Sale as execution & sale of movable property

0
1385
execution

Sale as a mode of execution

The word ” Execution” is not defined in Code of Civil Procedure,1908 (herein after referred as CPC). The word ”Execution” can, in this context, be understood as ” a judicial act by which a public officer is empowered to carry judgments or orders into effect.” In other words, it means the carrying into effect the judgment or order delivered in a court of law.

Hon’ble Apex Court in Ghanshyam Das v. Anant Kumar Sinha (AIR 1991 SC 2251) dealing with provision of the code relating to execution of decree and orders, observed in following words –

“so far as the question of executability of a decree is concerned, the Civil Procedure Code contains elaborate and exhaustive provisions for dealing with it in all aspects. The numerous rules of Order 21 of the code take care of different situations providing effective remedies not only to judgment- debtors and decree-holders but also to claimant objectors, as the case may be.”

It is only the execution, which reveals and signifies the importance of the decrees to be passed and the pedestal of the Court and sanctity of the document. As such, the decrees are required to be executed with force, so that the Decree holder having a document containing declaration of his rights may not feel cheated or helpless having earned no fruits of the lis got settled by him from the Court even after spending decades altogether.

Order 21 of the Code of Civil Procedure deals with the solemn act of execution of the decrees passed by the Courts from grassroots to the top. Ultimately, after the judgment attains finality or where there is no stay in the execution by any Appellate or Revisional Court, it is the Court of original jurisdiction which performs this sacred act of implementation of the execution. The provisions of the Civil Procedure Code, 1903, on the subject of sales are contained in Order XXI, Rules 64 to 102. Rule 64 to 73 deal with “sale generally”; Rules 74 to 81, with “sale of moveable property”; and Rules 82 to 104 with “sale of immovable”.

Sale generally (Rule 64-73)

Power of Court

Rule 64.”Any Court executing a decree may order that any property attached by it and liable to sale, or such portion thereof as may seem necessary to satisfy the decree shall be sold, and the proceeds of sale, or a sufficient portion thereof, shall be paid to the party entitled under the decree to receive the same.”

Considering the meaning of the term “any property attached by it”, Where it is necessary in execution of a decree for money to sell properties not within the local limits of the jurisdiction of the Court which passed the decree, the sale of the properties can only be effected by the Court within the beat limits of which the property is situate.[1]

Under this provision the executing Court derives jurisdiction to sell properties attached only to the point at which the decree is fully satisfied. The words ‘necessary to satisfy the decree’ clearly indicate that no sale can be allowed beyond the decretal amount mentioned in the sale proclamation. In other words, where the sale fetches a price equal to or higher than the amount mentioned in the sale proclamation and is sufficient to satisfy the decree, no further sale should be held and the court should stop at that stage.[2]

Rule 65. Save as otherwise prescribed, every sale in execution of a decree shall be conducted by an officer of the Court or by such other person as the Court may appoint in this behalf, and shall be made by public auction in manner prescribed.

According to rule 65, every sale in execution of a decree shall be conducted by an officer of the court by public auction, sale by asking offer through advertisement in Newspaper or otherwise is barred and such a sale is nullity. There is a substantial distinction between the sale by calling for offers through advertisement and the sale by public auction. An auction is held by public competition wherein every bidder has the right to raise his own bid. The atmosphere therein created by open bidding can tempt the bidder to raise his bid and thus enhanced price can be fetched by the said mode. In a sale by tender, however no such opportunity is available to the tenderer. Once he gives his offer that is final and cannot be raised, whereas in public auction each bidder knows the bid of the other person, in the mode of sale by calling for offers of tenders, none of the persons or tenderers know the price offered by the other.[3]

Proclamation of Sale

Rule 66. (1) Where any property is ordered to be sold by public auction in execution of a decree, the court shall cause a proclamation of the intended sale to be made in the language of such court.

(2) Such proclamation shall be drawn up after notice to the decree holder and the judgment debtor and shall state the time and place of sale, and specify as fairly and accurately as possible—

(a) the property to be sold, or, where a part of the property would be sufficient to satisfy the decree, such part;

(b) the revenue assessed upon the estate or part of the estate, where the property to be sold is an interest in an estate or in part of an estate paying revenue to the government;

(C)  any encumbrance to which the property is liable;

(d)  the amount for the recovery of which the sale is ordered; and

(e) every other thing which the court considers material for a purchaser to know in order to judge of the nature and value of the property:

Provided that where notice of the date for settling the terms of the proclamation has been given to the judgment debtor by means of an Order under rule 54, it shall not be necessary to give notice under this rule to the judgment debtor unless the court otherwise directs:

Provided further that nothing in this rule shall be construed as requiring the court to enter in the proclamation of sale its own estimate of the value of the property, but the proclamation shall include the estimate, if any, given, by either or both of the parties.

(3) Every application for an Order for sale under this rule shall be accompanied by a statement signed and verified in the manner herein before prescribed for the signing and verification of pleadings and containing, so far as they are known to or can be ascertained by the person making the verification, the matters required by sub-rule (2) to be specified in the proclamation.

(4) For the purpose of ascertaining the matters to be specified in the proclamation, the court may summon any person whom it thinks necessary to summon and may examine him in respect to any such matters and require him to produce any document in his possession or power relating thereto.

Rule 67. (1) Every proclamation shall be made and published, as nearly as may be, in the manner prescribed by rule 54, sub-rule (2).

