This is a fairly contentious issue as often sale conducted on "as is where is basis" goes into litigation due to lack of understanding or otherwise on both sides.
Below are two judgments with different conclusions but helps reveal the problem
1) Gurpreet Singh Ahluwalia vs. District Magistrate Dehradun & Ors. - Uttarakhand HC
Bank takes possession of borrower's property and issues auction notice for sale of properties so possessed. The successful bidder pay part of the money and request the Bank to demarcate the property so that sale deed may executed and physical possession handed over. The Bank did make several representation to the concerned authorities to demarcate the property. That did not happenand the Bank instead of pursuing the demarcation proceedings with the Revenue Authorities called upon the successful bidder to make balance payment failing which deposit amount was informed to be liable for forfeiture. The bidder due to failure of revenue authorities filed a writ petition.
It was contended by the Bank that as per sale notice, bids were invited on "as is whereas basis", therefore, it was not the duty of the Bank to get the property demarcated before the execution of the sale deed and it was the duty of the bidder to satisfy himself about the identity of the property before submitting the bids.
The Court held that the condition "as is whereas basis" does not mean that property may not be in existence at all. It only means whatever the condition of the property on the spot is same shall be sold in the same condition. However, if property is not at all in existence on the spot or is not identifiable/can be located on the spot, then neither sale deed can be executed of the non existing property nor purchaser can be handed over possession thereof.
In the instant matter Bank had made several requests to the authorities for demarcation of the property auctioned, therefore, it ought to have persuaded the authority to undertake the demarcation proceedings at the earliest. The bidder should not be allowed to suffer adversely for the lapses on the part of the Revenue Authorities or the Bank and at the same time Bank should also not loose interest on the outstanding amount to be paid by the bidder. A direction was accordingly passed to the Bank to get the property demarcated preferably and to execute the sale deed of the auctioned property besides bidder to deposit balance amount with the Bank.
2) In agreements of sale entered into on ‘as is where is' basis, the buyer can not repudiate the contract on the grounds of defects in quality of goods sold, the Supreme Court has ruled.
The Apex Court vide its recent order in Industrial Promotion and Investment Corporation of Orissa Limited (IPICOL) vs. Tuobro Furguson Steels Private Limited and Others, held that when a unit is sold on ‘as-is-where-is' basis, the buyer must exercise due diligence about the condition of the machinery and other assertions made by the seller.
The respondent, having bought an undertaking for Rs 40 lakh from IPICOL, which had made such sale in exercise of power to that effect conferred by Section 29 of the State Finance Corporation Act when a third party borrower was remiss in payment of his dues to the petitioner; it does not lie in his mouth to renege from his obligation to pay the full sale consideration on grounds like machinery later on turning out to be not in working order, electricity dues being in arrears etc. even if these grounds are genuine.
Any latent or patent defects in the quality of the items being sold must be pointed out upfront before entering into the sale agreement. It is possible to drive down the selling price in the face of such latent defects. Any laxity in this regard could prove to be costly because the seller has in any case saved his skin by inserting the as-is-where-is clause.
Below are two judgments with different conclusions but helps reveal the problem
1) Gurpreet Singh Ahluwalia vs. District Magistrate Dehradun & Ors. - Uttarakhand HC
Bank takes possession of borrower's property and issues auction notice for sale of properties so possessed. The successful bidder pay part of the money and request the Bank to demarcate the property so that sale deed may executed and physical possession handed over. The Bank did make several representation to the concerned authorities to demarcate the property. That did not happenand the Bank instead of pursuing the demarcation proceedings with the Revenue Authorities called upon the successful bidder to make balance payment failing which deposit amount was informed to be liable for forfeiture. The bidder due to failure of revenue authorities filed a writ petition.
It was contended by the Bank that as per sale notice, bids were invited on "as is whereas basis", therefore, it was not the duty of the Bank to get the property demarcated before the execution of the sale deed and it was the duty of the bidder to satisfy himself about the identity of the property before submitting the bids.
The Court held that the condition "as is whereas basis" does not mean that property may not be in existence at all. It only means whatever the condition of the property on the spot is same shall be sold in the same condition. However, if property is not at all in existence on the spot or is not identifiable/can be located on the spot, then neither sale deed can be executed of the non existing property nor purchaser can be handed over possession thereof.
In the instant matter Bank had made several requests to the authorities for demarcation of the property auctioned, therefore, it ought to have persuaded the authority to undertake the demarcation proceedings at the earliest. The bidder should not be allowed to suffer adversely for the lapses on the part of the Revenue Authorities or the Bank and at the same time Bank should also not loose interest on the outstanding amount to be paid by the bidder. A direction was accordingly passed to the Bank to get the property demarcated preferably and to execute the sale deed of the auctioned property besides bidder to deposit balance amount with the Bank.
2) In agreements of sale entered into on ‘as is where is' basis, the buyer can not repudiate the contract on the grounds of defects in quality of goods sold, the Supreme Court has ruled.
The Apex Court vide its recent order in Industrial Promotion and Investment Corporation of Orissa Limited (IPICOL) vs. Tuobro Furguson Steels Private Limited and Others, held that when a unit is sold on ‘as-is-where-is' basis, the buyer must exercise due diligence about the condition of the machinery and other assertions made by the seller.
The respondent, having bought an undertaking for Rs 40 lakh from IPICOL, which had made such sale in exercise of power to that effect conferred by Section 29 of the State Finance Corporation Act when a third party borrower was remiss in payment of his dues to the petitioner; it does not lie in his mouth to renege from his obligation to pay the full sale consideration on grounds like machinery later on turning out to be not in working order, electricity dues being in arrears etc. even if these grounds are genuine.
Any latent or patent defects in the quality of the items being sold must be pointed out upfront before entering into the sale agreement. It is possible to drive down the selling price in the face of such latent defects. Any laxity in this regard could prove to be costly because the seller has in any case saved his skin by inserting the as-is-where-is clause.
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