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Canara Bank v/s Bombay Alloys & Castings & Others

    Chamber Summons No.369 of 2006 In Suit No.398 of 1974

    Decided On, 28 February 2007

    At, High Court of Judicature at Bombay


    For the Appearing Parties: Dilip Shukla i/b. Shukla & Shukla Janak Dwarkadas with Mr. Deepak Chitnis with Mrs. S. Chiparikar i/b. M/s. Deepak Chitnis Chiparikar & Co. Madhav Jamdar, Sumedha Rao with Ms. Rumana Bagebdi, Advocates, G.T. Meshta, Commissioner for Taking Accounts present. Y.C. Parekh, Official Assignee present.

Judgment Text

Oral Judgment:

1. This Chamber Summons has been taken out by the Applicant who has sought to purchase the suit property initially mortgaged by the Defendant in the suit in favour of the Plaintiff Bank and later purchased by one K.D. Shah at an auction held by the Bombay Municipal Corporation (BMC). The Applicant has applied for condonation of delay in depositing Rs.2.75 Crores in the Office of the Commissioner for taking accounts and for the Court to confirm the sale in favour of the Applicant or its nominee.

2. The property has had a chequered history. The Defendants mortgaged their property (suit property) which is open land at Bhandup in favour of the Plaintiff - Bank. The Plaintiff sued on the mortgage in 1974. The Defendants and the Plaintiffs entered into a consent decree. The Plaintiffs sought to sell the mortgaged property in the execution of the said decree. There is also another mortgage of the said property in favour of the Plaintiff which is the subject matter of any suit in the D.R.T. Court.

3. After the mortgage was executed, the Defendants defaulted in payment of charges and taxes of the B.M.C. The B.M.C. sold the property to the HUF of Mahendra Popat Shah (Shah) who purchased the property at the auction and was issued the Certificate of Sale under the public auction. He was declared the purchaser of the said property for a price of Rs.6.12 lakhs. He made payment of price on 7.12.1984 and became owner of the property with effect from 8.12.1984. The Certificate of Sale was issued in his favour on 2.4.1985. He is deemed to have knowledge of the 2 mortgages already created by the Defendant in favour of the Plaintiff. He is taken to have purchased the said property subject to the encumbrances thereupon being the said mortgages. The Certificate of Sale does not specify that the property has been sold subject to encumbrances, though in law it is so.

4. Shah filed the suit being suit No.3307 of 1989 for declaration of his legal right in the said property and claiming relief against the Plaintiff - Bank in which he has not obtained any relief and which is still pending. Shah is therefore bound to accept the mortgages of the Bank. He would have an equity of redemption thereupon.

5. Such equity of redemption is the right of the mortgagor under Section 60 of the Transfer of Property Act, 1882. However, since the Defendants to the suit who are the mortgagors have failed to exercise their right to redeem the mortgage and their property has been sold at an auction, the said Shah would be entitled to the equity of redemption. He would, therefore, require to make payment to the Plaintiff - Bank as the mortgagee to remove the said encumbrances upon the property purchased by him at the auction sale which was subject to the said two encumbrances of the said two mortgages. He has been declared the owner and purchaser of the said property for valuable consideration. The property therefore no longer vests in the Defendants. Their right, title and interest in the property came to an end upon it being sold at the auction sale by the B.M.C. Nevertheless, the right of the Plaintiff - Bank remained under the two mortgages in their favour.

6. Shah not having redeemed the mortgage, the Bank rightly desired to sell the property in the execution application taken out by them on 14.11.1994 to execute the consent decree obtained by them in the suit as far back on 16.06.1974 and later modified on 3.11.1976. The Applicant sought to purchase the property thereon. Two meetings came to be held for bidding in respect of the suit property.

7. On 10.2.1995, the Applicant made an offer of Rs.2.75 Crores for the said property. He was declared the highest bidder. His bid was accepted by the Court Officer subject to the deposit being made by him as per the provisions contained in Order XXI Rule 84 of the C.P.C.

8. Under Order XXI Rule 84 of C.P.C. and Rule 547 of the High Court Rules, which are Pari Materia, the Applicant, as the purchaser other than the decree holder himself, was required to deposit 25% of the amount of his offer/purchase price forthwith.

9. On 14.2.1995, the Applicant deposited only Rs. 2 lakhs instead of 25% of Rs.2.75 Crores with the Commissioner for Taking Accounts. He was called upon to deposit further Rs. 66 lakhs within 7 days. Such directions were passed for his benefit though against the mandate contained in the aforesaid provision.

