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PETITIONER: CHINNAMMAL & 4 ORS.

       Vs.

RESPONDENT: P. ARUMUGHAM & ANR.

DATE OF JUDGMENT17/01/1990

BENCH: SHETTY, K.J. (J) BENCH: SHETTY, K.J. (J) THOMMEN, T.K. (J)

CITATION:  1990 AIR 1828            1990 SCR  (1)  78  1990 SCC  (1) 513        JT 1990 (1)    51  1990 SCALE  (1)43

ACT:     Code of Civil Procedure: Section 144 and Order 21  rules 89-91:  Setting aside court auction sale--Decree holder  who purchases  the  property and auction purchaser  who  is  not party to the decree--Rights and liabilities of.

HEADNOTE:     Respondent  No.  1 obtained a money decree  against  the original appellant, who has been substituted by legal heirs, on the basis of a promissory note. The appellant appealed to the  High Court but could not get the decree stayed  because he  was unable to furnish security for the decretal  amount. The decree was put into execution notwithstanding the  pend- ency of the appeal, and two items of appellant’s  properties were purchased by respondent No. 2 at the court sale. Later, the High Court allowed the appellant’s appeal on merits  and set aside the decree.     Thereupon,  the appellant moved the executing court  for setting  aside the court sale inter alia on the ground  that (1)  the  sale was vitiated by material  irregularities  and properties  were deliberately sold for under value; (2)  the sale  was  collusive between decree holder and  the  auction purchaser;  the latter, being the sambandhi of  the  former, was  just a name lender; and (3) since the decree  had  been reversed,  the  sale  should be  nullified  and  restitution should  be ordered. The executing court rejected these  con- tentions  and  held that subsequent reversal of  the  decree could not be depended upon since the sale had been confirmed in favour of the auction purchaser who was a stranger to the litigation.  The  learned Single Judge of  the  High  Court, however, allowed the appellant’s appeal and held inter  alia that  (a) the sale was vitiated by  material  irregularities resulting in fetching a low price; and (b) the decree holder and  auction  purchaser were close relatives  and  the  sale seemed  to be collusive. But on appeal, the  Division  Bench reversed the decision of the learned Single Judge. Allowing the appeal, this Court,     HELD: (1) A distinction is maintained between the decree holder  who purchases the property in execution of  his  own decree which is 79

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afterwards  modified or reversed, and an  auction  purchaser who is not party to the decree. [84E]     (2) Where the purchaser is a decree holder, he is  bound to  restore  the property to the judgment debtor by  way  of restitution but not a stranger auction purchaser. The latter remains  unaffected and does not lose title to the  property by  subsequent reversal or modification of the  decree,  and could retain the property since he is a bona fide purchaser. This  principle is also based on the premise that he is  not bound to enquire into correctness of the judgment or  decree sought  to  be executed. He is thus  distinguished  from  an eonomine party to the litigation. [84E-F]     Janak  Raj v. Gurdial Singh, [1967] 2 SCR 77 and  Sardar Govindrao Mahadik v. Devi Sahai, [1982] 2 SCR 186,  referred to.     (3)  The  true  question in each  case  is  whether  the stranger  auction  purchaser had knowledge  of  the  pending litigation about the decree under execution. If it is  shown by evidence that he was aware of the pending appeal  against the  decree  when  he purchased the property,  it  would  be inappropriate to term him as a bona fide purchaser.  Indeed, ’he is evidently a speculative purchaser and in that respect he is in no better position than the decree holder  purchas- er. [85B-C]     Chhota  Nagpur  Banking  Association  v.  C.T.M.  Smith, [1943]  Patna 325 and Jamnomal Gurdinomal v.  Gopaldas,  AIR 1924 Sind 101, referred to.     R.  Raghavachari  v. M.A. Pekkiri Mahomed  Rowther,  AIR 1917 Mad 250, overruled.     (4)  Similarly,  the auction purchaser who  was  a  name lender  to  the decree holder or who has colluded  with  the decree  holder  to purchase the property could not  also  be protected  to  retain the property if the decree  is  subse- quently reversed. [86B]     (5) The Code of Civil Procedure is a body of  procedural law  designed  to facilitate justice and it  should  not  be treated as an enactment providing for punishment and  penal- ties.  The  laws of procedure should be so construed  as  to render justice wherever reasonably possible. [87A-B] Rodger  v. The Comptoir De Paris, [1869-71] LR 3 PC. 465  at 475 80 and  A.R. Antulay v. R.S. Nayak, [1988] 2 SCC 602,  referred to.     (6)  The evidence on record is sufficient to  hold  that the  auction  purchaser was not a bona fide  purchaser.  The auction sale in his favour must, therefore, fall for  resti- tution.  The Court cannot lend assistance for him to  retain the property of the judgment-debtor who has since  succeeded in getting rid of the unjust decree. [87D-E]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  140  of 1990.     From  the Judgment and Order dated 8.2.89 of the  Madras High Court in L.P.A. No. 131 of 1987.     A.K.  Sen, N.D.B. Raju, K. Rajeshwaran and N,  Ganapathy for the Appellants. K.R. Choudhary and V. Balachandran for the Respondents. The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J. Special Leave is granted.     This appeal is from a decision of the Madras High  Court which denied the appellants claim for setting aside a  judi-

