55,000/- and the petitioner was supposed to pay 25% of the sam immediately. 6. The writ petitioner did not pay 25% of the bid amount. On the contrary, the writ petition issued a legal notice dated 07.8.2010 calling upon the Bank to refund the amount paid on th date of the auction, namely Rs.3,57,000/-, on the ground that the properties were encumbere and that the encumbrances were not notified. However, the respondent-Bank forfeited th earnest money deposit made by the writ petitioner, on 16.8.2010. On the contrary, the writ petition issued a legal notice dated 07.8.2010 calling upon the Bank to refund the amount paid on th date of the auction, namely Rs.3,57,000/-, on the ground that the properties were encumbere and that the encumbrances were not notified. However, the respondent-Bank forfeited th earnest money deposit made by the writ petitioner, on 16.8.2010. Therefore, after making representation dated 19.4.2011, the writ petitioner came up with the above writ petition. 7. The main ground on which the writ petitioner seeks refund of the earnest money depo made by him is that the property did not even stand in the name of the defaulter and that it ha already been alienated. According to the writ petitioner, the Bank failed to disclos encumbrances and that the provisions of Rule 8(6)(f) of the Security Interest (Enforcemen Rules, 2002, stood violated. 8. Per contra, it is the contention of the Bank that a sale made by a secured creditor in terms the provisions of the SARFAESI Act, would always convey a title free of encumbrances. A encumbrances made after the creation of the security interest in favour of the Bank, are of n consequence. More over, it is also contended by the Bank that the auction sale was only in "a is where is and as is what is" basis and that therefore, a person who participated in the auctio subject to such terms and conditions, cannot go back and seek refund of the part payment. 9. In the light of the rival contentions, the question that arises for consideration is as to wheth the Earnest Money Deposit made by the writ petitioner is liable to be refunded to the w petitioner or forfeited by the Bank. 10. A perusal of the auction sale notice shows that five items of properties were brought to sa The upset price in respect of item No.1 was fixed at Rs.44,00,000/- and the Earnest Mone Deposit for the same was fixed at Rs.2,20,000/-. Similarly, the upset price for item No.5 wa fixed as Rs.27,40,000/- and the Earnest Money Deposit was fixed at Rs.1,37,000/-lakhs. Th auction sale notice states that tender forms and the conditions could be obtained by th participants from the Bank by paying a non refundable fee of Rs.500/- and that the intereste parties were also entitled to inspect the property between 10 am and 4 pm on 26.7.2010. Th auction sale notice states that tender forms and the conditions could be obtained by th participants from the Bank by paying a non refundable fee of Rs.500/- and that the intereste parties were also entitled to inspect the property between 10 am and 4 pm on 26.7.2010. Offe were to be made in sealed covers along with the demand draft for Earnest Money Deposit on before 31.7.2010 and the auction was proposed to be held at 11 am on 02.8.2010. The perso whose offer is accepted should pay 25% of the bid amount immediately and the balance of th amount within 15 days. 11. In the schedule to the auction sale notice, the Bank furnished a tabular statement containin the description of the property, upset price fixed, Earnest Money Deposit to be made and pri encumbrances. The last column in the tabular statement of the schedule to the auction sa notice related to prior encumbrances. Under the said column, it was indicated that the sa would be subject to a partition suit pending on the file of the District Munsif Court, Erod instituted by a minor son of one of the guarantors. 12. In the light of the contents of the auction sale notice, we must see if the forfeiture of th Earnest Money Deposit made by the respondent is right or wrong. 13. In Chinnasami Pillai v. K.Marappan ( 1996 (1) CTC 318 ), Abdul Hadi, J, was concerned w suits for recovery of the advance amounts paid under agreements of sale. In that context, th learned Judge referred to the decision of the Supreme Court in H.C.Mills v. Tata Air Craft (A 1970 SC 1986) and came to the conclusion that unless the term Earnest Money was used there is a plea that the money was a guarantee for the fulfilment of the contract, it cannot b forfeited. If money was given only as advance, the same cannot be forfeited. 14. In Gemini Foundation v. V.B.Giri ( 1998 (3) CTC 489 ), an auction purchaser in respect two properties, deposited 25% of the value of one property and 100% of the bid amount respect of another property. If money was given only as advance, the same cannot be forfeited. 14. In Gemini Foundation v. V.B.Giri ( 1998 (3) CTC 489 ), an auction purchaser in respect two properties, deposited 25% of the value of one property and 100% of the bid amount respect of another property. But, the balance amount was not paid within the time grante Therefore, the sale was cancelled by a single Judge and the application of the highest bidd for refund of 25% of the value deposited by him, was dismissed by the single Judge. Th highest bidder filed an appeal and the Division Bench was confronted with the question as whether an auction purchaser was entitled to refund of the said amount. Holding that the pow of the Court under Order XXI, Rule 86, CPC, to forfeit the deposit money to the Governmen was a matter of discretion required to be exercised in a judicious manner, the Division Bench this Court held that the entire amount of Rs.20,00,000/-could not have been forfeite Therefore, the Division Bench directed refund of sum of Rs.15,00,000/-, after deducting a su of Rs.6,00,000/- towards loss by way of investment and interest. 