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K.V Antony v. Catholic Syrian Bank Ltd. .

Kerala High Court

Jul 20, 1994

Judgment

Subsequent
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Summarized Legal Opinion — Thomas, J.

Factual and Procedural Background

The decree-holder bank caused the appellant's mortgaged property to be sold in execution of a mortgage decree. The sale took place on 15-11-1989. In the absence of other bidders, the decree-holder purchased the property for the amount of the decree debt due to them. The appellant applied to set aside the sale. The execution court dismissed that application, and the appellant appealed the dismissal. The present opinion is the appellate court's consideration of that appeal.

Legal Issues Presented

Whether the sale should be set aside on the ground of alleged gross under-valuation of the property sold.
Whether the sale was illegal because the court did not fix a reserve price as required by Order 21, Rule 72A(2) of the Code of Civil Procedure.
Whether non-compliance with the mandatory language of Rule 72A (to fix a reserve price) necessarily renders the sale a nullity, or whether the sale can be set aside only if the applicant proves substantial injury under Order 21, Rule 90.

Arguments of the Parties

Appellant's Arguments

The property was grossly under-valued at the sale, implying the auction price was substantially lower than its true value.
The sale was illegal because the court failed to fix a reserve price for the mortgagee as mandated by Order 21, Rule 72A(2) of the Code of Civil Procedure.

Decree-holder / Court-sale Related Facts (as presented)

The sale had been duly proclaimed.
On earlier scheduled sale dates, postponements happened at the appellant's instance, and on those occasions the appellant signed written consents waiving the need for fresh proclamation.
The decree-holder applied for and obtained leave to bid on 05-08-1989, and subsequently purchased the property at the auction held on 15-11-1989.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mohammed Abdulla v. Sakharam, AIR 1930 Bombay 290	That sale under a rule similar to Rule 72A for an amount smaller than the amount due under the mortgage is a material irregularity vitiating the sale.	The court cited this decision as part of the historical background for insertion of Rule 72A, showing past judicial treatment of similar provisions and demonstrating legislative concern to protect the mortgagor.
P. Rami Reddy v. P. Sundara Rama Reddy, AIR 1986 Andh Pra 29	Emphasizes the mandatory character of the duty cast on the court by Rule 72A (i.e., that the court must fix a reserve price when leave to bid is granted).	The opinion relied on the observation to support the view that Rule 72A imposes a mandatory duty on the court to fix a reserve price when leave to bid is granted to the mortgagee.
Ashutosh Sikdar v. Behari Lal, (1908) ILR 35 Calcutta 61	Distinction between an "irregularity" and a "nullity" — irregularity deviates from a rule but does not destroy foundation; nullity is essentially void.	The court quoted this passage to explain that failure to comply with a mandatory formality may amount to either an irregularity or a nullity, and the distinction depends on the nature and object of the provision.
Dhirendra Nath v. Sudhir Chandra, AIR 1964 SC 1300	Endorses the irregularity/nullity distinction and illustrates that non-compliance with a mandatory provision does not automatically invalidate a sale if the benefiting party did not object before sale.	The court relied on this case to show that even where a provision is treated as mandatory, non-compliance may not be sufficient to set aside a sale if the party for whose benefit the provision exists did not raise objection in time.
Holmes v. Russel, (1941) 9 Dowl 487	Pragmatic test: whether an objection can be waived — if waivable, it's an irregularity; if not, it's a nullity.	The court invoked this test (as quoted in later cases) to determine whether Rule 72A's non-compliance could be waived by the mortgagor or would render the sale void.
Desh Bandhu Gupta v. N.L. Anand & Rajinder Singh, (1994) 1 SCC 131	Interpretation of Order 21, Rule 90(3) as a "caveat emptor" requiring judgment-debtors to raise pre-sale objections in time; late objections may be barred.	The court applied this authority to stress that the appellant should have raised objections before the proclamation or sale and that failure to do so weighs against setting aside the sale.
Jaswantlal Natwarlal Thakkar v. Sushilaben Manilal Dangarwala, AIR 1991 SC 770	Requires the party seeking to set aside a sale to prove by evidence that substantial injury was caused by the non-compliance.	The opinion relied on this decision to emphasize that without demonstrable substantial injury, a court should not ordinarily set aside a sale even when procedural formalities are not fully complied with.

