Issue of Mandatory Deposits for Challenging Confirmation of Sale

The Supreme Court of Pakistan, in its judgment dated May 10, 2024, consolidated and adjudicated three cases, all revolving around the interpretation of the second proviso to Rule 90 of Order XXI of the Code of Civil Procedure, 1908 (CPC). The cases involved objections to the auction sales conducted during execution proceedings initiated by banking institutions, and the crucial issue was whether the mandatory deposit of up to 20% of the sale price should accompany the filing of the objection petition or be made only upon the court’s direction.

Key Issue:

The primary legal question before the Court was the correct interpretation of the second proviso to Rule 90 of Order XXI, CPC. Specifically, the issue was whether an applicant must deposit a sum not exceeding 20% of the auction sale price at the time of filing an objection petition against the sale of immovable property in execution proceedings, or whether such a deposit is required only when directed by the court.

Arguments and Competing Interpretations: The Supreme Court noted that there were two competing interpretations of the second proviso. The first interpretation, supported by earlier High Court rulings, was that the deposit or furnishing of security was contingent upon the court’s direction and not required at the time of filing the objection petition. The opposing view, articulated in the Habib and Company vs. MCB (PLD 2020 SC 227) case, held that the deposit must accompany the objection petition to be entertained.

Court’s Analysis: The larger bench, led by Justice Syed Mansoor Ali Shah, delved into the principles of statutory interpretation. The Court emphasized the need to read the words of the statute in their ordinary and grammatical sense while considering the legislative intent behind the provision. The analysis clarified that the term "entertain" in the second proviso implied proceeding to adjudicate on merits, which could only occur after the court directed the deposit of a specific amount or the furnishing of security.

The Court further analyzed the phrases "not exceeding twenty per cent" and "as the Court may direct," highlighting that these provisions give the court discretion to set the deposit amount, which cannot exceed 20% of the auction price, rather than requiring an automatic deposit at the time of filing.

Relevant Precedents: In reaffirming the correct interpretation, the Supreme Court referenced several precedents, including Alhamdi Begum vs. NBP (PLD 1976 Kar. 723) and Sultan Mahmood vs. HBFC (2006 YLR 2776), which consistently supported the view that the deposit was subject to the court’s direction and not a precondition for filing.

Impact of the Financial Institutions (Recovery of Finances) Ordinance, 2001: The Court also addressed the relationship between Rule 90 of Order XXI, CPC, and Section 19(7) of the Financial Institutions (Recovery of Finances) Ordinance, 2001. It was clarified that while Section 19(7) provides for a summary procedure and potential penalties for frivolous objections, it does not override or conflict with the CPC provisions. Instead, it complements them, and the procedures under both laws must be harmonized.

Decisions in the Cases: The Supreme Court found that the Banking Court and the Lahore High Court erred by dismissing the objections on the ground of non-deposit of 20% of the sale price without first directing such a deposit. The judgments were set aside, and the cases were remanded to the Banking Court and High Court respectively to determine the appropriate deposit amount before considering the appeals on their merits.

Conclusion: The Supreme Court's judgment brings clarity to the interpretation of the second proviso to Rule 90 of Order XXI, CPC, emphasizing the court's discretion in directing deposits and the procedural steps that must be followed before dismissing objections in execution proceedings. This judgment overrules the conflicting interpretation in Habib and Company vs. MCB and reaffirms the established jurisprudence on the matter.

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