15. In A.Murali & Co. v. State Trading Corporation of India Ltd. (AIR 2001 Madras 271), Prabh Sridevan, J, was confronted with a question relating to the validity of the forfeiture of a part the Earnest Money Deposit in proportion to the reduced off-take of material by the auctio purchaser. After referring to Sections 73 and 74 of the Contract Act and various decisions this Court, the learned Judge held that the test to find out the validity of the forfeiture is to see the Earnest Money is a genuine pre-estimate of damages or only a stipulation in terrorem. 16. In Kamil v. Central Diary Farm (AIR 2008 Allahabad 33), a learned Judge of the Allahaba High Court held that the security amount cannot be forfeited without proving any actual loss damage. But, the said case arose out of a contract for supply of some material and the depo of an amount as security for the due performance of the said contract. 17. But, the said case arose out of a contract for supply of some material and the depo of an amount as security for the due performance of the said contract. 17. In Jai Logistics v. The Authorised Officer, Syndicate Bank ( 2010 (4) CTC 627 ), a Divisio Bench of this Court, to which one of us was a party (D.Murugesan,J), had an occasion consider the effect of Rule 8(6)(f) of the Security Interest (Enforcement) Rules, 2002. It wa held therein that the auction purchasers should also be put on notice of the encumbrance relating to the property, in the light of the said rule. Therefore, on the basis of the aforesa decisions, it is contended by the learned counsel for the writ petitioner that the forfeiture of th Earnest Money Deposit by the respondent-Bank was illegal. 18. But, in the case on hand, we have seen from the auction sale notice that in the last colum of the table under the schedule to the notice, the Bank has indicated the pendency of a partitio suit at the instance of a minor son of one of the guarantors on the file of the District Mun Court, Erode. The auction sale notice was issued on 28.6.2010. The last date for submission tender forms was 31.7.2010 and the tenders were to be opened and auction conducted only o 02.8.2010. Therefore, all the participants had a time of more than 30 days to undertake search in the records of the Sub-Registrar and conduct an enquiry that was required to b made by a prudent purchaser, especially in the light of the disclosure made in the auction notic that there was a partition suit pending at the instance of a minor son of one of the guarantor The petitioner relies upon two encumbrance certificates, one dated 09.8.2010 relating to ite No.1 and another dated 04.8.2010 relating to item No.5. It appears that the mortgage wa created in favour of the respondent-Bank in December 2000. The encumbrance certifica relating to item No.1 dated 09.8.2010 does not disclose any encumbrance before the date creation of mortgage. It appears that there was a sale agreement dated 22.01.1997, but th same was cancelled on 19.01.1998. Therefore, as on the date of creation of the mortgag namely 08.12.2000, there was no encumbrance insofar as item No.1 is concerned. 19. The encumbrance certifica relating to item No.1 dated 09.8.2010 does not disclose any encumbrance before the date creation of mortgage. It appears that there was a sale agreement dated 22.01.1997, but th same was cancelled on 19.01.1998. Therefore, as on the date of creation of the mortgag namely 08.12.2000, there was no encumbrance insofar as item No.1 is concerned. 19. Insofar as item No.5 is concerned, the borrower Nagarajan got the property only o 13.12.2000 under a sale deed dated 08.11.2000. Therefore, even in respect of this propert namely item No.5, there was no encumbrance on the date of creation of mortgage. After th creation of mortgage in favour of the bank, the borrower appears to have created certa encumbrances in respect of both the properties. It would be useful to extract the encumbrance so created, in respect of each of these properties, in the form of a tabular statement, for ea appreciation. Therefore, they are presented as follows: Encumbrances in respect of item No.1 Encumbrances in respect of item No.5 20. It is interesting to note that the certificate of encumbrances obtained by the writ petitioner respect of item No.5 is dated 04.8.2010, which was just two days after the auction sa Similarly, the certificate of encumbrance in respect of item No.1 was applied on 09.8.2010 the writ petitioner, 5 days after the auction sale. There is no explanation in the affidavit as why the writ petitioner did not take care to apply for the encumbrance certificate from the da of the advertisement, namely 28.6.2010, till he submitted his tender on 31.7.2010. What the w petitioner had done within 2 days of the date of the auction, could have been and should hav been done by him, when he had 33 days time from the date of the paper publication upto th date of auction. 