Court's Reasoning and Analysis

The court approached the matter in stages:

On the under-valuation ground, the court noted that the appellant produced no evidence to show that the property's value at the date of sale would have been substantially higher than the bid amount. In the absence of any material proving substantial undervaluation, this ground failed.
On the Rule 72A point, the court set out the text of Rule 72A and discussed its background and purpose. It explained that Rule 72A was introduced against the backdrop of perceived risks where a decree-holder purchasing at his own sale could discourage other bidders and obtain a lower price, and that the legislative objective behind Rule 72A is to safeguard the mortgagor's interests.
The court interpreted the language of Rule 72A(2) as mandatory in stating that "then the Court shall fix a reserve price as regards the mortgagee" when leave to bid is granted. It observed that the phrase "unless the Court otherwise directs" does not negate the mandatory requirement to fix a reserve price; rather, it relates to the quantum of the reserve price.
The court examined the consequences of non-compliance with a mandatory provision. Citing authorities, the court explained the established distinction between an irregularity and a nullity and applied the pragmatic test of whether the affected party could waive the objection. It noted that whether non-compliance renders an action void depends on the nature, scope and object of the provision.
The court then turned to statutory constraints and safeguards: Rule 90(1) permits an affected person to apply to set aside a sale for a material irregularity or fraud, but Rule 90(2) mandates that no sale shall be set aside for irregularity/fraud unless the court is satisfied that the applicant has sustained substantial injury as a result. Rule 90(3) bars entertaining applications based on grounds that could have been taken before the proclamation of sale.
Applying these principles to the facts, the court observed that the appellant had not raised the objection before the sale despite being an active participant in proceedings and in fact had previously waived fresh proclamation in writing. Further, the appellant failed to prove that the non-compliance caused any substantial injury. Given these facts and the binding authorities emphasizing proof of substantial injury, the court concluded that non-compliance with Rule 72A did not warrant setting aside the sale in this case.

Holding and Implications

Holding: The court UPHELD the decision of the learned Sub-Judge and DISMISSED the appellant's appeal. The appellate court expressly affirmed the dismissal of the application to set aside the sale.

Implications: - Direct effect: The sale executed on 15-11-1989 and the decree-holder's purchase stand confirmed; the appellant's application to set aside the sale was unsuccessful. - The opinion emphasizes that failure to comply with Rule 72A (to fix a reserve price) does not automatically render a sale void; the applicant must show substantial injury and must ordinarily raise pre-sale objections in time as required by Order 21, Rule 90(2) and Rule 90(3). - The court did not purport to lay down a new legal principle beyond its application of established authorities; it applied existing tests (irregularity vs nullity, requirement of substantial injury, and the requirement to raise objections timely) to the facts and dismissed the appeal.

Appeal dismissed.

Show all summary ...

Thomas, J.:— Decree-holder-bank brought the property of the appellant to sale in execution of a mortgage decree. Sale was conducted on 15-11-1989. The decree-holder purchased the property, in the absence of other bidders, for the decree debt due them. Appellant moved for setting aside the sale, but the execution Court dismissed it as per the impugned order.

2. Among the grounds taken up by the appellant, he pressed two of them into service here. First is that there was gross under-valuation of the properties sold. Second is that the sale is illegal inasmuch as the Court did not fix a reserve price as regards the mortgage as provided in Order 21, Rule 72-A(2) of the Code of Civil Procedure (for short ‘the Code’).

3. Regarding the first ground, appellant has not adduced any evidence. There is no material to show that the value of the property would have been substantially higher than the bid amount as on the date of sale.

4. For considering the second contention it has to be mentioned that the sale was duly proclaimed and on earlier occasions when sale was to take place it was postponed at the instance of the appellant and on all such occasions he signified in writing his consent to waive the requirement for fresh proclamation. Decree-holder applied for leave to bid in auction and such leave was granted on 5-8-1989.

