Execution of Decree and Court Auction by Banking Court

Execution of Decree and Court Auction by Banking Court Actus Curiae Neminem Gravabit - Act of Court Shall Prejudice No Man Banking Case Laws Civil Law Corporate Law Court Auction Execution Knowledge - Civil Law Knowledge – Corporate Law Solutions - Civil Law Solutions - Corporate Law Supreme Court Supreme Court Review Mr. Justice Mian Saqib Nisar in his judgment has decided the issue regarding execution of decree and court auction by Banking Court in Civil Review Petition No. 383 of 2005.

1. This Review Petition seeks to impugn the judgment of this Court dated 27.6.2005 in terms whereof Civil Appeal No. 670 of 2002 filed by the Respondent No.1, Muhammad Ikhlaq Memon, against the judgment of a Division Bench of the High Court of Sindh was allowed. The essential facts of the case, as set out in the judgment under appeal, are that United Bank Limited obtained a decree from the Banking Tribunal constituted under the Banking Tribunals Ordinance, 1984. Thereafter, the Bank filed execution proceedings for recovery of the decretal amount of Rs.103,789,753.00. A learned single judge of the High Court of Sindh, acting as a judge of the Banking Court, passed an order 8.10.1988 directing the sale of three properties belonging to the Petitioners by the Nazir of the Court. It is material to note, for purposes of deciding the present Review Petition, that the original court order clearly stated that the sale was to be effected by means of sealed bids (i.e. not a public auction) after issuing advertisements in different newspapers. These were widely circulated newspapers, namely, Jang, Dawn and Millat.

2. A sale proclamation was issued for the first time on 15.5.1999. Despite the fact that the papers enjoyed a wide circulation no offer was forthcoming and this is a matter which we will revert to in a later part of this judgment. The process was repeated on 24.7.2000 and once again no offers came forth. A third endeavour was made by sale proclamation issued on 24.10.2000 but yet again the Nazir did not receive any offer. The Nazir was directed to make a fourth attempt and accordingly a sale proclamation was issued on 26.1.2001. By now about 1½ years had elapsed since the issuance of the first proclamation. It was this sale proclamation which bore fruit and the Respondent No.1 came forward with offers for all three of the properties in the sum of Rs.1,19,78,600, Rs.55,53,900, and Rs.57,47,700 respectively. He attached pay orders of Rs.11,97,860, Rs.2,55,390 and Rs.5,74,770, alongwith his offer. The matter was put up before the learned single judge and the Respondent No.1 was requested to enhance the offer which he duly did. Thus the original total of the three offers which came to Rs.2,32,80,280 was enhanced to Rs.2,41,00,000. He was directed by the Court to deposit the price within one month. It is pertinent and relevant for purposes of present case to note that on 15.3.2001 (i.e. within the stipulated period of 30 days) he submitted an application bearing CMA No.619 of 2001 to the Banking Court seeking a direction from the Court that he should be given vacant possession of the properties. To establish his bona fides he attached therewith photocopies of three pay orders for the balance amount of the sale consideration. Thus it is clear that he had made the financial arrangements for paying the money within 30 days. The Banking Court by an order dated 26.2.2001 directed the Respondent No.1 to take steps in terms of Order 21, Rule 85 CPC. It may be noted that this was for the first time an order was passed in terms of the CPC.

The original order, which required sealed tenders instead of a public auction, was obviously not passed under the CPC but in terms of the powers conferred on the Banking Court under the Banking law to adopt any procedure deemed appropriate by it for purposes of execution of the decree. Though Order 21, Rule 85 CPC contemplates a time frame of 15 days commencing from the relevant date as mentioned in the said provision of law, in this particular case the order was passed obviously conferring additional time on the Respondent No.1 and, in fact, he deposited the balance amount three days later on 30.3.2001. The Banking Court had directed that the case should be heard on the next date namely 31.3.2001. The Banking Court by means of an order dated 9.4.2001 noted that the Respondent No.1 had deposited the balance amount of the sale and directed the Nazir to take steps for confirmation of the sale. Thus the bid was accepted by the court.

3. At this point of time it is necessary to examine the conduct of the Petitioner. Although the Petitioner had been served he did not raise any objection whatsoever, despite entering appearance, to the original order passed for the sale of the property through sealed tenders and not by way of public auction under the CPC. He also did not raise any objections whatsoever in relation to the framing of the four sale proclamations. Specifically, he did not raise any objection, either at that stage or at any later stage, in the ensuing litigation all the way upto this court to the text of sale proclamation. He, however, preferred special HCA No.94 of 2001 against the said order dated 26.2.2001. It is important to note that he had a clear cut legal right to challenge the order passed in relation to the sale of properties by means of two alternative methods. One was to file an application under Order 21, Rule 89 and the other was to file an application under Order 21, Rule 90.

4. There is a great deal of difference between these two provisions of law. Under Order 21, Rule 89 a judgment debtor is not obligated to show any legal infirmity in the order of sale. He has an unqualified right to have the sale set aside provided he complies with the conditions laid down therein, namely, that he should deposit the full decretal amount in court plus 5% to be paid to the auction purchaser. The time period for making such an application is 30 days. Admittedly he failed to do so and accordingly, it follows, by necessary implication of law that a vested right accrued in favour of the auction purchaser. The second provision, namely, Order 21, Rule 90 CPC proceeds on a different basis. In order to succeed it is mandatory for the judgment debtor to satisfy the court, on the merits, that the sale should be set aside on the ground of a material irregularity, or fraud, in publishing or conducting it. Yet another condition is prescribed by means of the proviso thereto which stipulates that no sale shall be set aside on the ground of irregularity or fraud unless, upon the facts proved before the Court, it is established that the judgment debtor has sustained substantial injury by reason of such irregularity or fraud. Yet another condition is prescribed by the second proviso which states that no application shall be entertained in terms of this provision of law unless and until the judgment debtor deposits an amount equal to 20% of the sum realized at the sale or furnish such security as the court may direct. These are stringent conditions which make the policy of the law crystal clear. A mere allegation is not sufficient.

It has to be established that not merely an irregularity but a material irregularity has taken place, or, in the alternative, that fraud has been perpetrated in the process of carrying out the sale. Then is super added the requirement that even if these conditions are complied with the judgment debtor must satisfy the court that he has sustained a substantial injury by reason thereof. Finally, in order to discourage frivolous applications intended to delay the execution of the decree it is mandatory on the judgment debtor to deposit 20% of the sale amount or furnish such security as the court may direct. It is also material to note that once again a time frame of 30 days has been specified under article 166 of the Limitation Act in this behalf. Failing compliance with the provisions of Order 21, Rule 90 once again the inevitable consequence is that the judgment debtor is precluded from making any such allegation in order to challenge the validity of the sale at a subsequent stage. The above is further clarified by the provisions of Order 21, Rule 92 CPC which lays down explicitly the consequences of a failure to make an application under Order 21, Rule 89 or Order 21, Rule 90. The said provision states that where no such application has been made under the above mentioned rules, or where such application has been made and disallowed, it becomes mandatory on the court to make an order confirming the sale and thereupon the sale becomes absolute. These provisions leave no doubt for any ambiguity in the matter.

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