(2) Where the court so directs, such proclamation shall also be published in the Official Gazette or in a local newspaper, on in both, and the costs of such publication shall be deemed to be costs of the sale.

(3) Where property is divided into lots for the purpose of being sold separately, it shall not be necessary to make a separate proclamation for each lot, unless proper notice of the sale cannot, in the opinion of the court, otherwise be given.

The object of issuing a proclamation is twofold, firstly it protects the interest of the intending purchasers by giving them all material information regarding the property to be sold, and secondly, it protects the interest of the judgment-debtor by facilitating the fetching of proper market price for his property and by preventing it from being knocked down at public auction for a price much below the market price.[4]

It is no doubt easy to draw the line between irregularity and illegality in an execution sale, but where a substantial provision like Order XXI, Rule 66, is violated the sale should be regarded as having been illegally conducted and would be void.

A sale conducted without publication of proclamation is not merely an irregularity but a nullity.[5] It is incumbent on the court to be scrupulous to the extreme. No action of the court or its officer should be such as to give rise to the criticism that it was done in a casual manner.[6]

It is the duty of the court to ensure that the requirements of Rule 66 are complied with. It is also desirable that every proclamation of sale shall be made by beat of drum or other customary mode.

Contents of proclamation:-

  • Time and place of sale
  • Property to be sold
  • Revenue, if any, assessed upon the property;
  • Encumbrance, if any, to which property is liable;
  • Amount to be recovered;
  • Details relating to property, such as title deed, length etc.

Time of Sale (Rule 68)

No sale shall, without the consent in writing of the judgment debtor, take place until after the expiration of at least thirty days in the case of immovable property, and of at least fifteen days in the case of movable property from the date of proclamation in the courthouse.[7]

The only exception is in the case, where the property ordered to be sold is perishable or the expense of keeping it in custody is likely to exceed its value. 

Adjournment and stoppage of sale

Rule 69: (1) The court may, in its discretion, adjourn any sale hereunder to a specified day and hour, and the officer conducting any such sale may in his discretion adjourn the sale, recording his reasons for such adjournment:

Provided that, where the sale is made in, or within the precincts of, the court house, no such adjournment shall be made without the leave of the court.

(2) Where a sale is adjourned under sub-rule (1) for a longer period than thirty days, a fresh proclamation under rule 67 shall be made, unless the judgment debtor consents to waive it.

(3) Every sale shall be stopped if, before the lot is knocked down, the debt and costs (including the costs of the sale) are tendered to the officer conducting the sale, or proof is given to his satisfaction that the amount of such debt and costs has been paid into the court which ordered the sale.

The Court is given discretionary power to postpone the sale to a specified day and hour, however, if such sale is adjourned for more than thirty days, a fresh proclamation should be issued, unless the judgment debtor waives it.

Waiver of sale proclamation implies waiver of an objection as to any of the defects apparent on the proclamation. Whoever prays for adjournment of sale, fresh sale proclamation is needed unless the judgment-debtor waives fresh sale proclamation.

This section also provides that the moment the amount specified in the sale proclamation for recovery of which sale was ordered is realized, the sale of further item should be stopped.

Default by Purchaser

Rule 71: Any deficiency of price which may happen on a re sale by reason of the purchaser’s default, and all expenses attending such re-sale, shall be certified to the court by the officer or other person holding the sale, and shall, at the instance of either the decree holder or the judgment debtor, be recoverable from the defaulting purchaser under the provisions relating to the execution of a decree for the payment of money.

Where a resale has been occasioned by reason of the purchaser’s default, (i.e. due to the failure to deposit the sale price) any deficiency of price and all expenses attending such resale shall be certified to the court and shall be recoverable at the instance of either the decree-holder or the judgment debtor from the defaulting purchaser.

When purchaser is not negligent then this rule won’t apply.[8] This provision is salutary and has been enacted with a view to minimize the hardship of the judgment-debtor or decree-holder resulting from the auction-purchaser’s default. It also seeks to provide an expeditious remedy to the aggrieved party (judgment-debtor or decree-holder), who has suffered due to the default of the auction-purchaser. Therefore, if resale is not ordered because of the default of the auction purchaser, this rule won’t be applied.

A resale consequent on the failure of the auction-purchaser to deposit 25% of the purchase price immediately after he is declared to be the purchaser of the property under Rule 84, O. XXI is an instance where the resale is occasioned by the default of the auction purchaser. On the other hand, resale consequent upon the setting aside of the sale on the ground of material irregularity in publishing or conducting the sale as provided under Rule 90, may not be attributed to the default of purchaser.

Principles of natural justice are applied to this rule. Before auction-purchaser is held liable under this rule, he must be given notice and opportunity of hearing to show cause why an order adverse to him should not be passed.