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cial sale.     The  facts  giving rise to the appeal, as found  by  the Courts, may be summarised as follows.     Arumugham-respondent-1  obtained  money  decree  on  the basis  of  a  promissory note from  the  Subordinate  Judge, Salem,  in O.S. No. 388/1968. Sethuramalingam  the  judgment debtor  appealed  to the High Court but could  not  get  the decree stayed. He could not furnish security for the  decre- tal  amount which was a condition for stay. The  decree  was put  into  execution  notwithstanding the  pendency  of  the appeal.  In February 1973, his two items of properties;  (i) three  houses and (ii) 10.93 acres of land were  brought  to court sale. They were purchased by Kuppa Goundar, respondent No.  2  for Rs.7550 and Rs.15,050 respectively.  In  October 1975,  the  High  Court allowed the appeal  on  merits.  The promissory  note which was the basis of the suit was  disbe- lieved and rejected. The trial court judgment was set  aside and  the  plaintiff was non-suited. Thereupon  the  judgment debtor moved the executing court for setting aside the sale. He has alleged inter alia, that the sale 81 was vitiated by material irregularities and properties  were deliberately  sold for under value. The sale  was  collusive between decree holder and the auction purchaser. The  latter was  sambandhi of the former and just a name lender. It  was also his contention that since the decree has been reversed, the  sale  should  be nullified and  restitution  should  be ordered. The Court rejected all the contentions relating  to material  irregularities for want of satisfactory  evidence. The  Court also held that subsequent reversal of the  decree could not be depended upon since the sale has been confirmed in favour of the auction purchaser who was a stranger to the litigation.  The judgment debtor appealed to the High  Court and  succeeded  at  first instance,  before  learned  single Judge.  The learned Judge found in effect that (a) the  sale was vitiated by material irregularities resulting in  fetch- ing  a  low price to properties; (b) the decree  holder  and auction purchaser are close relatives and the sale seems  to be  collusive; and (c) after the Court sale they  seemed  to have  entered into an agreement for selling the second  item of properties for Rs.96,000. With these conclusions the sale was set aside. But on appeal, the Division Bench of the High Court  has expressed contrary views on all those points  and reversed the decision of learned single Judge.     ’the  judgment  debtor died during the pendency  of  the appeal before the High Court. His legal representatives have now appealed.     Mr. A.K. Sen, learned counsel for the appellants  raised a  number  of questions. The important  and  central  issue, however, relates to the underlying jurisdiction of the Court to set aside the confirmed sale upon subsequent reversal  or modification  of  the decree. The question  is  whether  the auction purchaser’s interest should be protected as  against the  judgment debtor who has since succeeded in getting  rid off  the  decree against him. There are two  authorities  of this Court bearing on the question: (i) Janak Raj v. Gurdial Singh  and Anr., [1967] 2 SCR 77 and (ii)  Sardar  Govindrao Mahadik and Anr. v. Devi Sahai & Ors., [1982] 2 SCR 186.  In Janak Raj case, the appellant was a stranger to the suit  in which  there was an ex-parte money decree. In the  execution of the decree, the immovable property of the judgment debtor was brought to sale in which the appellant became the  high- est  bidder.  The judgment-debtor filed an  application  for setting  aside the ex-parte decree and the court allowed  it before  confirming the sale. Thereupon  the  judgment-debtor

