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REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE JURISDICTION

CIVIL  APPEAL NOS. 3090-3092 OF  2008 (Arising out of SLP(C) Nos. 13494-13496/2007)

P.G. SHAJI ... APPELLANT(S) :VERSUS:

AMBIKA AND ANR. ... RESPONDENT(S)

O R D E R

1. Leave granted.

2. The auction purchaser is  before us aggrieved by and dissatisfied with the

Orders dated 9.2.2007, 12.2.2007 and 13.3.2007, passed by a learned Single Judge of

the High Court of Kerala at Ernakulam in Revision Petition No. 1005/2006. The said

orders were passed in the revision application filed by the first respondent herein in

Execution Application No. 685/03 filed in Execution Petition No. 77/99.

3. Respondent  No.2  filed  a  suit  against  the  respondent  No.1  for  specific

performance  of  contract.   The  said  suit  was  dismissed.  On  an  appeal  preferred

thereagainst,  the  Court  of   II  Additional  Subordinate  Judge,  Ernakulam,  by  its

judgment  and  order  dated  20th July,  1998  passed  in  A.S.  No.18/98,  set  aside  the

judgment and decree of the trial Court and allowed the plaintiff-appellant to recover

a sum of Rs. 50,000/- with interest at the rate of 12% per annum from 26.7.1996 to

19.7.1998, and 6% interest from 20.7.1998 till the date of realisation.  It was directed :

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“The appellant/plaintiff is also allowed to to recover the cost for

the lower court proceedings. The appellant/plaintiff is allowed

to charge decree amount in the plaint schedule property.”    

4. The  subject  matter  of  the  suit  was  5  cents  of  land.   Respondent  No.2  –

decree-holder filed the aforementioned execution petition. An application for selling

the said land in auction was filed. An objection thereto was taken by the respondent

No.1 – judgment debtor, contending that for execution of the said decree it was not

necessary  to  sell  the  entire  5  cents  of  land.   Upholding  the  said  contention,  the

executing Court directed sale of only 2 cents of land and an off set price was fixed at

Rs. 35,000/-.   

5. Appellant herein, in the auction conducted pursuant to the said direction of

the executing Court, purchased the land in question at the price of Rs. 1,10,000/-.  The

Judgment Debtor – Respondent No.2 herein, filed an application in terms of Order 21

Rule 90 of the Code of Civil Procedure (CPC), for setting aside the said auction sale.

The same was dismissed by an order dated 20.12.2003.   

6. It is not in dispute that the appellant deposited 25% of the auction amount in

August 2003 and deposited the balance amount on 7th September, 2003.  

7. By  reason  of  the  first  order  dated  9th February,  2007,  the  High  Court

directed:

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“Counsel for the petitioner submits that the petitioner is prepared to

deposit  the  entire  amount  due  to  the  auction  purchaser  before

12.4.07 and the sale be set aside on that condition so  that on failure

so to do the confirmation of sale ordered by the court below can be

upheld  and  the  CRP dismissed.  It  is  clearly  understood  that  the

amount payable to have the sale set aside will take in the bid amount

deposited  by  the  auction  purchaser  with  interest  at  10% thereon

from the date or dates on which the amount have been deposited till

date of actual payment, the  sale commission and the value of the

stamp paper produced by the auction purchaser to draft  the  sale

deed.

Counsel for the petitioner prays for a day's time to consult

his senior and report as to whether an order on the above lines can

be agreed to be passed on consent. Delivery in the meanwhile shall

stand adjourned to 13.2.07.”  

8. On the next date fixed, namely, 12.2.2007, the appellant herein expressed his

inability to agree to the said suggestions given by the High Court. By the second order

dated 12 February, 2007, it was directed:  

“It  is  submitted  by  the  counsel  for  the  second  respondent  that  the

second  respondent/auction  purchaser  is  not  amenable  for  the  sale

being set aside on the terms specified in the order dated 9.2.2007.

2. Heard the arguments of both sides.

3.  It  is  seen  from  the  objection  filed  by  the  judgment  debtor  on

18.10.1999 that  the contention of  the judgment debtor was that the

property that is sought to be brought to sale is having value of Rupees

one lakh per cent and that the total value of the property is Rupees five

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lakhs. Despite the said objection, the sale proclamation, on the basis of

which sale was conducted,  which is  dated 31.5.2003, shows that the

estimated price of the property shown by the decree holder for two

cents of property, from out of the said five cents, that was brought to

sale, is only Rupees seventy thousand, which works out only to Rupees

thirty five thousand per cent.  When the contention of the judgment

debtor is that the property is worth Rupees one lakh per cent, that also

should have been shown as the price, which, according to the judgment

debtor,  will  fetch  for  the  property  so  as  to  enable  the  intending

purchasers to assesses the value and take part in the auction. That has

not been done in the instant case.

4. It is contended by the second respondent / auction purchaser that he

bid the property for a total consideration of Rs. 1,10,000/-, viz., at the

rate of  Rupees fifty five thousand per cent,  which is more than the

estimated price, shown in the sale proclamation. The very fact that the

auction  purchaser  himself  was  prepared  to  bid  in  auction  at  Rs.

1,10,000/-,  when  the  estimated  cost  of  the  property  was  shown  as

Rupees seventy thousand only in the sale proclamation is suggestive

that the decree holder has brought the property to sale undervaluing it

and that is all the more a reason why the property should not have

been brought to auction without showing the price, as contended by

the judgment debtor as  well  in the sale  proclamation.  The material

irregularity  that has  crept  in the  matter of  auction vitiates  the sale

conducted.”   