21. Keeping the above facts in mind, let us now turn to the statutory provisions. Section 13(4)( of the Act empowers the secured creditors to take possession of the secured assets and als sell the same for realising their dues. The procedure for the sale of a secured asset, if it is a immovable property, is detailed in Rule 8 of the Security Interest (Enforcement) Rules, 200 Sub-rule (6) of Rule 8 obliges the Authorised Officer to serve on the borrower, a notice of 3 days, for the sale of the secured asset. The procedure for the sale of a secured asset, if it is a immovable property, is detailed in Rule 8 of the Security Interest (Enforcement) Rules, 200 Sub-rule (6) of Rule 8 obliges the Authorised Officer to serve on the borrower, a notice of 3 days, for the sale of the secured asset. The proviso to Sub-rule (6) imposes yet anoth obligation on the Authorised Officer, namely, to cause a publication in two leading newspaper if the sale of the secured asset is effected either by inviting tenders from the public or by holdin public auction. The proviso also details the matters that should be included in the public notice 22. The matters that require to be mentioned in the public notice issued in terms of the provis to Rule 8(6) are as follows:- (i) The description of the property including the details of the encumbrances known to th secured creditor. (ii) The secured debt for recovery of which the property is to be sold. (iii) Reserve price. (iv) Time and place of public auction. (v) Deposit of Earnest Money and (vi) Any other thing that the Authorised Officer considers material for a purchaser to know order to judge the nature and value of the property. 23. The obligation of the Authorised Officer to include in the public notice issued under Rule (6), the details of the encumbrances known to the secured creditor, is actually traceable Clause (a) under the proviso to Rule 8(6). Since the obligation to disclose encumbrances inbuilt in Clause (a) of the proviso itself, there is no necessity even to fall back upon Clause under the proviso to Rule 8(6). Clause (f) may relate to matters other than encumbrances, suc as pendency of suits etc., subject to the condition that the secured creditor is aware of th same. In this case, the secured creditor appears to be aware of the pendency of a partition s and they have disclosed the same in the last column of the table given in the auction sa notice. Therefore, the secured creditor has actually fulfilled the requirement of Clause (f) und the proviso to Rule 8(6). 24. In this case, the secured creditor appears to be aware of the pendency of a partition s and they have disclosed the same in the last column of the table given in the auction sa notice. Therefore, the secured creditor has actually fulfilled the requirement of Clause (f) und the proviso to Rule 8(6). 24. In so far as the ratio laid down in Jai Logistics { 2010 (4) CTC 627 } is concerned, it must b clarified that the obligation on the part of the Authorised Officer to disclose the encumbrance is limited only to "those encumbrances known to the secured creditor". Since the very wordin of Clause (a) under the proviso to Rule 8(6) is of a restrictive nature, there is no scope f expanding the same to all kinds of encumbrances created by the borrower or guarantor behin the back of the secured creditor. The ratio laid down in Jai Logistics, cannot be understood mean that the secured creditor as an obligation to obtain an encumbrance certificate upto th period one day preceding the date of publication of the auction sale notice. Reading such a obligation into Clause (a) under the proviso to Rule 8(6) would actually tantamount to some kin of a tacit approval of all illegal alienations made or encumbrances created by the mortgag after the creation of the security interest. 25. As a matter of fact, the statutory provisions make it clear that a sale could take place on after the expiry of 30 days from the date of the public notice. This 30 days time is intended serve two purposes. One for the borrower to gather resources and repay the loan and anoth for all intending purchasers to make sufficient enquiries as a person of normal diligence an ordinary prudence would do while buying any immovable property. The purport of Rule 8( cannot be extended to such an extent that it obliterates the liability of the purchaser undertake due diligence and to scrutinise the title to the property. Therefore, the obligation the Authorised Officer is only to disclose the encumbrance that had come to the notice of th secured creditor. It is for the auction purchaser to apply for encumbrance certificates, in th time of 30 days made available to the intending buyers to see if there are any encumbrances. 26. Therefore, the obligation the Authorised Officer is only to disclose the encumbrance that had come to the notice of th secured creditor. It is for the auction purchaser to apply for encumbrance certificates, in th time of 30 days made available to the intending buyers to see if there are any encumbrances. 