Provision in regard to distribution of assets

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assets

We all must have wondered that when a suit involves more than one plaintiff, and when the suit is decided in favour of such plaintiffs, how the further process would go. From passing of judgement to execution of decree, the whole process goes hand in hand. As such, a judgement for co-plaintiffs is passed as a whole but when it comes to execution of decree, there might be a special provision.

For example, A and B are co-plaintiffs and the after the judgement in their favour they are decree-holders. For the purpose of execution of decree, since A is entitled to the half the property in the suit related to property whereas B is entitled to only one fourth. The execution of such property is done in the matter of attachment and sale. Whatever the amount be received after selling off that property, for the purpose of such execution of decree, A will get exactly half the amount where as B will get exactly one fourth the amount. This process of distribution is called distribution of assets for civil suits and the provisions regarding the same are provided under Section 73 of the Code of Civil Procedure, 1908.

The jurisprudential approach behind this provision intends to secure an equal footing for the purpose of execution of decree for the decree holders so that each of them secures their equitable share lawfully. It has been held that the underlying object of Section 73 is twofold, firstly, to prevent unnecessary multiplicity of execution proceedings and secondly, to secure equitable distribution of property by placing all the decree holders on same footing.[1]

Section 73 provides where assets are held by a court and more persons than one have, before the receipt of such assets, made application to the court for the execution of decrees for the payment of money passed against the same judgment debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realization, shall be rateably distributed among all such persons provided where any property is sold subject to a mortgage or charge, the mortgagee or incumbrancer shall not be entitled to share in any surplus arising from such sale. Where any property liable to be sold in execution of a decree is subject to a mortgage or charge, the Court may, with the consent of the mortgagee or incumbrancer, order that the property be sold free from the mortgage or charge, giving to the mortgagee or incumbrancer the same interest in the proceeds of the sale as he had in the property sold. Where any immovable properly is sold in execution of a decree ordering its sale for the discharge of an incumbrancer thereon, the proceeds of sale shall be applied— firstly, in defraying the expenses of the sale.

Secondly, in discharging the amount due under the decree. Thirdly, in discharging the interest and principal moneys due on subsequent incumbrances, if any. Fourthly, rateably among the holders of decrees for the payment of money against the judgment debtor, who have, prior to the sale of the property, applied to the court which passed the decree ordering such sale for execution of such decrees, and have not obtained satisfaction. Where all or any of the assets liable to be rateably distributed under this section are paid to a person not entitled to receive the same, any person so entitled may sue such person to compel him to refund the assets. Lastly, nothing in this Section affects any right of the Government.[2]

There are few conditions which must be meted out for the purpose of application of the provision regarding distribution of assets which are that the applicant for rateable distribution must have obtained a decree and applied for execution of decree to the appropriate court. Such application should have been made prior to the receipt of the assets by the court. The assets of which a rateable distribution is claimed must be assets held by the court. The attaching creditor as well as the decree-holder claiming to participate in the assets should be holders of decrees for payment of money and such decrees should have been obtained against the same judgement-debtor.[3]

There has been a provision in subsection 3 of the section 76 which says that a priority shall be given to the Government debts during distribution of assets during execution of a decree. The better understanding can be established for the same in the case of Excise and Taxation Officer v. Gauri Mal Butali Trust[4] wherein it was stated that “The Common Law doctrine, that if the debts due to the Crown are of equal degree to the debts due to a private citizen, then the crown must have priority against the private citizen, is a part of the law of this country. The preferential rights of the state in a democratic socialist republic are necessary, and raison d’être for such a prevailed status given to a state, in view of its functions and duties, has to continue.

It must be also kept in mind that an order of execution of decree is not appealable therefore even a order made under section 73 of the Code for the purpose of distribution of assets is not appealable though prior to the Amendment Act of 1976, it was made appealable. Similarly, a revision of the said order can be made if provisions of section 115 are satisfied. As a concluding remark it can be said that the provisions for distribution of assets provides a fair claim for each decree holder. It was further held that the remedy under the Civil Procedure Code is of superior judicial quality than what is generally available under other statutes, and the judge being entrusted exclusively with administration of justice, is expected to do better.[5]


References:

[1] Suraj Lal v. Krishna Das Padrama Raj Krishna Sagar Works Ltd. AIR 1961 All 371

[2] Section 73

[3] Biswambar v. Aparna Charan AIR 1935 Cal 290

[4] AIR 1961 Punj 292

[5] Ghan Shyam Das v. Anant Kumar Sinha AIR 1991 SC 2251