Purchase of auction by decree-holder or officer connected with auction

No holder of a decree in execution of which property is sold shall, without the express permission of the court, bid for or purchase the property.[9] Where decree holder purchases, amount of decree may be taken as payment—Where a decree holder purchases with such permission, the purchase money and the amount due on the decree may, subject to the provisions of section 73, be set-off against one another, and the court executing the decree shall enter up satisfaction of the decree in whole or in part accordingly.[10] Where a decree holder purchases, by himself or through another person, without such permission, the court may, if it thinks fit, on the application of the judgment debtor or any other person whose interests are affected by the sale, by Order set aside the sale; and the costs of such application and order, and any deficiency of price which may happen on the re-sale and all expenses attending it, shall be paid by the decree holder.[11] Similarly mortagee is also forbidden to bid at sale without the leave of the Court. If leave to bid is granted to such mortgagee, then the court shall fix a reserve price as regards the mortgagee, and unless the court otherwise directs, the reserve price shall be—

(a) not less than the amount then due for principal, interest and costs in respect of the mortgage if the property is sold in one lot; and

(b) in the case of any property sold in lots, not less than such sum as shall appear to the court to be properly attributable to each lot in relation to the amount then due for principal, interest and costs on the mortgage.

In other respects, the provisions of sub-rules (2) and (3) of rule 72 shall apply in relation to purchase by the decree holder under that rule.[12]

Benefits arising out of statutory obligation of Court to fix  reserve price under Order XXI, Rule 72-A(2) could not be waived.[13] No officer or other person having any duty to perform in connection with any sale shall, either directly or indirectly, bid for, acquire or attempt to acquire any interest in the property sold.[14]

Sale of Movable Property (RULES 74-78)

Rules 74 to 78 deal with sale of movable property and rules 74 to 75 relate to sale of agricultural produce and growing crops. Section 2(13) states that “movable property” includes growing crops. There can be no doubt that the Code intended that a sale should ordinarily be held at some place within the jurisdiction of the Court ordering the sale. Good and sufficient reasons ought to be shown for directing otherwise.[15]

Agricultural Produce

Rule 74:(1) Where the property to be sold is agricultural produce, the sale shall be held,—

(a) if such produce is a growing crop, on or near the land on which such crop has grown, or
(b) if such produce has been cut or gathered, at or near the threshing floor or place for treading out grain or the like or fodder stack on or in which it is deposited:

Provided that the court may direct the sale to be held at the nearest place of public resort, if it is of opinion that the produce is thereby likely to sell to greater advantage.

(2) Where, on the produce being put up for sale,—

(a) a fair price, in the estimation of the person holding the sale, is not offered for it, and
(b) the owner of the produce or a person authorized to act in his behalf applies to have the sale postponed till the next day or, if a market is held at the place of sale, the next market day, the sale shall be postponed accordingly and shall be then completed, whatever price may be offered for the produce. 

In the case of agricultural produce, the sale shall be held on or near the land on which the crop is standing or where the crop has been harvested, at or near the place where the crop is lying. The court may however direct the sale to be held at the nearest place of public resort, if it is of the opinion that the produce may fetch a better price. Such sale shall be postponed by the court if, (i) fair price is not offered or (ii) the owner thereof applies for such postponement.

Except in the case of agricultural produce for which provision has been made by Rule 74, a sale of movable in execution of a decree should ordinarily be held at some place within the jurisdiction of the court ordering the sale. Sufficient and valid reasons ought to be shown for directing otherwise. A mere contention that a higher price is likely to be offered at some other place, is not a good and sufficient reason.[16]

Rule 75:(1) Where the property to be sold is a growing crop and the crop from its nature admits of being stored but has not yet been stored, the day of the sale shall be so fixed as to admit of its being made ready for storing before the arrival of such day, and the sale shall not be held until the crop has been cut or gathered and is ready for storing.

 (2)  Where the crop from its nature does not admit of being stored, it may be sold before it is cut and gathered, and the purchaser shall be entitled to enter on the land, and to do all that is necessary for the purpose of tending and cutting or gathering it.

Hence, where the property to be sold is growing crop, no sale shall be held until the crop is harvested.[17] Where such crop cannot be stored, the purchaser may enter the field for cutting and harvesting it.[18]

Negotiable Instruments and shares

Rule 76:Where the property to be sold is a negotiable instrument or a share in a corporation, the Court may, instead of directing the sale to be made by public auction, authorize the sale of such instrument or share through a broker.

Here, the word – may has the meaning that the sale through a broker is permissive, and not obligatory.

A court sale of shares of a private limited company is not prohibited under Rule 76, though the articles of association of such a company contain restrictions against their registration in favour of a person who is not an existing share-holder. The relevant question is whether the judgment-debtor has saletable interest in such shares or not and whether the auction- purchaser can have their transfer recognized by the directors of the company.[19]

Sale by Public Auction

Rule 77: 1) Where movable property is sold by public auction the price of each lot shall be paid at the time of sale or as soon after as the officer or other person holding the sale directs, and in default of payment the property shall forthwith be re-sold.

2) On payment of the purchase- money, the officer or other person holding the sale grant a receipt for the same, and the sale shall become absolute.

3) Where the movable property to be sold is a share in goods belonging to the judgment debtor and a co-owner, and two or more persons, of whom one is such co-owner, respectively bid the same sum for such property or for any lot, the bidding shall be deemed to be the bidding of the co-owner.

Where the movable property is sold by public auction then this rule would not  apply to negotiable instruments or share sold through a broker under Rule 76 above.[20] Confirmation of sale by the court is not necessary as in the case of immovable property.[21] Also, in case of resale, the defaulting purchaser would be liable for the deficiency in price on such resale.[22]

In an auction sale of property of company attached towards recovery of arrears of Employees Provident Fund, the defaulter company had itself agreed for sale of property and never filed any objection. Subsequent objections challenging auction sale by the company and the bank is not maintainable in absence of bona fide.[23] 

The officer holding the sale has the discretion to allow the price to be paid at a reasonable time after the sale.[24] Officer conducting the sale has the power to grant time to pay the price. In the absence of such facility being given, the auction- purchaser must pay the full price at the time of the sale, otherwise the property is liable to be resold.[25]

When sale becomes absolute in movable property:

On the payment of the purchase money the officer shall grant a receipt for the same, and the sale shall become absolute.

