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Case Number

Second Appeal No. 1074 of 1943.

Attorney(S)

Mr. V. Subramaniam for Appt.
Mr. V. Parthasarathi for Respts.

Judges

Somayya, J.

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

Two sets (six items in total; five of those covered by the same mortgage) of properties were purchased by the plaintiff at a Court auction held in execution of a money decree obtained by the second defendant's father against one Nagi Reddi. The sale memorandum recorded, under "Details of encumbrances to which the property is liable," a registered mortgage deed dated 22 June 1930 and noted that the mortgage was alleged to be a fraudulent transaction not supported by consideration.

On the date of the Court sale (7 May 1934) the mortgagee had already instituted suit O.S No. 108 of 1934; therefore the plaintiff's purchase was subject to lis pendens and to the outcome of that mortgage suit. The plaintiff did not implead himself in the mortgage suit or seek redemption. A decree was later obtained in the mortgage suit, the properties were sold in execution of that decree, and the mortgagee purchased them at that sale.

The plaintiff then sued both the mortgagee (first defendant) and the decree-holder (second defendant). Against the first defendant (the mortgagee / Court auction purchaser) the plaintiff sought a declaration that the mortgage was collusive and unsupported by consideration; the trial Court found the mortgage was not collusive and refused relief against the first defendant. Against the second defendant (the decree-holder whose decree led to the subsequent sale), the plaintiff sought recovery of the purchase money paid at the Court sale on the ground that the plaintiff lost the properties which had been brought to sale at the second defendant's instance. The trial Court granted a decree in favour of the plaintiff against the second defendant; the lower appellate Court reversed that decree. This judgment arises from the second appeal. Although both defendants are respondents in the second appeal, relief is claimed only against the first respondent (who was the second defendant at trial).

Legal Issues Presented

Whether the Full Bench decision in Machan Goundan v. Kuttara Koundan governs the present facts and entitles the auction purchaser to recover the purchase money where he subsequently loses the property because the judgment-debtor had no title (or because of an encumbrance proved valid after sale).
Whether an auction purchaser who bought property at a Court sale that was subject to a pending mortgage suit (lis pendens) and who obtained some interest (an equity of redemption) at the sale can recover the purchase money after later losing the property in execution of that mortgage decree.
Whether the auction purchaser had a duty to protect his interest by impleading himself in the prior mortgage suit and seeking redemption, and what consequence flows from his failure to do so.

Arguments of the Parties

Appellant's (Plaintiff's) Arguments

Mr. V. Subramaniam, learned Advocate for the appellant, argued that the Full Bench decision in Machan Goundan v. Kuttara Koundan directly covered this case and therefore the appellant was entitled to recover the purchase money.
The appellant's counsel asserted that the appellant lost all the properties he purchased at the Court sale (five items covered by the mortgage sold as a single lot, and the remaining item lost due to a claim by a third party) and therefore was entitled to a refund of the bid amount.

Respondents' Positions (as reflected in the opinion)

The trial Court and evidence supported the conclusion that the mortgage was not collusive and was supported by consideration; accordingly no relief was granted against the first defendant (the mortgagee purchaser at the subsequent sale).
It is recorded that, at the time of the Court sale, the decree-holder described the mortgage as collusive and unsupported by consideration, but that statement was only an assertion pending the mortgage suit.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Machan Goundan v. Kuttara Koundan (Full Bench)	Held that an auction purchaser who loses property because the judgment-debtor had no title at the date of the Court sale (discovered after confirmation) may sue for recovery of the purchase money; Code of 1882 had provided a remedy later omitted in Code of 1908; remedy under O.21, R.91 C.P.C. is available only if want of title discovered before confirmation.	The Court distinguished this case from Machan Goundan: here the judgment-debtor had an equity of redemption (some interest) at the date of the sale, so the Full Bench principle (limited to cases where the judgment-debtor had no title at all at the time of sale) does not apply and should not be extended.
Decision of Chandrasekhara Aiyar, J. in S.As Nos. 462 and 650 of 1943	Recognised that where only a portion of the property sold was not the judgment-debtor's (partial failure of title), the auction purchaser may recover a proportionate part of the price paid; distinguished from cases of total failure of title.	The Court relied on this decision to show that recovery may be appropriate where there is a partial failure of title and treated the present case as falling within the exception recognised by that Judge.
App. No. 90 of 1942 (decision of this Court)	Discussed weighty considerations for reconsidering the Full Bench decision (specifics not detailed in the present opinion).	The Court noted these considerations but expressly held that the Full Bench principle must not be extended beyond cases where the judgment-debtor had no interest at the time of the Court auction.
Izatunnissa Begum v. Pertab Singh (Judicial Committee)	Where property was sold expressly subject to a mortgage and it later turned out that the mortgage was unenforceable, and the purchaser got the property free of that encumbrance, the purchaser cannot be ordered to pay the amount of the mortgage.	The Court applied the principle by analogy: conversely, where the purchaser buys believing the mortgage may be collusive but it turns out to be valid and supported by consideration, the purchaser must bear the loss. The Court found no substantive distinction between that decision and the present facts.