26. Having clarified the legal position on the purport of Rule 8(6), we must now pass on to wh happened on the date of the auction viz., 2.8.2010 with reference to the provisions of Rule 9 the Security Interest (Enforcement) Rules, 2002. Rule 9(2) of the Rules require the sale to b confirmed in favour of the purchaser who has offered the highest sale price. However, th confirmation by the Authorised Officer is subject to the confirmation by the secured creditor. other words, Rule 9(2) speaks of two confirmations. The first confirmation is by the Authorise Officer and the next confirmation is by the secured creditor. The first confirmation can be take to be provisional and the next confirmation can be taken to be final, since the first confirmatio by the Authorised Officer is made, by the very language of Rule 9(2), as subject to the ne confirmation by the secured creditor. 27. Even before or while crossing the stage of Rule 9(2), a contingency may arise in the form the highest bidder not making the deposit of 25% of the bid amount. That contingency is take care of Rule 9(3). Rule 9(3) reads as follows:- "(3) On every sale of immovable property, the purchaser shall immediately pay a deposit twenty-five per cent of the amount of the sale price, to the authorised officer conducting the sa and in default of such deposit, the property shall forthwith be sold again." 28. A reading of Rule 9(3) shows that if the highest bidder fails to pay a deposit of 25% of th amount to the Authorised Officer immediately, the property should be forthwith sold again. It not clear from Rule 9(3) whether it indicates a re-auction immediately at the same time or th acceptance of the second highest offer. In either case, the margin or difference between th highest bid and the next highest bid or the margin between the highest bid and the amount f which the property is sold will be immediately known. It not clear from Rule 9(3) whether it indicates a re-auction immediately at the same time or th acceptance of the second highest offer. In either case, the margin or difference between th highest bid and the next highest bid or the margin between the highest bid and the amount f which the property is sold will be immediately known. This difference can be taken to be a lo suffered by the secured creditor on account of the failure of the auction purchaser to deposit th money. An Authorised Officer or a secured creditor will be fully justified in forfeiting the Earne Money to the extent of the loss so suffered by the Bank, since it will be in tune with Sections 7 and 74 of the Contract Act. 29. In the case on hand, the writ petitioner did not deposit 25% of the bid amount immediately terms of Rule 9(3). Therefore, the Bank ought to have sold the property forthwith as mandate by Rule 9(3). If this had been done, the question whether the Earnest Money Deposit could b forfeited and the question as to what extent it could be forfeited could have been easily foun out. But unfortunately, the Bank did not comply with the second part of Rule 9(3). The Ba simply kept on demanding 25% of the bid amount. Therefore, it is not possible to know th extent of loss that the Bank suffered on account of the failure of the purchaser to deposit 25 of the amount. 30. We also wish to point out that there are two kinds of default that the highest bidder in a auction could commit. The first type of default is when he fails to deposit 25% of the bid amou immediately after being declared the highest bidder. The next or second type of default th could be committed by the highest bidder is the stage at which he is required to pay 75% of th bid amount, after depositing 25% on the date of the auction. 31. If the default committed by the highest bidder falls under the first category, Rule 9( indicates the action to be taken. If the default falls under the second category, Rule 9( prescribes the forfeiture of the entire deposit of 25%. Therefore, in cases falling under th second category, there is no other option except forfeiture of the 25% of the bid amount. If the default falls under the second category, Rule 9( prescribes the forfeiture of the entire deposit of 25%. Therefore, in cases falling under th second category, there is no other option except forfeiture of the 25% of the bid amount. other words, there is a distinction between forfeiture of the earnest money and the forfeiture the deposit of 25% made under Rule 9(3). The forfeiture of the deposit of 25% made und Rule 9(3), is taken care of by Rule 9(5). But the forfeiture of the earnest money deposit is n taken care of by the Rules and hence the Bank may have to fall back upon the terms an conditions of sale. 32. In this case, the Bank hasalso failed to produce a copy of the terms and conditions of sa attached to the application. The public notice issued on 28.6.2010 fixing the date of auction a 2.8.2010, does not contain an indication about the forfeiture. We do not know whether the was a clause for forfeiture of the earnest money deposit in the terms and conditions of tend attached to the application forms. Therefore, in view of the failure of the Bank to produce a co of the tender conditions and also their failure to follow the second part of Rule 9(3), we have n alternative except to grant relief to the writ petitioner, despite our finding that the Bank cann be accused of non-disclosure of encumbrances and despite our interpretation to Rule 8(6). 33. In view of the above, the writ petition is allowed and a direction is issued to the responden Bank to refund the amount of Rs.3,57,000/-to the petitioners, within a period of 4 weeks fro the date of receipt of a copy of this order. However, there shall be no order as to cost Consequently, M.P.Nos.1 and 2 of 2011 are closed.