In case movable property is a share in goods belonging to the judgment debtor and a co-owner, the bid of the Co-owner shall prevail for such property or for any lot as against a stranger.

Irregularity in sales

Rule: 78 No irregularity in publishing or conducting the sale of movable property shall vitiate the sale, but any person sustaining any injury by reason of such irregularity at the hand of any other person may institute a suit against him for compensation or (if such other person is the purchaser) for the recovery of the specific property and for compensation in default of such recovery.

A sale of movable property in execution of a decree cannot be set aside on the ground of irregularity in publishing or conducting the sale. Violation of provisions relating to the sale of movable property does not ipso facto make the sale void. The petitioner has to show that substantial injury has been sustained by him.[26] But where objections have been raised by the judgment-debtor which may go to the root of the matter, they must be decided prior to the holding of the auction sale. Failure to do so would vitiate the sale.[27]

Any person sustaining any injury by reason of any irregularity in the sale at the hands of any person may sue him for compensation, or, if such, person is the purchaser, for recovery of the specific property and for compensation in default of such recovery.[28]  Again, an application to set aside a sale of movable property lies where the court had no jurisdiction to order the sale.[29]  Similarly, the provision does not curtail inherent powers of the court where it is satisfied that the orders had been obtained by practicing fraud on the court. In such cases, it is not open to anyone to contend that the court has become functus officio. The court retains jurisdiction to recall orders.[30]

If the sale proclamation warrants a title which fails, the injured part may apply to set aside the sale, for this is not a case of irregularity.[31] Where the movable property is not belonging to the judgment debtor is sold at the instance of the decree- holder, the real owner may sue the decree-holder for the value of the property.[32]

Delivery of movable property, debts and shares

Rule 79: 1) Where the property sold is movable property of which actual seizure has been made, it shall be delivered to the purchaser.

2) Where the property sold is movable property in the possession of some person other than the judgement- debtor, the delivery thereof to the purchaser shall be made by giving notice to the person in possession prohibiting him from delivering possession of the property to any person except the purchaser.

3) Where the property sold is a debt not secured by a negotiable instrument, or is a share in a corporation the delivery thereof shall be made by a written order of the Court prohibiting the creditor from receiving the debt or any interest thereon, and the debtor from making payment thereof to any person except the purchaser, or prohibiting the person in whose name the share may be standing from making any transfer of the share to any person except the purchaser, or receiving payment of any dividend or interest thereon, and the manager, secretary or other proper officer of the corporation from permitting any such transfer or making any such payment to any person except the purchaser.

A purchaser of shares of a limited company at a sale in execution of decrees is not entitled as of right to have his name entered in the register of the company as a shareholder. He is subject to the same rules as those which apply to a private purchaser.[33]

In a case movable property was purchased by a third party purchaser in auction sale, but it was short in delivery to him. It was held that the purchaser was entitled to be compensated by way of refund of a portion of sale consideration on prorata basis. However, he was not entitled to claim interest on amount of refund on ground of unjust enrichment.[34]

Auction- sale of moveable property does not require any confirmation. Sale of moveable property becomes absolute on payment of purchase money by auction- purchaser. Consequently, plea that only collector and Tehsildar has no jurisdiction to confirm auction-sale of moveable property is not tenable.[35]

Transfer of negotiable instruments and shares

Rule 80: 1) Where the execution of a document or the endorsement of the party in whose name a negotiable instrument or a share in a corporation is standing is required to transfer such negotiable instrument or share, the Judge or such officer as he may appoint in this behalf may execute such document or make such endorsement as may be necessary, and such execution or endorsement shall have the same effect as an execution or endorsement by the party.

2) Such execution or endorsement may be in the following form namely:-

A, B by C, D, Judge of the Court of (or as the case may be), in a suit by E, F and against A, B.

3) Until the transfer of such negotiable instrument or share, the Court may, by order, appoint some person to receive any interest or dividend due thereon and to sign a receipt for the same, and any receipt so signed shall be as valid and effectual for all purposes as if the same had been signed by the party himself.

Where a deed of transfer of shares is executed by a judge under R80, the company has no option but to register the shareholder who purchased the shares in execution, and if the purchaser cannot obtain the original share certificates from the judgement-debtor, the company is bound to grant him new share certificates but the correct view is the one expressed in BT Company v. VH Deshpande, where the Nagpur HC distinguished Nagabhushanam v. Ram Chandra Rao, as having been decided on certain words of the articles of assosciation of the company concerned and following Manilal Brijlal v. Gordon Spg and Mfg Co. Ltd., held that a purchaser of the share at a court sale does not purchase over and above the sale, the absolute right of forcing the directors of the company to register his name as shareholder. The Directors of the company have the power under the articles to refuse registration and exercise such power bona fide and in the interests of the company. That is a right which ex hypothesis the court never had to sell, nor does an auction- sale enlarge the rights of such a share holder and the share purchased is subject to the same incidents and restrictions as regards transfer as before the sale.