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objected to the confirmation of sale on the ground that  the auctionpurchaser  was in conspiracy and collusion  with  the decree-holder  and  as such not entitled to  have  the  sale confirmed. The execution court, 82 however,  overruled  the objection and confirmed  the  sale, Mitter, J., agreed with that view and observed (at 79): "The  result is that the purchaser’s title relates  back  to the date of sale and not the confirmation of sale. There  is no  provision in the Code of Civil Procedure of 1908  either under  O. XXI or elsewhere which provides that the  sale  is not  to  be confirmed if it be found that the  decree  under which  the  sale was ordered has been  reversed  before  the confirmation  of  sale. It does not seem ever to  have  been doubted  that once the sale is confirmed the  judgmentdebtor is not entitled to get back the property even if he succeeds thereafter  in having the decree against him reversed.  ’The question  is, whether the same result ought to  follow  when the reversal of the decree takes place before the  confirma- tion of sale. There  does  not seems to be any valid reason for  making  a distinction  between the two cases. It is certainly hard  on the  defendant-judgment-debtor to have to lose his  property on  the basis of a sale held in execution of a decree  which is "not ultimately upheld. Once however, it is held that  he cannot  complain after confirmation of sale, there seems  to be  no reason why he should be allowed to do so because  the decree  was reversed before such confirmation. The  Code  of Civil Procedure of 1908 contains elaborate provisions  which have to be followed in cases of sales of property in  execu- tion  of a decree. It also lays down how and in what  manner such  sales may be set aside. Ordinarily, if no  application for setting aside a sale is made under any of the provisions of rr. 89 to 91 of O. XXI, or when any application under any of  these  rules is made and disallowed, the  court  has  no choice  in  the matter of confirming the sale and  the  sale must be made absolute. If it was the intention of the Legis- lature that the sale was not to be made absolute because the decree had ceased to exist, we should have expected a provi- sion  to that effect either in O. XXI or in Part II  of  the Code of Civil Procedure of 1908 which contains ss. 36 to  74 (inclusive)  .....  " Finally, the learned judge rounded off the judgment thus (at 86):      " .....  The policy of the Legislature seems to be that 83 unless a stranger auction-purchaser is protected against the viccissitudes  of the fortunes of the suit, sales in  execu- tion  would  not attract customers and it would  be  to  the detriment  of the interest of the borrower and the  creditor alike  if sales were allowed to be impugned  merely  because the decree was ultimately set aside or modified. The Code of Civil  Procedure of 1908 makes ample provision for the  pro- tection  of  the interest of the judgment-debtor  who  feels that the decree ought not to have been passed against him. ’ ’     In  Sardar  Govindrao  Mahadik, D.A.  Desai,  J.,  while referring to the principle in Janak Raj case said (at 224): "Ordinarily,  if the auction purchaser is an outsider  or  a stranger  and if the execution of the decree was not  stayed of which he may have assured himself by appropriate enquiry, the court auction held and sale confirmed and resultant sale certificate having been issued would protect him even if the decree in execution of which the auction sale has been  held is  set aside. This proceeds on the footing that the  equity