5. Order 21, Rule 72A of the Code reads thus:

“72A. Mortgagee not to bid at the sale without the leave of the Court.-(1) Not withstanding anything contained in Rule 72, a mortgagee of immovable property shall not bid for or purchase property sold in execution of a decree on the mortgage unless the Court grants him leave to bid for or purchase the property.

(2) If leave to bid is granted to such mortgagee, then the Court shall fix a reserve price as regards the mortgagee, and unless the Court otherwise directs, the reserve price shall be—

(a) not less than the amount then due for principal, interest and costs in respect of the mortgage if the property is sold in one lot; and

(b) in the case of any property sold in lots, not less than such sum as shall appear to the Court to be properly attibutable to each lot in relation to the amount then due for principal, interest and costs on the mortgage.

(3) In other respects, the provisions of sub-rules (2) and (3) of Rule 72 shall apply in relation to purchase by the decree-holder under that rule.”

6. The backdrop of this new rule may throw some light, and hence we would have a glimpse on it. The preceding rule i.e, Rule 72 of the Code, contains an interdict against a decree-holder that he shall not bid or purchase the property “without express permission of the court”. It also provides for the situation where decree-holder bids or purchases the property with such permission. In such a situation the purchase money and the amount due on the decree would be set off against each other. The court would then enter up satisfaction of the decree. If a decree-holder happened to purchase the proper, without such permission sub-rule (3) confers a discretion on the court to set aside the safenet an application filed in that behalf.

7. When Rule 72 remained like it, Law Commission pointed out in its 34th Report that “the decree-holder, if interested in purchasing the property himself, can, conceivably, keep back or discourage (or even mislead) prospective purchasers and though, ordinarily, the fetching of a higher purchase price would be in his interest, it should not be forgotten that when he is the purchaser this consideration takes leave and he would like the price to be low”. Law Commission thereupon recommended that a provision like Rule 72A may be added. A similar provision was earlier inserted by the High Court of Bombay in exercise of its rule making powers. A Division Bench of the Bombay High Court then held that sale of the property under Rule 72A for an amount smaller than the amount due under the mortgage in contravention of Rule 72A is a material irregularity vitiating the sale (vide Mohammed Abdulla v. Sakharam, AIR 1930 Bombay 290). Thus, the present Rule 72A has been included.

8. Need to fix a reserve price as regards the mortgage would arise only when leave to bid is granted to the mortgagee. If the mortgagee and the decree-holder are one and the same person a leave obtained under Order 21, Rule 72(1) will be good enough under this rule as well and no separate leave is necessary. If the decree-holder is a mortgagee and when leave is granted by the court, the legislative requirement is that “then the court shall fix a reserve price as regards the mortgage”. The language employed in the sub-rule appears to convey the legislative message that the provision is mandatory that the court has to fix the reserve price in such a situation. The words “unless the court otherwise directs” do not whittle down the mandate that “then the courts shall fix”. The former words are intended to cover the clauses which follow thereafter and such clauses relate to the quantum of reserve price to be fixed.

9. The above view gains support from the observations made by K. Ramaswamy, J. (as he then was) in P. Rami Reddy v. P. Sundara Rama Reddy, AIR 1986 Andh Pra 29. “The language couched in R. 72A appears to emphasise the mandatory character of the duty cast on the court”. Learned Judge pointed out that the legislature intended to relieve the mortgager from all the liabilities Incurred under the mortgage and to nip in the bud the incurable tendency on the part of the decree holder to take undue advantage of the court sale by purchasing the property at a lower price.

10. Now the question is, what is the consequence of non-compliance of the aforesaid mandatory provision. Would its non-compliance entail a quash of the sale. To decide this, the object of incorporation of the provision cannot be overlooked. We pointed out earlier the background. From it we can discern that the purpose of incorporating such a rider is to safeguard the interest of the morgager. If the mortgager is the judgment debtor, it is open to him to waive the right so granted. In this context we notice that the application to set aside the sale can be filed under Rule 90 of Order 21. Sub-rule (1) enable the affected person to apply to set aside the sale on the ground of “a material irregularity” or fraud in publication of conducting a sale.