Vesting order in case of other property-

Rule 81: In the case of any movable property and herein before provided for, the Court may make an order vesting such property in the purchaser or as he may direct , and such property shall vest accordingly.

Sale of immovable property (Rules 82-94)

Conducting of Sale of immovable property is a great task. The procedure for sale of immovable property creates some confusion. Yet, if you pay attention on Order 21 of CPC and Civil Rules of Practice, one can easily understand the procedure for conducting sale of Immovable property. Rules 82 to 94 deal with the sale of immobavle property.

Courts competent to order sales

Any Court other than a Court of Small Causes may order sale of immovable property in execution of a decree.[36]

Postponement of Sale

Rule 83: Postponement of sale to enable judgement- debtor to raise amount of decree

    (1) Where an order for the sale of immovable property has been made, if the judgement-debtor can satisfy the Court that there is reason to believe that the amount of the decree may be raised by the mortgage or lease or private sale of such property, or some part thereof, or of an other immovable property of the judgment-debtor, the Court may, on his application, postpone the sale of the property comprised in the order for sale on such terms and for such period as it thinks proper, to enable him to raise the amount.

    (2) In such case the Court shall grant a certificate to the judgment-debtor authorizing him within a period to be mentioned therein, and notwithstanding anything contained in section 64, to make the proposed mortgage, lease or sale:

    Provided that all moneys payable under such mortgage, lease or sale shall be paid, not to the judgment-debtor, but, save in so far as a decree-holder is entitled to set-off such money under the provisions of rule 72, into Court:

    Provided also that not mortgage, lease or sale under this rule shall become absolute until it has been confirmed by the Court.

    (3) Nothing in this rule shall be deemed to apply to a sale of property directed to be sold in execution of a decree for sate in enforcement of a mortgage of, or charge on, such property.

The Court may, on the application of the judgment debtor, postpone the sale of the property to enable him to raise the amount of the decree by the mortgage, lease or private sale of the property. The chief object of this provision is to prevent sale of property of the judgment-debtor in cases where the decree can be satisfied by private alienation of such property. Postponement of sale is at the discretion of the Court and cannot be claimed by the Judgment-debtor as a right.[37] Therefore an application for postponement of sale will not be allowed where the judgment-debtor had sufficient time to pay the decretal amount, or whereby private alienation the decree will not be satisfied in full.[38]

Again, this provision applies only before the sale has taken place and not afterwards.

Deposit by Purchaser and Re-sale on Default

Immediately after the sale of immovable property, the purchaser must deposit 25% of the purchase money, unless such requirement is dispensed with by the court.[39] The balance of the purchase money must be paid by the purchaser within fifteen days from the date of the sale.[40] In case of default, the amount of deposit can be forfeited[41] and property shall be resold after issuing fresh proclamation.[42]

Therefore, In case of failure on the part of the purchaser to deposit the amount or the balance within 15 days from auction sale, the property shall be resold and in the latter case the deposit may be forfeited to the Government after defraying the expenses of the sale.

Failure to deposit the purchase price is not a mere irregularity in the sale and it cannot be averted on the plea that such shortfall had been occasioned by a mistake of the Court in calculating the amount.[43]

The rules do not contemplate that  there can be any sale in favour of a purchaser without depositing 25% of the purchase money in the first instance and the balance within 15 days. When there is no sale within the contemplation of these rules, there can be no question of material irregularity in the conduct of the sale. Non-payment of the price on the part of the defaulting purchaser renders the sale proceedings as a complete nullity.[44]

Thus it can be concluded that these rules are mandatory and non-compliance with the same vitiates the sale.

Bid by Co-owner: Rule 88

Where the property sold is a share of undivided immovable property and two or more persons, including co-sharer, bid the same sum for it, the co-sharer has a right of pre-emption which means the bid of the co-sharer shall prevail. The object is to enable the co-sharers in the undivided immovable property to keep strangers out if they so desire.

Setting Aside Sale

Rules 89 to 92 deal with setting aside of sale. When a property is sold in execution of decree, an application for setting aside may be made on any ground covered by Rules 89-92 and no other ground, in other words the rules as to setting aside execution sale are exhaustive. Such an application must be made within the prescribed period of limitation (60 days).[45]

On Deposit:Rule 89:

Application to set aside sale on depositor

(1) Where immovable property has been sold in execution of a decree 3[any person claiming an interest in the property gold at the time of the sale or at the time of making the application, or acting for or in the interest of such person,] may apply to have the sale set aside on his depositing in Court,-

        (a) for payment to the purchaser, a sum equal to five per cent of the purchase-money, and

        (b) for payment, to the decree-holder, the amount specified in the proclamation of sale as that for the recovery of which the sale was ordered less any amount which may, since the date of such proclamation of sale, have been received by the decree-holder.

(2) Where a person applies under rule 90 to set aside the sale of his immovable property, he shall not, unless he withdraws his application, be entitled to make or prosecute an application under this rule.

 (3) Nothing in this rule shall relieve the judgment-debtor from any liability he may be under in respect of costs and interest not covered by the proclamation of sale was drawn up.

It will be seen from the above that the application to set aside a sale of immovable property under the above rule may be made by-

  • any person owning the property – he may be the judgment debtor or some other persons whose property has been sold as the property of judgment debtor. (co-sharer in property etc.)
  • Any person holding an interest in property by the virtue of a title acquired before the sale- a co-sharer of a mortgagee may be such a person; so are the mortgagor and the mortgagee; beneficial owner, etc.

