The Entitlement of Auction Purchasers to Refund in India: A Comprehensive Legal Analysis

Introduction

Court-conducted auction sales are a critical component of the execution of decrees and orders in the Indian legal system. The process, however, is not without its complexities, particularly concerning the rights and remedies available to an auction purchaser if the sale is subsequently vitiated or if the property sold is encumbered or non-existent in terms of the judgment-debtor's title. This article undertakes a comprehensive analysis of the legal framework in India governing the refund of purchase money to auction purchasers. It examines the evolution of statutory provisions, primarily within the Code of Civil Procedure (CPC), 1908, and delves into judicial pronouncements that have shaped the contours of this area of law. The discussion will explore the grounds upon which a refund can be claimed, the procedural mechanisms involved, and the delicate balance courts attempt to strike between protecting bona fide purchasers and upholding the sanctity of execution proceedings.

Legislative Framework: From the Code of Civil Procedure 1882 to 1908 and Subsequent Amendments

The statutory basis for an auction purchaser's right to refund has undergone significant transformation, primarily marked by the transition from the Code of Civil Procedure, 1882, to the Code of Civil Procedure, 1908, and further refined by subsequent amendments.

Section 315 of the CPC, 1882: A Broader Scope for Refund

Under Section 315 of the CPC, 1882, an auction purchaser was explicitly entitled to receive back their purchase money not only when the sale was set aside but also "when it is found that the judgment-debtor had no saleable interest in the property which was purported to be sold, and the purchaser is for that reason deprived of it." This provision offered a relatively wider protection. The Madras High Court in V. Macha Koundan v. V.K Kottora Koundan (1935 SCC ONLINE MAD 449) extensively discussed this section, noting that it established a limited warranty regarding the judgment-debtor possessing some interest. The Allahabad High Court in Deputy Shankar (Decree-Holder) v. Mangal Sen And Another (Auction Purchasers) (Allahabad High Court, 1932) acknowledged that under the 1882 Code, the auction purchaser in that case would have been entitled to a refund on the ground of the judgment-debtor having no saleable interest.

Order XXI, Rules 91, 92, and 93 of the CPC, 1908: A Shift in Paradigm

The CPC, 1908, brought about a material alteration. Order XXI, Rule 91 allows a purchaser to apply to the Court to set aside the sale on the ground that the judgment-debtor had no saleable interest in the property sold. If such an application is allowed, Rule 92(2) mandates the Court to make an order setting aside the sale. Subsequently, Order XXI, Rule 93 provides for the return of purchase money to the purchaser if the sale is set aside under Rule 92. Crucially, the clause from Section 315 of the 1882 Code, which allowed refund merely "when it is found that the judgment-debtor had no saleable interest," was deliberately omitted. This omission has been interpreted by courts to mean that an auction purchaser cannot claim a refund solely on the ground of the judgment-debtor having no saleable interest unless the sale itself is set aside under Rule 92, typically initiated by an application under Rule 91 within the prescribed limitation period (Deputy Shankar, Allahabad High Court, 1932; Amal Chandra Banerjee v. Ram Swarop Agarwalla And Ors., Calcutta High Court, 1939). The Andhra Pradesh High Court in Yadavalli Suryakantamma & Another v. Maddipatla Dorayya & Another (Andhra Pradesh High Court, 1964) also concluded that under the 1908 Code, the purchaser's remedy for want of saleable interest is to have the sale set aside before it becomes absolute, and no separate suit lies for refund on this ground alone in the absence of fraud or misrepresentation.

The Impact of the 1976 Amendment to Order XXI, Rule 92

The Law Commission of India, in its reports, recommended changes to provide more comprehensive justice to auction purchasers. Consequently, the CPC (Amendment) Act 104 of 1976 inserted sub-rules (4) and (5) (originally proposed as (5) and (6)) into Order XXI, Rule 92. As noted by the Supreme Court in T. Vijendradas And Another v. M. Subramanian And Others (2007 SCC 8 751), citing the Law Commission's objectives, these amendments aimed to "do complete justice to the parties so as to enable the auction purchaser to get back the amount from the decree-holder and revive the execution proceedings." Sub-rule (4) clarifies that where a third party establishes title to the property in a suit against the auction purchaser (to which the decree-holder and judgment-debtor are parties), the Court may pass a decree directing the decree-holder to refund the purchase money. Sub-rule (5) provides that if such a decree for refund is passed, the execution proceedings in which the sale was held shall be revived. The Kerala High Court in K. Balan v. State Bank Of India (Kerala High Court, 2011) also elaborated on these amendments and the Law Commission's intent.