11. But sub-rule (2) contains a restriction which also is couched in a mandatory tone. It reads thus: “No sale shall be set aside on the ground of irregularity or fraud in publishing or conducting it unless, upon the facts proved, the court is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud.”

12. Non-compliance with any particular formality, even if it is mandatory, need not necesarily follow that the resultant action is a nullity. In Ashutosh Sikdar v. Behari Lal, (1908) ILR 35 Calcutta 61 Justice Mookerjee, J. has observed thus: “No hard and fast line can be drawn between a nullity and an irregularity, but this much is clear, that an irregulrity is a deviation from a rule of law which does not taken away the foundation or authority for the proceedings, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it or is so essentially defective as to be of avail or effect whatever, or is void and incapable of being validated”. The aforesaid passage was quoted with approval by the Supreme Court in Dhirendra Nath v. Sudhir Chandra, AIR 1964 SC 1300.

13. Whether non-compliance with a provision would render the resultant action a nullity depends on the nature, scope and object of the particular provision. Justice Coleridge had evolved a pragmatic test in this regard in Holmes v. Russel, (1941) 9 Dowl 487. “It is difficult sometimes to distinguish between an irregularity and a nullity, but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection. If he can waive it, it amounts to an irregulatiry. If he cannot, it is a nullity”.

14. Quoting the aforesaid passage, Subba Rao, J. (as he then was) has stated in Dhirendra Nath's case (AIR 1964 SC 1300) (cited supra) that “a waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction cannot be waived, for, consent cannot give a court jurisdiction where there is none”. In that case, a court sale was sought to be set aside on the ground that it was conducted without complying with the requirements in Section 35 of the Bengal Money Lenders Act, 1940. Supreme Court found that Section 35 is a mandatory provision (or assumed it to be so) and then held that its non-compliance would not be sufficient to set aside the sale as the party for whose benefit the provision was incorporated did not raise any objection before the sale was held.

15. Rule 90(3) of Order 21 contains yet another interdict against setting aside a court sale. It is in the following language: “No application to set aside a sale under this rule shall be entertained upon any ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up”. This provision was brought in the Code only in 1976, and the object is to make the judgment-debtor to be more circumspect and to inform the court, right in time, of his objections. If he omits to do so without satisfactory cause, he cannot be heard to say on such objections subsequently. In Desh Bandhu Gupta v. N.L Anand & Rajinder Singh, (1994) 1 SCC 131 : (1993 AIR SCW 3458, Para 15) Supreme Court has observed that Rule 90(3) is like a “caveat emptor” that the judgment-debtor be vigilant and watchful to vindicate pre-sale illegalities or material irregularities. “He should not stand by to procrastinate the execution proceedings. If he so does, Rule 90(3) forewarns him that he pays penalty for obduracy and contumacy.”

16. Here the appellant did not raise the present objection at any time before sale was held though he was participating in the proceedings. That apart, how the non-compliance has caused any injury, much less substantial injury, to the appellant is not established by him. In Jaswantlal Natwarlal Thakkar v. Sushilaben Manilal Dangarwala, AIR 1991 SC 770 Supreme Court pointed out that the party who seeks to set aside the sale must prove by adducing evidence that substantial injury has been caused to him as a result of non-compliance with the provision contained in Order 21, Rule 72. Leave to bid the lie is a condition precedent for a decree-holder to purchase the property in a court sale as indicated in Rule 72(1) of the Code. Court is given a discretion to set aside the sale, as provided in sub-rule (3) where the purchase was made by the decree-holder without such leave. It must be remembered that even in such a case Supreme Court pointed out that without showing substantial injury no such sale shall be set aside. In other words, courts are not to set aside a sale ordinarily and unless the applicant satisfies the court that he sustained (or would sustain) substantial loss or injury, the court is not obliged to look back for considering whether all formalities have been duly complied with in conducting the sale.

For the foresaid reasons, we uphold the decision of the learned Sub-Judge and dismiss this appeal.