Rule 89 requires that two primary conditions relating to deposit must be satisified, namely, (i) the applicant must deposit in the court for payment to the auction purchaser 5% of the purchase money; and (ii) he must also deposit the amount specified in the proclamation of sale, less any amount received by the decree-holder since the date of proclamation of sale for payment to the decree-holder.

The intention of Rule 89 of Order XXI is to provide simple procedure where at last moment a judgment-debtor may come and deposit without condition the full decretal amount and 5% penalty. The making of deposit is a pre condition to the making of application under this rule. The deposit has to be made for payment to the decree holder the amount specified in the proclamation of sale. 5% deposit has to be paid as compensation for the purchaser who suffers the loss on account of sale being set aside and not confirmed in his favour.

If a person has applied under Rule 90 to set aside the sale, then unless he has withdrawn his application , he is not entitled to make and prosecute an application under Rule 89.[46]

An application must be made within 60 days from the date of sale and before an order setting aside a sale is made, notice of the application must be given to all persons likely to be affected by the order thereupon.[47]

On irregularity or Fraud

Rule 90: Application to set aside sale on ground of irregularity or fraud

(1) Where any immovable property has been sold in execution of a decree, the decree-holder, or the purchaser, or any other person entitled to share in a ratable distribution of assets or whose interests are affected by the sale, may apply to the Court to set aside the sale on the ground of a material irregularity or fraud in publishing or conducting it.

(2) No sale shall be set aside on the ground of irregularity or fraud in publishing or conducting it unless, upon the facts proved, the Court is satisfied that the applicant has sustained substantial injury by reason of such h irregularity or fraud.

(3) No application to set aside a sale under this rule shall be entertained upon any ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up.

Explanation.-The lucre absence of, or defect in, attachment of the property sold shall not, by it be a ground for setting aside a sale under this rule.

A sale of immovable property in execution can be set aside also on the ground of material irregularity or fraud in publishing or conducting the sale, provided the applicant proves that he has sustained substantial injury by reason of such irregularity or fraud. The pre-sale illegalities committed in the execution are amenable to the remedy under section 47 and post sale irregularities causing substantial injury to the judgment debtor are covered under Rule 90 of Oder 21.

Under Order XXI , Rule 90, the only persons that may apply for setting aside the sale are:

  • the decree-holder
  • the purchaser
  • any other person entitled to share in a ratable distribution of assests under Section 73; and
  • any person whose interests are affected by the sale. This includes the judgment-debtor, the legal representative of a judgent debtor and a purchaser from the judgment-debtor pendente lite. Etc.

An appeal by a stranger auction purchaser against an order passed on an application for setting aside sale under Order XXI, Rule 90 and section 47, CPC is incompetent, as he was not a party to the suit.

Grounds:

  • there has been material irregularity or fraud in publishing and conducting the sale; and
  • substantial injury has been caused to the applicant.

Objection to execution can be made only once and not repeatedly.[48]

The rule speaks of irregularity and not illegality, for if the act complained of is illegal, the sale is void altogether and no substantial injury need be proved as is necessary in the case of material irregularity. It is only when there is an allegation of material irregularity or fraud in publishing or conducting the sale that Order XXI, Rule 90 would be applicabe.

Material Irregularity

The term “irregularity” here means not being in conformity with the law or any recognised rule. It must be shown that there has been disregard of some positive provision of law relating to execution, i.e. procedure to be followed before the property is put up for sale.

Where a court  mechanically conducts the sale or routinely assigns assent to the sale papers, not bothering to see if the offer is too low and a better price could have been obtained and in fact the price is substantially inadequate, there is presence of both elements of irregularity and injury.

Under valuation by itself may not be sufficient to infer fraud, gross undervaluation coupled with the peculiar circumstances that one of the purchasers being the son of one of the judgment-debtors and another one being a relative of one of the judgment-debtors and the enthusiasm exhibited by the judgment-debtor in having the sale of their own property confirmed ought to be taken as a circumstances indicating fraud.[49]

Fraud

“Fraud” means that “which is dishonest and morally wrong”. Fraud must established beyond reasonable doubt by clear and cogent evidence; general and vague allegations and suspicious circumstances are not enough.

A mere understanding between intending purchasers agreeing not to bid against one another is not by itself objectionable and unlawful. But if such an agreement has been arrived at with a dishonest intention and oblique motive with a view to prevent the best price  from being obtained, it would be fraudulent and invalid.

Substantial Injury

Whether or not the injury suffered by the applicant is substantial  depends upon the facts of each case. It should not be confined to pecuniary loss and, therefore, mere inadequacy of price is no proof of substantial injury though it is one of the relevant factors to be considered.

Judgment-debtor Having No Saleable Interest: Rule 91

The purchaser at any such sale in execution of a decree-may apply to the Court to set aside the sale, on the ground that the judgment-debtor had no saleable interest in the property sold.

This rule applies only where the judgment-debtor has no interest at all, e.g. when the property sold turns out to be not the property of the judgment-debtor or when the interest was not saleable. It does not apply when the judgment debtor has no saleable interest in a portion of the property. Even a saleable interest in one of the parcels sold at one time is sufficient.

The rule is intended for the protection of an innocent auction-purchaser; and it cannot, therefore, be invoked where the purchaser knew at the time of sale that the judgment-debtor had no saleable interest in the property.