10. It may, at once, be mentioned that failure to deposit as per the mandate of Order XXI Rule 84 rendered the sale in favour of the Applicant void. Mr. Jamdar drew by attention to the Case of Manilal Mohanlal Shah V/s. Sardar Syed Ahmed AIR 1954 SC 349 that it is the provisions of Order XXI rule 84 are mandatory and that obligatory on the part of the person declared to be the purchaser to deposit 25% of the purchase money immediately in default of which the property is liable to be resold forthwith. Failure to deposit such amount, constitutes the sale a "complete nullity" and the fact that the Court is bound to resell the property shows that the previous proceedings for sale and "completely wiped out". Similarly, in the case of Rosali V/s. Nellai Small Market Producers Co-operative Society Ltd. A 1999 Karnataka 167 it has been held that failure to deposit 25% of the purchase amount by the bidder renders the sale null and void. The confirmation of such sale is also void and would not make the auction sale valid.

11. On 21.2.1995, the Applicant wrote to the Commissioner that it had come to his notice that the said Shah had filed Suit No.3307 of 1989 and was claiming to be in exclusive possession of the property as its owner.

12. On 3.3.1995, the Plaintiff?s Advocate wrote to the Commissioner that the Applicant had failed to deposit 25% of the consideration money which was required to be deposited by them.

13. On 6.3.1995, the Commissioner wrote to the Applicant that he had deposited only Rs. 2 lakhs at the time of the auction and called upon him to deposit Rs.25% in a week?s time. Though that was the mandate against the aforesaid provisions, further time was given to the Applicant by the Commissioner himself.

14. By a telegram dated 5.10.1995, the Applicant requested two weeks extension of time to complete the sale. The Applicant did not complete the sale and instead on 16.1.1996 alleged that the said Shah was in possession and was confirmed as the owner by the B.M.C. and the records of the B.m.C. were suitably amended to show such confirmation and hence he was under an apprehension as to how he would be restored possession. Consequently, he sought to withdraw his offer and claimed refund of deposit of Rs. 2 lakhs.

15. Thereafter, by an order dated 15.10.1996, passed in this Suit upon the Commissioner?s Report, His Lordship Mr. Justice S.H. Kapadia (as he then was) directed that Shah be removed from possession. In an Appeal filed therefrom by Shah, the stay of the said order was granted on 4.12.1996. In Appeal the said order was set aside at the time of hearing on 18.11.2005. Fresh report for the Confirmation of Sale in favour of the Applicant was called for.

16. Nevertheless, the Applicant sought return of his amount of Rs. 2 lakhs and confirmed the withdrawal of his offer to the Commissioner in his letter dated 2.6.2003.

17. It is, therefore, seen that the over a period of years, the Applicant has deposited only Rs. 2 lakhs and no more. He has sought to claim possession but has not been able to do so. In 1996 as well as in 2003, he withdrew his offer and claimed refund of his deposit on Rs. 2 lakhs.

18. The Applicant deposited Rs.2.75 Crores with the Commissioner only on 16.12.2005. It is the contention of the Applicant that he was to deposit the amount on 5.12.2005 but he actually sought to deposit the amount on 16.12.2005 and hence, there is a delay of only 6 days. Even that calculation is incorrect. (That itself would be the delay of 11 days).

19. However, he has sought to again withdraw his offer and claimed the refund through his constituted attorney on 21.6.2006 also.

20. Shah has vehemently contested the claim of the Applicant that there is a delay of only 6 days in depositing the amount. Mr. Jamdar meticulously brought before the Court the entire aforesaid chronology. The Applicant was initially required to deposit 25% of the amount of his offer on 10.2.1995 when he made the offer before the Commissioner. He was to deposit the remaining amount within 90 days thereafter, Hence, instead of depositing the entire amount by May 1995, he has deposited it on 16.12.2005. Mr. Jamdar is, therefore, right in contending that he has committed a delay of 10 years which cannot and should not be condoned.

21. Mr. Chitnis on behalf of the Applicant instead argued that he could not have deposited the reminder of the amount during the pendency of the Appeal and while the order dated 11.10.1996 of Justice Kapadia remained stayed. (This begs the fact that he had to deposit the entire amount well before the date of the order of Justice Kapadia also). It is his contention that he required possession of the property and he required said Shah to be removed, with Police assistance if required, and that order being stayed, he was not required to deposit the balance amount of his offer. This contention is also entirely incorrect. Without depositing the amount, he could not have expected any equity in his favour. There would have been no question of granting police assistance to a party who has not deposited the amount offered by him to oust a party already in possession and declared owner in a previous auction sale. The Applicant?s offer was subject to all encumbrances on the property and Shah was one such encumbrance alongwith the 2 mortgages of the Plaintiff Bank. He has, however, not obtained any directions in this regard at the time of the passing of the order on the Commissioner?s report. The order in appeal setting aside the order of Justice Kapadia and inviting fresh offers came to be passed on 18.11.2005. No fresh offers have been received but the Applicant?s amount has been sought to be deposited on 16.12.2005 i.e. after about 4 weeks from the date of the Appeal order also.