Court's Reasoning and Analysis

The Court proceeded through the following analytical steps, sticking to the facts and earlier authorities cited in the record:

The Court observed that on the date of the plaintiff's purchase the mortgagee had already filed suit (O.S No. 108 of 1934), so the auction sale was subject to lis pendens and to the result of that mortgage suit. Because the plaintiff did not intervene in that suit or seek redemption, he ran the risk of losing the property if the mortgage suit succeeded.
The Court emphasised the duty of an auction purchaser to protect his interest by impleading himself in pending litigation affecting title; failure to do so meant the purchaser lost his practical opportunity to contest the later mortgage proceedings.
The Court analysed the Full Bench decision in Machan Goundan v. Kuttara Koundan and found that the Full Bench addressed a different factual matrix: there the judgment-debtor had no title at all at the date of the sale and that defect was discovered after confirmation; the Full Bench permitted a suit for recovery of purchase money in that specific circumstance.
In the present case the judgment-debtor had an equity of redemption at the time of the sale (i.e., some interest passed to the plaintiff). There was no allegation in the plaint that on the date of the sale the property's real value did not exceed the amount due under the mortgage and costs. The fact that at the later mortgage sale there was no surplus did not prove that the property lacked value beyond the mortgage at the earlier sale date.
The Court reasoned that the purchaser bought with notice of the mortgage (the sale book recorded the mortgage and its alleged status) and therefore purchased "with his eyes open" — accepting the risk that the mortgage action might ultimately be found to be valid and supported by consideration.
The Court accepted the distinction drawn by Chandrasekhara Aiyar, J., that where only a portion of the property is not the judgment-debtor's, proportionate recovery may be appropriate. The present case, however, involved an auction purchaser who obtained some interest (equity of redemption) and thus did not fall within the Full Bench scenario of complete absence of title at the date of sale.
Drawing on Izatunnissa Begum v. Pertab Singh, the Court held that where a purchaser benefits from the unenforceability of an encumbrance (being freed of it), he need not be charged with that encumbrance; conversely, where a purchaser buys subject to an asserted but unproven encumbrance (alleged to be collusive) and it is later held valid, the purchaser must bear the loss. The Court saw no material distinction to justify applying Machan Goundan to the present facts.
The Court therefore declined to extend the Full Bench principle beyond its proper factual limits and concluded that the plaintiff was not entitled to recover the purchase money in these circumstances.

Holding and Implications

DISMISSED. The second appeal is dismissed.

Consequences and immediate effects:

The appeal is dismissed and the plaintiff's claim for recovery of the purchase money (in the circumstances described) is refused by this Court.
The Court ordered that the parties are to bear their own costs in the second appeal.
The Court limited the scope of the Full Bench decision in Machan Goundan v. Kuttara Koundan: it should be applied only where the judgment-debtor had no interest at all at the time of the Court auction, and should not be extended to cases where the judgment-debtor had some interest (for example, an equity of redemption) at the time of sale.