Grounds for Claiming Refund by Auction Purchasers

An auction purchaser may be entitled to a refund of the purchase money under various circumstances, as delineated by statutory provisions and judicial interpretations.

Setting Aside of Sale under Order XXI, CPC

The most straightforward path to a refund is when the auction sale is set aside by the executing court under the provisions of Order XXI of the CPC.

Irregularity or Fraud in Publication or Conduct of Sale (Rule 90)

If an auction sale is set aside under Order XXI, Rule 90 due to material irregularity or fraud in publishing or conducting the sale, which has caused substantial injury to the applicant, the purchaser is entitled to a refund under Rule 93. The Supreme Court in Ambati Narasayya v. M. Subba Rao And Another (1989 SUPP SCC 2 693) deprecated the tendency of courts to sell entire properties without considering if a smaller portion would suffice to satisfy the decree, holding such sales to be illegal and without jurisdiction, implying that such a sale, if set aside, would lead to a refund.

Judgment-Debtor Having No Saleable Interest (Rule 91)

As discussed, Order XXI, Rule 91 allows the purchaser to apply for setting aside the sale if the judgment-debtor had no saleable interest. If the sale is set aside on this ground under Rule 92(2), Rule 93 mandates the refund of purchase money (Amal Chandra Banerjee, Calcutta High Court, 1939).

Deposit by Judgment-Debtor or Interested Person (Rule 89)

If the sale is set aside under Order XXI, Rule 89 upon deposit of the decretal amount plus a percentage for the purchaser, the purchaser is entitled to receive back the purchase money paid by them, along with the specified percentage.

The Conundrum of "No Saleable Interest" Post-Confirmation

The position becomes complex if the lack of saleable interest is discovered after the sale has been confirmed under Order XXI, Rule 92(1). The general view, following the deliberate omission in the 1908 Code, is that a separate suit for refund merely on the ground of "no saleable interest" is not maintainable if the sale has been confirmed and not set aside under Rule 91 (Deputy Shankar, Allahabad High Court, 1932; Yadavalli Suryakantamma, Andhra Pradesh High Court, 1964). However, the 1976 amendment inserting sub-rule (4) to Rule 92 provides a mechanism where, if a third party establishes title in a subsequent suit, the court can direct the decree-holder to refund the money to the auction-purchaser (T. Vijendradas And Another v. M. Subramanian And Others, 2007 SCC 8 751).

Fraud, Misrepresentation, or Equivocal Conduct by the Decree-Holder

Courts have consistently held that if the auction purchaser was induced to purchase the property due to fraud or misrepresentation by the decree-holder, a right to refund may arise, often through a separate suit based on equitable principles. The Allahabad High Court in Deputy Shankar (Allahabad High Court, 1932) noted that an auction-purchaser might obtain a refund by establishing fraud or breach of duty by the decree-holder. Similarly, the Rajasthan High Court in Thakarlal v. Smt. Rama (Rajasthan High Court, 1960) observed that if the decree-holder perpetrates fraud, the auction purchaser would have an independent right of action to recover the purchase money. The Andhra Pradesh High Court in Yadavalli Suryakantamma (Andhra Pradesh High Court, 1964) affirmed that the right to recover auction price in cases of fraud or misrepresentation stands on a different footing and such sales fall within the principles of the Indian Contract Act, 1872.

Failure of Consideration and Restitution under Contract Law (Section 65, Indian Contract Act, 1872)

Section 65 of the Indian Contract Act, 1872, provides for the restoration of any advantage received under an agreement discovered to be void or a contract that becomes void. This principle has been applied to auction sales. In Shaik Janimiya v. State Bank of India (Telangana High Court, 2020), where a court-monitored auction sale failed for reasons beyond the control of the parties and possession could not be delivered, the Supreme Court (in the cited case of Committee-Gfil v. Libra Buildtech (P) Ltd. (2015) 16 SCC 31) directed refund of the sale consideration and stamp duty under Section 65 of the Contract Act.