9. A review application was filed thereagaisnt and by reason of the third order

dated 13.3.2007, it was directed:  

“Heard  counsel  for  the  review  petitioner/auction  purchaser,  the

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counsel  for  the  judgment  debtor  as  also  counsel  for  the  decree

holder.  

2. Counsel for the judgment debtor and the decree holder submit

that  there  is  no  objection  to  the  order  being  reviewed  and  the

request  of  the  petitioner  to  have  the  sale  set  aside  on  condition

specified in the order dated 9.2.2007 being brought into effect.”

10. Mr.  Deepak,  learned counsel  appearing on behalf  of  the appellant  would

submit  that  the  High  Court  manifestly  committed  an  error  in  passing  the

aforementioned  orders  in  so  far  as  it  failed  to  take  into  consideration  that  while

setting aside an auction sale, the Court should necessarily arrive at a finding that the

material irregularity and/or fraud or illegality had been committed in the matter of

holding an auction sale and it was furthermore shown that substantial prejudice was

caused to the judgment debtor.

11. It was also contended that in any view of the matter, having regard to the

provisions contained in Sub-rule 2 of Rule 89 of Order 21 of the CPC, an application

under sub-rule (3) of Rule 90 thereof shall not be maintainable unless and until the

application  filed  under Order 21 Rule  90 thereof  is  withdrawn.   Learned counsel

appears to be correct.   

12. The first and second impugned orders passed by the High Court did not take

into consideration the aforementioned contentions of the auction purchaser.  

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13. It is now a well settled principle of law that the Courts while setting aside an

auction  sale,  must  arrive  at  a  finding  that  illegality  and/or  irregularity  has  been

committed in the matter of conduct of auction sale.  It must also be held that thereby a

substantial injustice has been caused to the judgment debtor.

14. In  Saheb Khan vs.  Mohd.  Yusufuddin  and Ors.,  [2006 (4) SCC 476] this

Court held:  

“Therefore before the sale can be set aside merely establishing

a material  irregularity or  fraud will  not  do.  The applicant  must go

further and establish to the satisfaction of the court that the material

irregularity or fraud has resulted in substantial injury to the applicant.

Conversely  even  if  the  applicant  has  suffered  substantial  injury  by

reason of  the  sale,  this  would  not  be  sufficient  to  set  the  sale  aside

unless substantial injury has been occasioned by a material irregularity

or  fraud in publishing  or conducting  the  sale.  (See  Dhirendra Nath

Gorai  v.  Sudhir  Chandra  Ghosh,  (1994  (6)  SCR  1001);  Jaswantlal

Natvarlal Thakkar v. Sushilaben Manilal Dangarwala, (1991 Supp. (2)

SCC 691)  and Kadiyala Rama Rao v. Gutala Kahna Rao, (2000 (3)

SCC 87).”  

15. In Laxmikant Chhotelal Gupta and Ors. vs. State of Maharashtra and Ors.

[2007 (5) SCC 713], this Court opined:  

“Even when an auction takes place under orders of the competent civil

court,  the procedures laid  down in the Code of Civil  Procedure are

required to be complied with. Objections to the validity of sale at the

instance of one party or the other are required to be considered and

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determined.  Even  an appeal  lies  against  such  an order  in  terms of

Order 43 Rule 1(u) of the Code of Civil Procedure.”

16. The executing Court in its order dated 20th December, 2003 opined that the

sale of the property effected on 20.8.2003 in favour of the auction purchaser is not

liable to be set aside as no fraud or irregularity has been committed in the matter of

conduct of auction sale.  The revisional Court could interfere in the matter provided

the said findings were set aside.  By reason of the impugned judgment, the High Court

has not arrived at any such finding. As it appears from the order dated 9.2.2007, the

High  Court  proceeded  to  consider  the  prayer  made  by  respondent  No.1  -  the

judgment debtor as if it had filed an application in terms of order 21 Rule 89 of the

CPC  although  it  had  pressed  its  objections  under  Order  21  Rule  90  before  the

executing Court.           

17. In  the  event,  however,  the  High  Court  intended  to  grant  liberty  to  the

judgment debtor – respondent No.1 to make such an offer, it was obligatory on its

part to ensure due compliance of the provisions contained under order 21 Rule 89 of

CPC vis-a-vis order 21 Rule 90 of the CPC.

18. The High Court did not set aside the order passed by the Executing Court.

The  High  Court  without  assigning  any  reason,  whatsoever,  failed  to  take  into

consideration  the condition  precedent therefor  viz a  material  irregularity  that  has

crept in in the matter of auction sale, vitiated the sale conducted. It does not appear

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that conditions precedent required in terms of the provisions of order 21 Rule 89 of

the CPC were taken into consideration.  

19. Submissions of the learned counsel had not been noticed.  The order is not

supported by any reason.  No rationality in support thereof is apparent.

20. Appellant  sought  for  review of  the  order  dated 12.2.2007.   While  setting

aside the order dated 9.2.2007, it could not have been brought at naught automatically

at the instance of the judgment debtor and decree holder. Appellant herein having

deposited  the  entire  amount  in  terms  of  the  auction  sale  held  on  20.8.2003,  was

entitled to be heard by the High Court before an order of setting aside the auction sale

was passed.  We, therefore, are of the opinion that the impugned judgments cannot be

sustained and are to be set aside.   

21. For  the  reasons  aforementioned,  the  impugned  judgments  cannot  be

sustained, they are set aside accordingly and the matters are remitted to the High

Court for consideration of the application(s) filed by the aforesaid appellants afresh.  

22. The appeals are disposed of on the above terms. The costs of these appeals

shall abide by the costs of debt portion of the appellant.    

..........................J (S.B. SINHA)

..........................J   (LOKESHWAR SINGH PANTA)   

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NEW DELHI, APRIL 28, 2008.