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Bhimavarapu Butchi Reddi v. Bhartipadi Sri Lakshmi Venkata Suryaprakasa Rao (Minor) By Mother And Guardian Annapurnamma And Another

I do not see any reason to interfere with the decree of the lower appellate Court. Two sets of properties were purchased by the plaintiff in Court auction in execution of a money decree which was obtained by the second defendant's father against one Nagi Reddi. Under the column “Details of encumbrances to which the property is liable,” a registered mortgage deed was mentioned as having been executed on the 22nd June, 1930 and it was said that the mortgage was a fraudulent transaction not supported by consideration and therefore not binding. It so turned out that on the date of the Court sale the mortgagee had already filed the suit O.S No. 108 of 1934. The Court sale at which the plaintiff became the purchaser was on the 7th May 1934 which was subsequent to the institution of O.S No. 108 of 1934. The plaintiff's purchase was therefore lis pendens and subject to the result of the mortgage suit and of the further proceedings taken therein. It was the duty of the auction purchaser to have impleaded himself in that suit and to have sought redemption if he so wanted. He did not do it. The result was that a decree was passed, the properties were brought to sale and they were purchased by the mortgagee himself. The property was thus lost. The plaintiff then filed the suit out of which this second appeal arises against the two defendants, the first defendant being the mortgagee Court auction purchaser and the second defendant the decree-holder in execution of whose decree the properties were sold and purchased by the plaintiff. As against the first defendant, the plaintiff sought a declaration that the mortgage was collusive and not supported by consideration. On the merits the trial Court found that the mortgage was not either collusive or not supported by consideration and therefore rightly refused any relief against the first defendant and the plaintiff left it at that. As against the second defendant the decree-holder, the argument was that as the plaintiff lost the properties which were brought to sale at his instance, the plaintiff is entitled to a refund of the money that he paid for the Court sale.

This claim is one based on a decision of the Full Bench of this Court in Machan Goundan v. Kuttara Koundan (1). The trial Court upheld the claim of the plaintiff as against the second defendant and granted a decree against the second defendant. On appeal the lower appellate Court reversed the decree. In the present second appeal, though both the defendants are made respondents, relief is claimed only against the first respondent who is the second defendant in the trial Court. Mr. V. Subramaniam the learned Advocate for the appellant argues that this case is directly covered by the Full Bench decision of this Court. Before proceeding further it must be mentioned that six items of properties were brought to sale and that five of those items were covered by the mortgage which has been mentioned above. These items were sold as a single lot and purchased by the plaintiff. It would appear that the other item which is not the subject of the mortgage and the sale in execution of the mortgage decree was also lost as the result of a claim put forward by a third party. The appellant's learned Advocate therefore says that his client has lost all the properties which were purchased by him and that therefore he is entitled to the refund of his bid amount. The facts of the case which came up for decision before the Full Bench are however entirely different and I do not agree with the contention that the decision of the Full Bench covers this case. In that case a property which was not the property of the judgment-debtor on the date of the Court sale was put up for sale. The fact that the judgment-debtor had no title to the property even on the date of the sale was not discovered within thirty days from the date of the sale. The sale was confirmed. The auction purchaser lost the property as a result of a later suit by a third party and he thereafter filed the suit for recovery of the amount which was paid by him for the purchase. The question was whether the auction purchaser's remedy was not confined to an application under O. 21, R. 91, Civil Procedure Code on the ground that the judgment debtor had no title at all. This remedy can be availed of only if the want of title was discovered before the sale was confirmed. If the want of title is discovered after the Court sale is confirmed, then he has no remedy under the Civil Procedure Code. A right to recover the purchase money when the mistake or want of title was discovered thereafter was provided in the Code of 1882, but that was omitted in the Code of 1908. The question therefore was whether, in a case where the judgment-debtor had no title at all on the date of the Court sale and the defect of want of title was discovered long after the Court sale was confirmed, the auction purchaser has a right to sue for the recovery of the purchase money. The learned Judges held that a person who purchased the property at a Court auction could, if he lost the property owing to want of title in the judgment-debtor, file a suit for recovery of the purchase money. In the present case there was no want of title in the judgment-debtor on the date of the Court sale. He had the equity of redemption. A suit had been filed by the mortgagee, but there is no allegation in the present plaint that on the date of the Court sale at which the plaintiff purchased the property, it was not worth the amount due under the mortgage. The fact that at the subsequent Court auction held in execution of the mortgage decree there was no surplus left is not a ground for holding that on the date of the Court sale at which the plaintiff purchased the property, the real value of the property did not exceed the amount due under the mortgage and costs. It is notorious that in forced sales in execution, the properties do not often fetch even half the real value and there being no allegation in the present plaint that the real value of the property was not more than the amount due under the mortgage on the date of the purchase by the plaintiff, I decline to allow the learned Advocate for the appellant to raise that question at this stage. We must proceed on the basis that there was the equity of redemption in the mortgagor and that to that extent title passed to the plaintiff. It might be that the auction purchaser thought that he was getting a property free from any mortgage and that ultimately he found that there was a real mortgage fully supported by consideration. Further he was informed of the mortgage and the decree-holder stated what he believed, namely, that the mortgage was collusive and not supported by consideration. No one could at that stage foretell what would be held in the mortgage action. It only meant that what was put up for sale was subjected to a mortgage which might turn out to be not binding. The purchaser must have taken this element into consideration when he offered his bid. He was purchasing the property with his eyes open and subject to the probability of the mortgage being held valid and supported by consideration.