Only the auction purchaser or a decree-holder auction purchaser can apply, the judgment debtor cannot apply.

When Sale Becomes Absolute: Rule 92

(1) Where no application is made rule 89, rule 90 or rule 91, or where such application is made and disallowed, the Court shall make an order confirming the sale, and thereupon the sale shall become absolute:

Provided that, where any property is sold in execution of a decree pending the final disposal of any claim to, or any objection to the attachment of, such property, the Court shall not confirm such sale until the final disposal of such claim or objection.

(2) Where such application is made and allowed, and where in the case of an application under rule 89, the deposit required by that rule is made within thirty days from the date of sale, or in cases where the amount of the deposited under rule 89 is found to be deficient owing to any clerical or arithmetical mistake on the part of the depositor and such deficiency has been made good within such time as way be fixed by the Court, the Court shall make an order setting aside the sale]:

Provided that no order shall be made unless notice of the application has been given to all persons affected thereby.

(3) No suit to set aside an order made under this rule shall be brought by any person against whom such order is made.

(4) Where a third party challenges the judgment-doubter’s title by filing a suit against the auction-purchaser, the decree-holder and the judgment-debtor shaft be necessary parties to the suit.

(5) if the suit referred to in sub-rule (4) is decreed, the Court shall direct the decree-holder to refund the money to the auction-purchaser, and where such an order is passed the execution proceeding in which sale the had been held shall, unless the Court otherwise directs, be revived at the stage at which the sale was ordered.

No Sale of immovable property shall become absolute until it is confirmed by the court. Where no application to set aside the sale is made under Rule 89, 90 and 90 or where such application is made and is disallowed by the Court, the Court shall make an order confirming the sale, and thereupon the sale shall become absolute. Once the order is made under Rule 92 confirming the sale, the title of the auction purchaser relates back to the date of sale.[50]

Proviso to sub-rule (1) of Rule 92 as added by the Amendment Act of 1976 enacts that where a claim against an attachment in execution of a decree has been made but the property attached has been sold pending the determination of such claim, the sale should not be confirmed by the court before the final disposal of such claim.

A sale cannot be confirmed within 30 days of acceptance of the bid.[51] It is not be confirmed straightaway without declaring the auction-purchaser  as the successful bidder under Order XXI, Rule 84, and without allowing a period of one month for application under Order XXI, Rules 89 to 91, CPC.

The owners and certain other interested persons are afforded opportunity under the Code to make a prayer for setting aside the sale on enumerated grounds, and after all such matters are disposed of without disturbing the sale, the sale is confirmed under Rule 92.

Effect of Setting aside Sale: Rule 93

Where a sale of immovable property is set aside under 92, the purchaser shall be entitled to an order for repayment of his purchase-money, with or without interest as the Court may direct, against any person to whom it has been paid.

An application under this rule can be filed within three years from the date of the order setting aside the sale.[52]

Certificate of Sale: Rule 94

After the sale has become absolute, the Court shall grant a certificate in favour of the purchaser. It shall bear the date on which the sale became absolute and also specify the property sold and the name of the purchaser.[53]

Such certificate is conclusive in nature, the sole object behind it being to avoid any controversy regarding the identity of the property sold and the purchaser thereof and the date when the sale became absolute.

Effect of Sale: Section 65

After the sale has become absolute, the property, shall be deemed to have vested in the purchaser from the date when it is sold and not from the date when the sale becomes absolute. In other words, the purchaser’s title relates back to the date of the sale and not the confirmation of the sale.

Frequently Asked Questions:

1. Discuss the powers of execution of a decree and the comment that the execution is virtually filling a fresh suit, and the process is more cumbersome for a Decree holder than for a judgment debtor?

The word ” Execution” is not defined in Code of Civil Procedure,1908 (herein after referred as CPC). The word ”Execution” can, in this context, be understood as ” a judicial act by which a public officer is empowered to carry judgments or orders into effect.” In other words, it means the carrying into effect the judgment or order delivered in a court of law.

Order 21 of the Code of Civil Procedure deals with the solemn act of execution of the decrees passed by the Courts from grassroots to the top. Ultimately, after the judgment attains finality or where there is no stay in the execution by any Appellate or Revisional Court, it is the Court of original jurisdiction which performs this sacred act of implementation of the execution.

2. All proceedings in execution are commenced by an application for execution. Explain in details in relation to power of court to enforce execution.

According to rule 65, every sale in execution of a decree shall be conducted by an officer of the court by public auction, sale by asking offer through advertisement in Newspaper or otherwise is barred and such a sale is nullity. There is a substantial distinction between the sale by calling for offers through advertisement and the sale by public auction. An auction is held by public competition wherein every bidder has the right to raise his own bid. The atmosphere therein created by open bidding can tempt the bidder to raise his bid and thus enhanced price can be fetched by the said mode. In a sale by tender, however no such opportunity is available to the tenderer. Once he gives his offer that is final and cannot be raised, whereas in public auction each bidder knows the bid of the other person, in the mode of sale by calling for offers of tenders, none of the persons or tenderers know the price offered by the other.

3. What is the effect of setting aside a sale of immovable property?

Where a sale of immovable property is set aside under 92, the purchaser shall be entitled to an order for repayment of his purchase-money, with or without interest as the Court may direct, against any person to whom it has been paid. An application under this rule can be filed within three years from the date of the order setting aside the sale.

