Validity of Private Treaty Sales in Execution Proceedings

The Supreme Court of Pakistan’s ruling in Shahida Bibi vs. Habib Bank Ltd. (PLD 2016 SC 995) is a significant decision that clarifies the legal standards governing the sale of mortgaged properties through private treaties during execution proceedings. The case touches on the permissibility of deviating from public auction procedures and the legal implications of such deviations.

Background:

The case involved the sale of a mortgaged property by Habib Bank Limited (HBL) to recover a debt owed by the judgment debtor. The property was initially put up for public auction, but after several failed attempts, the Banking Court allowed HBL to sell the property through a private treaty. The property was eventually sold for an amount significantly lower than its earlier assessed value. The judgment debtor challenged the sale, arguing that it violated the legal procedures prescribed for the execution of decrees.

Key Issues:

Permissibility of Private Treaty Sales: A primary issue was whether the Banking Court could permit the sale of mortgaged property through a private treaty rather than a public auction, as initially stipulated. The Court examined the relevant provisions of the Banking Tribunals Ordinance, 1984, the Banking Companies (Recovery of Loans, Advances, Credits, and Finances) Ordinance, 1997, and the Banking Companies (Recovery of Loans, Advances, Credits, and Finances) Act, 1997, to determine the legality of such a sale.

Compliance with Legal Requirements: The Court scrutinized whether the sale met the legal requirements, particularly whether the judgment debtor was given the right to redeem the property before it was sold through a private treaty. The Court emphasized the importance of providing the judgment debtor with the opportunity to redeem the property, as required under Section 11(3) of the 1984 Ordinance.

Deviation from Public Auction Procedures: The Court addressed the broader question of whether an executing court, having opted for a public auction, could later switch to a private sale. The decision explored whether such a switch could be made without the explicit consent or notice to the judgment debtor.

Case Law: The Court referenced the case of Muhammad Attique vs. Jami Limited (PLD 2010 SC 993) to underscore that once a public auction procedure is chosen, the court cannot deviate from it without a clear, conscious application of mind and sufficient justification. The case of National Bank of Pakistan vs. Paradise Trading Company (2015 CLD 366) was referenced to discuss the limitations on switching between different modes of execution without proper justification. The Court also cited the case of Lanvin Traders, Karachi vs. Presiding Officer, Banking Court No. 2 (2013 SCMR 1419) to illustrate the principles governing the fairness and transparency of execution proceedings.

Court’s Conclusion: The Supreme Court concluded that the sale of the property through a private treaty was illegal due to the failure to provide the judgment debtor with an opportunity to redeem the property as required by law. The sale was set aside, and the case was remanded for a fresh auction, ensuring that all legal requirements, including the notice to the judgment debtor, were strictly followed.

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