'As Is Where Is' Clause Does Not Have Blanket Application; Must Result In Just & Equitable Outcome: Delhi HC

The Delhi High Court has cautioned that the 'as is where is' clause must result in a just and equitable outcome, especially since its misuse can lead to the exploitation of buyers.

The Bench of Justice Purushaindra Kumar Kaurav observed that, "an ‘as is where is’ clause is not a clause of blanket application. The meaning to be placed on an ‘as is where is’ clause must result in a just and equitable outcome. The need for caution, while giving effect to such a clause, arises because of the potential of abuse that it carries. Such clauses have the tendency to become the tools of abuse at the hands of unscrupulous sellers. If a buyer suffers, not because he was not vigilant enough, but because of an act of active and deliberate concealment by the seller, the brunt thereof must not fall upon the buyer. At times, the principle of caveat emptor did give rise to such undesirable consequences and therefore, the duty of the buyer to be vigilant was coupled with the duty of the seller to not indulge in an act of egregious fraud."

Counsel Vaishali Gupta and Counsel Anubhav Gupta appeared for the petitioner, while Counsel Santosh Kumar Rout and Counsel Dharna Veragi appeared for the respondents.

In this case, the petitioner sought a writ of mandamus for a refund of INR 5,38,72,536/-, along with applicable interest, paid for the auction of a property in New Delhi.

The dispute arose from a publication under the SARFAESI Act for the sale of the property. The petitioner, having participated in the auction, was declared the highest bidder, paid the full amount, and obtained a sale certificate. However, the petitioner faced challenges in obtaining physical possession due to encumbrances and litigations. 

The "as is where is" clause, commonly used in auction or sale notices, indicates that the property is sold in its current condition without any guarantees or warranties regarding its condition or suitability. In the context of this case, the sale certificate mentioned that the property was sold "free from all encumbrances known to the secured creditor" but used the phrase "as is where is."

The petitioner argued that the use of this clause does not absolve the respondents (the bank) of their responsibility to act fairly and transparently, delivering the property free from all known encumbrances. The petitioner contended that despite the "as is where is" clause, the respondents should have ensured that the property was free from legal issues and encumbrances.

On the other hand, the respondents asserted that the petitioner participated willingly in the auction, was aware of the existing litigations, and, therefore, the "as is where is" clause appropriately communicated the condition of the property. 

The Court observed that, "An ‘as is where is’ is to be construed in a pragmatic sense and a buyer cannot be held responsible if the seller indulged in an active concealment of foundational facts. What could be such foundational facts is a matter of judicial application of mind and it would not be apposite to lay down any rule of law in that regard."

With that background, it was held that the Bank could not take shelter under the guise of ‘as is where is’ clause to shed away the responsibilities enshrined upon it. In that context, it was further said that, "The respondents in the instant case did not abide by their responsibility to disclose about all the encumbrances and pending litigations attached to the subject property at the time of auction... since the petitioner was unaware of the litigations at the time of auction and the respondents could not deliver the possession of the subject property in question despite accepting the entire consideration, they cannot now shirk away the responsibility to pay interest on the amount deposited by the petitioner along with stamp duty and house property tax."

Directing that the respondents refund Rs.34,10,000/- paid as stamp duty and Rs.14,37,536/- paid as house property tax to the petitioner, the petition was dismissed.

Cause Title: M/s Kalyani (India) Private Limited vs Punjab National Bank & Anr.

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