On the ground that some interest did pass to the plaintiff under the Court sale, I hold that the decision of the Full Bench does not apply to this case. A decision of Chandrasekhara Aiyar, J. in S.As Nos. 462 and 650 of 1943 has been brought to my notice. There a property said to be of the extent of four acres and odd was put up for sale. Ultimately it was found to be only one acre and odd. The auction purchaser filed the suit out of which the second appeal arose for the recovery of the proportionate part of the amount that he paid in the Court auction. Following the Full Bench decision, the learned Judge gave the plaintiff a decree for a proportionate part of the price which was paid by the plaintiff at the Court auction. In so doing the learned Judge has distinguished cases where the entire property was not lost and the auction purchaser still had some interest though only a reduced interest in the property purchased by him. The learned Judge said this,

“Once it is conceded, as it ought to be, that there is a right of suit to recover money paid under these circumstances apart from summary remedy provided for the auction purchaser in the Civil Procedure Code, which is confined only to cases where the sale is set aside on the ground of absence of saleable interest, it is difficult to understand why the remedy should be deemed to exist only when there is a total failure of title and not when there is a partial failure of title—partial not in the sense that the judgment-debtor had a lesser interest in the properties sold than full ownership—but in the sense that he had no title at all to a portion of the property sold.”

Evidently the learned Judge draws a distinction between a case where the judgment-debtor had no title whatsoever to 3 acres out of the four acres sold in Court auction and a case where the judgment-debtor has still some interest though not a full absolute interest. If the property was sold as the absolute property of the judgment-debtor and it turns out that the judgment-debtor had only a life interest or a lessee's interest or only the equity or redemption, no suit would lie. The present case is covered by the exception which the learned judge recognised in this judgment.

There are weighty considerations for reconsidering the Full Bench case and these have been discussed in a decision of this Court in App. No. 90 of 1942. I hold that the principle of the Full Bench judgment must not be extended and that it should be applied only to a case where the judgment-debtor had no interest at all at the time when the Court auction was held and not to a case where the judgment-debtor had some interest, whether that interest is as valuable as the auction purchaser thought or otherwise. In Izatunnissa Begum v. Pertab Singh , the Judicial Committee held that where property was sold in a Court auction expressly subject to a mortgage and it was later on found that the mortgage was unenforceable for some reason and the auction purchaser got the property free of the encumbrance, the purchaser cannot be ordered to pay the amount of the mortgage. If in such a case the auction purchaser is entitled to the benefit of the amount of the mortgage subject to which he purchased the property, then in the converse case where the property was sold with the remark that the mortgage on the property was collusive and not supported by consideration and it ultimately turned out that it was supported by consideration, the auction purchaser ought to bear the loss. I do not see any distinction of substance between the case before me and the case before the Judicial Committee.

I dismiss the second appeal. I leave the parties to bear their own costs in this second appeal. (No leave).

N.R.R

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