Non-Delivery of Possession

If, after the auction sale and deposit of money, the auction purchaser is not put in possession of the property, they may be entitled to a refund. The Debts Recovery Appellate Tribunal in CENTRAL BANK OF INDIA v. HOWRAH LIGHT STEEL CASTING (DRAT, 2023) held that when possession was not delivered to the auction purchaser, he is entitled to refund of the amount deposited by him along with interest. The Supreme Court in State Of Uttar Pradesh And Others v. Jaswant Sugar Mills Limited And Others (2014 SCC 16 760) also noted a case where an auction sale was cancelled and the High Court directed refund to the auction purchasers.

Procedural Mechanisms for Seeking Refund

Application to the Executing Court (Order XXI, Rule 93; Section 47, CPC)

Order XXI, Rule 93 CPC is the primary provision for seeking return of purchase money when a sale is set aside under Rule 92. Such matters, being related to the execution, discharge, or satisfaction of the decree, can often be determined by the executing court under Section 47, CPC. The Madras High Court in V. Macha Koundan v. V.K Kottora Koundan (1935 SCC ONLINE MAD 449), while dealing with the old Code, discussed whether the remedy was by application in execution or by a regular suit, and ultimately affirmed the refund ordered on an application. The Calcutta High Court in Amal Chandra Banerjee (Calcutta High Court, 1939) stated that the purchaser's remedy for refund (on the ground of no saleable interest) is by an application under Rule 91, followed by an application under Rule 93.

The Viability of a Separate Suit

While the CPC provides for applications in execution, a separate suit may be maintainable in certain circumstances, particularly in cases of fraud by the decree-holder (Thakarlal, Rajasthan High Court, 1960; Yadavalli Suryakantamma, Andhra Pradesh High Court, 1964) or where the specific remedies under Order XXI are not applicable. The 1976 amendment adding sub-rule (4) to Order XXI, Rule 92, explicitly contemplates a suit by a third party leading to a decree for refund against the decree-holder (T. Vijendradas And Another v. M. Subramanian And Others, 2007 SCC 8 751).

Limitation for Applications

An application under Order XXI, Rule 91 to set aside the sale on the ground that the judgment-debtor had no saleable interest must be made within thirty days from the date of the sale, as per Article 166 of the Schedule to the Limitation Act, 1908 (now Article 127 of the Limitation Act, 1963, which prescribes 60 days). An application for refund under Rule 93, following the setting aside of the sale, would generally be governed by the residuary Article 181 of the old Limitation Act (now Article 137 of the Limitation Act, 1963, prescribing three years from when the right to apply accrues) (Amal Chandra Banerjee, Calcutta High Court, 1939).

Judicial Scrutiny of Auction Purchaser's Rights and Decree-Holder's Liabilities

The Principle of Caveat Emptor in Court Auctions

The principle of caveat emptor (let the buyer beware) has often been invoked in the context of court auctions. It implies that the auction purchaser buys the property with all its risks and defects in title. The Rajasthan High Court in Thakarlal v. Smt. Rama (Rajasthan High Court, 1960) observed that an auction purchaser "knows that no one guarantees to him that the judgment-debtor has a good title and he purchases the property with his eyes open and regulates the price which he bids...with reference to the circumstances under which he is purchasing and the risk he runs." However, this principle is not absolute and can be displaced by fraud, misrepresentation, or specific statutory rights to refund.

Protection of Bona Fide Purchasers: The Effect of Sale Confirmation

Once an execution sale is confirmed under Order XXI, Rule 92(1), it becomes absolute, and a sale certificate is issued. The law generally seeks to protect bona fide purchasers at court auctions to ensure confidence in such sales. The Supreme Court in Janak Raj v. Gurdial Singh And Another (1967 AIR SC 608) held that a sale of immovable property in execution of an ex parte decree should be confirmed under Order XXI, Rule 92, even if the ex parte decree is subsequently set aside, provided the purchaser is a bona fide purchaser and not the decree-holder himself. This protects the purchaser from the consequences of the decree being reversed post-confirmation, unless the sale itself is vitiated by fraud or irregularity in its conduct or publication.