22. The real issue is whether there was delay in depositing the amount of this offer even prior to the order of Justice Kapadia. The Applicant sought refund of the deposit of Rs. 2 lakhs and withdrawal of his offer on 16.1.1996. In 2003, pending the Appeal, he sought similar withdrawal of the offer and refund of his amount. In fact he has sought to repeat that exercise on 21.6.2006.

23. It can be seen that there are 4 distinct claims in this Chamber Summons which call for consideration. They are of the Plaintiff Bank, the said Shah (previous auction purchaser) the Applicant (present auction purchaser) and the Defendants (adjudged insolvents).

24. The claim of the mortgagee Bank is required to be satisfied in execution of the decree. The satisfaction of a decree is initially by the mode of paying money under the decree, either by depositing in Court or by payment to the Decree Holder out of Court or otherwise. The provision of Order XXI Rule 1(i) does not specify who is to pay the money to satisfy the decree. It therefore contemplates payment by anyone. That stands to reason. It could be made by the Judgment Debtor or by anyone on his behalf or by any party interested. Shah has sought to satisfy the claim of the Plaintiff - Bank by 3 separate pay orders aggregating to the decretal amount as of date of approximately Rs.46.00 lakhs in this suit. Of course, the Bank has another claim under the other mortgage also against the Judgment Debtor which is pending in the D.R.A.T. and for which the Plaintiff would be entitled to sell the property of the Defendants in execution if Shah fails to satisfy that decree.

25. Shah has taken the suit property obviously subject to encumbrances. The only encumbrances are the 2 mortgages of the Plaintiffs Bank. It is, therefore, for him to claim the equity of redemption by redeeming his mortgages. That would be done by payment to the mortgagee Bank. Since two suits are filed by the mortgagee Bank, it would be by deposit of amount payable to the Decree Holder/Plaintiff either in the Court in which the suits are filed and execution applications are taken out or out of the Court or even otherwise as per the provisions of Order XXI Rule 1 and 2 of the C.P.C.

26. Subject to such encumbrances, the said Shah is declared the owner of the property. That declaration is made for consideration. The consideration is the payment to the B.M.C. of Rs.6.12 lakhs in 1985. That represented the value of the property then. The value has since escalated considerably. The ownership rights, however, become crystalized on the date of the sale and upon the issue of the Sale Certificate. That has been issued on 2.4.1985. Hence, only subject to Shah paying for the Plaintiff?s claim in the decree in this suit as well as in the D.R.A.T. suit, he is the absolute owner of the suit property. He has been put in possession thereof since 1985. The mortgages were created several years before. He failed to redeem them and invited this avoidable litigation.

27. The Applicant contends that the amount deposited by him with the Court Commissioner in this Suit aggregating to Rs.2.75 Crores would pay for both the Decrees as well as other unsecured Creditors. (There are certain minor unsecured Creditors of the Defendants also to the extent of Rs.2.29 lakhs. The claim of the Official Assignee towards his commission is Rs.6.20 lakhs).

28. Mr. Dwarkadas argued on behalf of the Applicant that Shah has no rights except that he purchased the equity of redemption. That contention is incorrect. He has not only purchased the equity of redemption. He became the owner of the property subject to encumbrances. Shah was never transferred the property by the mortgagor/defendants who had the statutory right to redeem the mortgage under Section 60 of the Transport of Property Act, 1882. He purchased at the auction conducted by the B.M.C. for non-payment of Municipal taxes by the defendants. He was issued the Sale Certificate. He has made payment to become such owner. He has since been put in possession of the property. He, therefore, remains the owner but has the obligation as well as the right to redeem the mortgage. As held in the case of A. Gnanam V/s. M/s. Palaniappa & Co. AIR 2001 Madras 14 B, the Sale of the property conveys complete title to him. The equity of redemption also accompanies the property.

29. In fact, that right, which he has sought to exercise by deposit of the aforesaid 3 pay orders in satisfaction of the decree in this Suit, cannot be denied to him by acceptance of Rs.2.75 crores of the Applicant instead. It is only Shah who has the right to redeem the mortgage. Acceptance of the amount, now deposited (by the Applicant) would tantamount to a clog on the equity of redemption.