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in favour of the stranger should be protected and the situa- tion  is occasionally reached on account of default  on  the part of the judgment debtor not obtaining stay of the execu- tion of the decree during the pendency of the appeal." The learned Judge further said: "But  what  happens if the auction-purchaser is  the  decree holder himself? In our opinion, the situation would  materi- ally  alter and this decree holder-auction purchaser  should not  be  entitled to any protection. At any  rate,  when  he proceeds with the execution he is aware of the fact that  an appeal  against the original decree is pending. He is  aware of  the fact that the resultant situation may  emerge  where the  appeal may be allowed and the decree which he seeks  to execute  may be set aside. He cannot force the pace by  exe- cuting the decree taking advantage of the economic disabili- ty  of  a  judgment debtor in a money decree  and  made  the situation  irreversible  to the utter  disadvantage  of  the judgment  debtor  who  wins the battle and  loses  the  war. Therefore, where the auction purchaser is none other than 84 the  decree  holder  who by pointing out that  there  is  no bidder  at  the  auction, for a nominal  sum  purchases  the property,  to  wit,  in this case for  a  final  decree  for Rs.500, Motilal purchased the property for Rs.300, atrocious situation,  and  yet by a technicality he wants  to  protect himself. To such an auction purchaser who is not a  stranger and  who  is none other than the decree  holder,  the  court should not lend its assistance."     In  Janak  Raj case, a stranger  auction  purchaser  was protected  against vicissitudes of fortunes of  the  litiga- tion. In S.G. Mahadik case such protection was not  afforded to  auction  purchaser who happens to be the  decree  holder himself.  The reason seems to be that the decree  holder  is not  a stranger to the suit. Indeed, he is not since  he  is eonomine  party  to the appeal against the decree  which  he seeks  to execute. He is aware of the fact that due to  eco- nomic  hardship the judgment debtor was unable to  have  the decree  stayed. He however, does not wait for final  outcome of  the litigation which he has initiated. He  exploits  the helpless  situation of the judgment debtor and  hastens  the execution  of the decree. The Court, therefore,  should  not lend its assistance to him to retain the property  purchased if the decree is subsequently reversed.     ’There  is  thus a distinction  maintained  between  the decree holder who purchases the property in execution of his own decree which is afterwards modified or reversed, and  an auction purchaser who is not party to the decree. Where  the purchaser  is the decree holder, he is bound to restore  the property  to the judgment debtor by way of  restitution  but not  a stranger auction purchaser. The latter remains  unaf- fected and does not lose title to the property by subsequent reversal  or  modification of the decree. ’The  Courts  have held  that he could retain the property since he is  a  bona fide purchaser. ’This principle is also based on the premise that  he  is not bound to enquire into  correctness  of  the judgment or decree sought to be executed. He is thus distin- guished from an eonomine party to the litigation.     ’There cannot be any dispute on this proposition and  it is  indeed based on a fair and proper  classification.  ’The innocent purchaser whether in voluntary transfer or judicial sale  by or in execution of a decree or order would  not  be penalised. The property bona fide purchased ignorant of  the litigation  should  be  protected. ’The  judicial  sales  in particular would not be robbed off all their sanctity. It is a  sound rule based on legal and  equitable  considerations.

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But it is 85 difficult  to appreciate why such protection should  be  ex- tended to a purchaser who knows about the pending litigation relating to the decree. If a person ventures to purchase the property  being fully aware of the controversy  between  the decree holder and judgment debtor, it is difficult to regard him  as  a bona fide purchaser. The true  question  in  each case,  therefore, is whether the stranger auction  purchaser had  knowledge  of the pending litigation about  the  decree under  execution. If the evidence indicates that he  had  no such  knowledge he would be entitled to retain the  property purchased  being a bona fide purchaser and his title to  the property  remains unaffected by subsequent reversal  of  the decree. ’The Court by all means should protect his purchase. But  if  it is shown by evidence that he was  aware  of  the pending  appeal  against the decree when  he  purchased  the property,  it would be inappropriate to term him as  a  bona fide purchaser. In such a case the Court also cannot  assume that he was a bona fide or innocent purchaser for giving him protection against restitution. No assumption could be  made contrary to the facts and circumstances of the case and  any such assumption would be wrong and uncalled for.     ’The Patna High Court in Chhota Nagpur Banking  Associa- tion  v. C.T.M. Smith & Anr., [1943] Patna 325  expressed  a similar  view. Fazl Ali, CJ., as he then was, said (at  327) that where there is clear and cogent evidence that a strang- er purchaser was fully aware of the merits of the controver- sy  in regard to the property purchased by him and was  also aware  that the validity of the decree was under  challenge, there  is  no room for presumption that he was a  bona  fide purchaser. Reference may also be made to the decision of the Sind  Judicial Commissioner’s Court in Jamnomal  Gurdinornal v.  Gopaldas and Anr., AIR 1924 Sind 101 where similar  com- ment was made.     ’The Madras High Court in R. Raghavachari  v.M.A.Pakkiri Mahorned  Rowther and Ors., AIR 19 17 Mad 250  has  however, taken  a contrary view. It was held that  restitution  under Section  144 CPC cannot be demanded as against a  bona  fide purchaser who was not a party to the decree. ’The High Court also remarked that the reversal of the decree by the  appel- late  Court  or  the knowledge of the  purchaser  about  the pendency  of the appeal makes no material difference to  the operation of that rule.     This proposition, we are, however, unable to accept.  In our opinion, the person who purchases the property in  court auction with the knowledge of the pending appeal against the decree  cannot resist restitution. His knowledge  about  the pending litigation would make all 86 the  difference  in the case. He may be a  stranger  to  the suit,  but he must be held to have taken calculated risk  in purchasing the property. Indeed, he is evidently a  specula- tive purchaser and in that respect he is in no better  posi- tion  than the decree holder purchaser. The need to  protect him against restitution therefore, seems to be  unjustified. Similarly the auction purchaser who was a name lender to the decree holder or who has colluded with the decree holder  to purchase the property could not also protected to retain the property if the decree is subsequently reversed.     There  is one other aspect which is more important  than what  we have discussed hitherto. It was emphasized by  Lord Cairns  in  Rodger  v. The Comptoir D’  Escompte  De  Paris, [1869-71] LR 3 P.C. 465 at 475: "... that one of the first and highest duties of all  Courts