Liability for Pre-Existing Encumbrances and Statutory Dues

Generally, an auction purchaser takes the property subject to existing encumbrances, unless the sale proclamation specifies otherwise. However, regarding statutory charges like municipal taxes, the Supreme Court in Ahmedabad Municipal Corporation Of The City Of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai (1971 SCC 1 757) held that an auction purchaser is not liable for arrears of municipal taxes which are a statutory charge on the property if the purchaser had no actual or constructive notice of such arrears. The Court emphasized the protection afforded by Section 100 of the Transfer of Property Act, 1882, to purchasers without notice.

Restitution upon Reversal or Modification of Decree

The principle of restitution, embodied in Section 144 of the CPC, requires that on the reversal or modification of a decree, the parties should be restored to the position they would have occupied but for such decree or such part thereof as has been varied or reversed. In Gurjoginder Singh v. Jaswant Kaur (Smt) And Another (1994 SCC 2 368), the Supreme Court applied the principle that when a decree is set aside, the party who gained under it is bound to restore to the other party what was gained. This principle can extend to auction purchasers in certain contexts. For instance, in Sukhdeo Dass And Others v. Rito Singh Opposite Party (1917 SCC ONLINE PAT 216), where an order setting aside a sale was reversed on appeal and the sale confirmed, the executing court was held justified in calling upon the auction purchaser (who had withdrawn the purchase money in the interim) to refund it, invoking inherent powers under Section 151 CPC if Section 144 was not strictly applicable.

Special Considerations

Refund of Stamp Duty

Where an auction sale fails and the transaction is cancelled, the question of refund of stamp duty paid by the auction purchaser arises. In Shaik Janimiya v. State Bank of India (Telangana High Court, 2020), citing the Supreme Court, it was held that where a sale could not be concluded for reasons beyond the control of parties, the purchasers were entitled under Section 65 of the Contract Act to a refund of the stamp duty from the State Government, in addition to the sale consideration from the seller.

Forfeiture of Deposit for Default by Auction Purchaser

Order XXI, Rule 86 of the CPC provides that if the purchaser fails to pay the full purchase money within the stipulated time after paying the initial deposit (Rule 84), the deposit may, if the Court thinks fit, be forfeited to the Government, and the property shall be resold. The State Consumer Disputes Redressal Commission in Sh. Santosh Jeevan Sharma. v. Sh. Rakesh Kumar. & Ors. (SCDRC, 2019) noted the shift from the mandatory forfeiture under the 1882 Code to a discretionary power of the court under the 1908 Code ("may forfeit"). If the auction purchaser fails to deposit the balance auction price within the prescribed period, the sale can become void and unenforceable (SMT. ZUBEDA W/O ABDUL RAZAK @ RAJAKSAB SHEIKH v. SRI. HAJI MALANG S/O ABDUL RAZAK @ RAJAKSAB AND ORS, Karnataka High Court, 2024).

The brief extract from Athianna Gounder And Another v. Kumaraswamy (Now Deceased) And R. Natarajan And Others (Madras High Court, 1997) simply states, "The auction-purchaser is permitted to withdraw the amount deposited in Court," indicating a scenario where refund was allowed, though the specific context is not detailed in the provided material.

Conclusion

The law governing the refund of purchase money to auction purchasers in India is a nuanced interplay of statutory provisions, primarily within the Code of Civil Procedure, 1908, and their interpretation by the judiciary. While the 1908 Code, compared to its 1882 predecessor, narrowed the grounds for automatic refund, particularly concerning the judgment-debtor's lack of saleable interest discovered post-confirmation, subsequent amendments (notably in 1976) and judicial pronouncements have sought to ensure fairness and provide remedies to aggrieved auction purchasers, especially in cases of fraud, misrepresentation, or where sales are duly set aside. The principles of restitution and provisions of the Indian Contract Act, 1872, also play a role in ensuring that an auction purchaser is not unduly prejudiced by a failed transaction. The legal framework endeavors to balance the need for finality in execution sales and the protection of bona fide purchasers against the imperative of preventing unjust enrichment and rectifying substantive defects in the sale process.