4. Who may apply for setting aside of a sale?

Under Order XXI , Rule 90, the only persons that may apply for setting aside the sale are:

  • the decree-holder
  • the purchaser
  • any other person entitled to share in a ratable distribution of assests under Section 73; and
  • any person whose interests are affected by the sale. This includes the judgment-debtor, the legal representative of a judgent debtor and a purchaser from the judgment-debtor pendente lite. Etc.

An appeal by a stranger auction purchaser against an order passed on an application for setting aside sale under Order XXI, Rule 90 and section 47, CPC is incompetent, as he was not a party to the suit.

 Edited by – Sakshi Agarwal

Quality Check – Ankita Jha

Approved & Published by –  Sakshi Raje

References:

[1] Ambika Ranjan Mujumdar v. Manikganj Loan Office, Ltd. AIR 1929 Cal 818

[2] Ambati Narasayya v. M. Subba Rao & Anr 1990 AIR 119

[3] Gulab Singh v. Chandra Pal Singh , AIR 1987 Bom 90

[4] Kummathi v. Narayanappa v. Talari Akkulappa, AIR 1965 AP 215 at p. 217

[5] A. Venkatachalam v. E.M Zackria, 1987 Supp SCC 124

[6] Desh Bandhu Gupta v. N.L. Anand, (1994) 1 SCC 131

[7] O 21 Rule 68

[8] Gopal Kr. Das v. Sailendra Das AIR 1975 SC 1290

[9] Rule 72 (1)

[10] Rule 72 (2)

[11] Rule 72 (3)

[12] Rule 72-A

[13] Nedungadi Bank Ltd. V. Ezhimala Agri Products, (2004) II B.C. 498 (Ker.) (DB)

[14] Rule 73

[15] Lakshmibai Widow Of Sidhojirao v. Santapa Revapa (1889) ILR 13 Bom 22

[16] Lakshmibai v. Santapa (1889) 13 Bom. 22

[17] Rule 75 (1)

[18] Rule 75 (2)

[19] S. Veerappa v. Muthurasappa, AIR 1973 Mad 386

[20] Wala v. Hira (1885) 9 Bom 518

[21] R. 92 Sebastian v. Official Receiver, 1968 KLJ 381

[22] R. 71

[23] Samrat Ashok Exports Ltd. v. Asst P.F. Commissioner and Recovery officer, AIR 2002 Kant 61

[24] Shah Fareed v. Sheo Charun (1872) 4 NWPHCR 37

[25] Seth Banarsi Dass v. District Magistrate and Collector, AIR 1996 SC 2311

[26] Jaswantlala Natwarlal v. Sushilaben manilal AIR 1991 SC 770

[27] Seth Banarsi Dass v. District Magistrate and Collector,  AIR 1996 SC 2311

[28] Dhirendra Nath v. Sudhir Chandra, AIR 1964 SC 1300

[29] Nemi Chand v. Dhanmukh Dass, ILR (1953) 3 Raj 288

[30] Baidyanath Dubey v. Deonandan Singh, 1968 SCD 275

[31] Framji v. Honnasji (1878) 2 Bom 258

[32] Moanund v. Akial (1868)

[33] Manilal v. Gordhan Spg & Mfg Co, (1917) 41 Bom 76

[34] Allahabad bank v. Asst. Collector of Customs , AIR 1994 NOC 248 (Cal.)

[35] Habib Sheikh v. State of U.P. AIR 2005 All 250 at p. 272

[36] Order XXI, R. 82

[37] K.T. Thomas v. Indian Bank, 1984 Supp SCC 703.

[38] Gurusuami v. Venkatasami, ILR (1891) 14 Mad 277

[39] Order XXI , R. 84

[40] Order XXI, R. 85

[41] Order XXI, R.86

[42] Order XXI, R. 87

[43] Balram Singh v.Ilam Singh, AIR 1996 SC 2781.

[44] Manilal Mohanlal v. sardar Sayed Ahmed, AIR 1954 SC 349

[45] Art. 127, Limiatation Act, 1963.

[46] Rule 89(2)

[47] Provisio to, Rule 92 (2)

[48] R.P.A Vallimmal v. R. Palanichami Nadar, AIR 1997 SC 1996.

[49] Nedungadi Bank Ltd. V. Ezhimala Agri. Products, AIR 2004 Ker 62.

[50] Section 65.

[51] Siddavee Rappa v. Jalal Khan ILR 1953 Mys. 570.

[52] Art 137, Limitation Act, 1963.

[53] Rule 94

Previous articleJudgement, Decree and Order, Cavet
Next articleIssue of Commissions
Shuvneek Hayer
Shuvneek Hayer is currently pursuing her B.A. LLB(Hons). from University Institute of Légal Studies, Panjab University, Chandigarh. Law had never been her area of interest initially, but gradually as she completed a year in law school, she was drawn to the contemporary issues involving human rights and literature. Inside her law degree, she participated in various national and international level moot court competitions, Debates, MUNs and served as a member of Moot Court Society, UILS. Outside her degree, She got herself involved in a Chennai-based NGO and taught the underprivileged kids on weekends. Later she put forth the idea of bringing up an NGO run by law students where they could address the issues individually and closely interact with the community by fighting for their rights. She has presented various research papers including a few on women rights, child rights, surrogacy rights, communal rights, etc. In her free time, she loves reading contemporary literature, current issues and spending time with family.