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is to take care that the act of the Court does no injury  to any of the suitors, and when the expression "the act of  the Court",  is  used, it does not mean merely the  act  of  the Primary  Court, or of any intermediate Court of Appeal,  but the act of the Court as a whole, from the lowest court which entertains  jurisdiction over the matter up to  the  highest Court which finally disposes of the case. It is the duty  of the  aggregate of those Tribunals, if I may use the  expres- sion, to take care that no act of the Court in the course of the  whole of the proceedings does an injury to the  suitors in the Court."     This is also the principle underlying Section 144 of the Code of Civil Procedure. It is the duty of all the Courts as observed by the Privy Council "as aggregate of those  tribu- nals" to take care that no act of the court in the course of the  whole of the proceedings does an injury to the  suitors in  the Court. The above passage was quoted in the  majority judgment  of  this Court in A.R. Antulay  v.R.S.  Nayak  and Ors.,  [1988]  2 SCC 602 at 672. Mukherjee, J., as  he  then was, after referring to the said observation of Lord Cairns, said (at 672): "No  man should suffer because of the mistake of the  Court. No  man  should  suffer a wrong by  technical  procedure  of irregularities.  Rules  or procedures are the  handmaids  of justice  and  not  the mistress of the  justice.  Ex  debito justitiae,  we  must do justice to him. If a  man  has  been wronged  so  long as it lies within the human  machinery  of administration of justice that wrong must be remedied." 87     It is well to remember that the Code of Civil  Procedure is  a body of procedural law designed to facilitate  justice and  it should not be treated as an enactment providing  for punishments  and penalties. ’he laws of procedure should  be so construed as to render justice wherever reasonably possi- ble. It is in our opinion, not unreasonable to demand resti- tution from a person who has purchased the property in court auction  being aware of the pending appeal against  the  de- cree.     We  have carefully considered the evidence in the  case. The  judgment debtor who has been examined in the  case  has stated  that  the auction purchaser is a  sambandhi  of  the decree holder. ’the decree holder’s daughter has been  given in  marriage to the son of auction purchaser. That  evidence remains  unchallenged. The evidence further  indicates  that after the purchase both of them have entered into an  agree- ment  with  a  third party for sale of the  second  item  of properties  for Rs.96,000 and a case seems to be pending  on the  basis  of that agreement. The evidence  also  discloses that  the auction purchaser had no money of his own to  pur- chase  the property. These circumstances are  sufficient  to hold that the auction purchaser was not a bona fide purchas- er.The auction sale in his favour must, therefore, fall  for restitution.  ’he  Court cannot lend assistance for  him  to retain  the  property of the judgment-debtor who  has  since succeeded in getting rid of the unjust decree.     In the result the appeal is allowed, the judgment of the Division  Bench  of the High Court is reversed and  that  of learned  single Judge is restored. The appellants,  however, must  pay the costs of this appeal to the auction  purchaser which we quantify at Rs.5,000. R.S.S.                                                Appeal allowed. 88

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