30. In the case of Muhammad Sher Khan V/s. Raja Seth Swami Dayal 44 ILR Privy Council 185 it has been held that despite a contract to the contrary excluding the right of a mortgagor to exercise his right of redemption during a particular specified period in the deed itself, he had the statutory right to redeem the mortgage and the exclusion, even for a temporary period, constituted a clog on the equity of redemption.

31. The auction sale held, and the resultant sale certificate, confers upon him complete title to the property, subject and to the redemption of the 2 mortgages. In fact, the sanctity of auction sales, upon execution of decrees have been so considered in 2 Judgments of the Supreme Court in the case of Janak Raj V/s. Gurdial Singh A 1967 SC 608 and Sardar Govindrao Mahadik V/s. Devi Sahai A 1982 SC 989. In both these cases, the consequences of sale of property in execution of a decree of the court came up for consideration. It has been held that court auction held and confirmed which resulted in a Sale Certificate being issued would protect the auction purchaser even if the decree is later set aside. The object is to protect equity in favour of stranger auction purchaser. It is observed in para 24 the case of Janak Raj (Supra) that " Sales in execution 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." Though this is a case of a sale on auction by the B.M.C. and not in execution of a decree, the same analogy and reasoning must apply.

32. It, therefore, follows that in exercise of such right, Shah has deposited the cheques constituting the amount payable to the Plaintiff until now and that in turn constitutes full satisfaction of the decree by payment/deposit. Mr. Jamdar has relied upon the Judgment in the case of K.R. Shankar Raj V/s. State Bank of India AIR 1989 Madras 255 in which the Court was held bound to record full satisfaction of the decree upon the decretal amount being deposited in Court.

33. Upon that being done, this entire execution application itself would stand disposed of by recording satisfaction of the decree in full.

34. However, Shah, though on the right side of such technical law, does not inspire complete equity. The other claim of the Plaintiff Bank remains. That also has to be redeemed. Shah has failed to do that since 1985. He has continued in possession. The Bank?s prior claim has remained unsatisfied. The Bank would be entitled to have it satisfied through auction sale in execution of their decree, unless their mortgage is redeemed. That would be in the D.R.A.T., Mumbai.

35. The offer by the Applicant, which he sought to withdraw on atleast 3 occasions in 1996, 2003 and 2006, was not acted upon and his money has remained deposited. He would have been refunded his amount of Rs. 2 lakhs if he has applied to Court, which he did not. He only corresponded with the Commissioner. His deposit of Rs.2.75 Crores is only on 16.12.2005 after the withdrawal of his own offer by himself twice. That is seen to be only in view of considerable escalation in market price in the last year. Such deposits begets no rights in law and in equity. Such deposit, though outwardly attractive, cannot entice the Court since the Plaintiffs? decree is satisfied by deposit of the 3 pay orders. That amount may be considered to be utilised by the D.R.A.T. along with further offers as required, if the Plaintiffs? decree in that proceeding remained unsatisfied.

36. The Defendants have been declared Insolvents. The Official Assignee has been appointed to represent their estate. (The Defendant No.3 claims not to be adjudged insolvent though his partners and firm are). The Defendants can be heard only through the Official Assignee. Nevertheless Ms. Sumedha Rao appearing for the Defendant No.3 stated that when the Commissioner?s report came up for hearing Justice Kamdar (as he then was) directed a fresh valuation on 19.04.2006. Pursuant to the valuation, 2 valuation reports have been obtained. She urged the Court to see the valuation. The reports have been opened in Court. The fresh valuation has been seen.

37. It has to be seen whether the Court has jurisdiction to even consider fresh offers merely because fresh valuation is called for and obtained. The rights and obligations of each of the contesting parties crystallize upon any contract being complete. The rights of Shah crystalised when the Sale Certificate was issued and he was declared owner of the property upon payment of consideration by him subject to the Plaintiffs encumbrances. The rights of the Applicant ceased when he failed to deposit as per the mandate in Order XXI Rule 84 of the C.P.C and further when he withdrew his own offer for the first time itself. The rights of the Defendants ceased upon their property being put for auction by the B.M.C. and Shah was issued the Sale Certificate by the B.M.C. The rights of the Plaintiffs extend only to the satisfaction of their decree (and further the other decree obtained by them in the D.R.T., Mumbai).

38. It has been held by the Madras High Court in the case of Jaggi Brothers V/s. Punjab National Bank 1998(3) 123 Madras Law Weekly 805 that the practice of taking fresh valuation from time to time must be deprecated. It has been observed that if the sales are too frequently adjourned to obtain a higher price, it would be a self defeating exercise resulting in persons losing faith in the Court sales and adding to the agony of the Decree Holders. Hence, if properties are purchased by a bonafide purchaser who is a stranger to the proceedings, the sale in his favour has to be protected and cannot be upset at the instance of the offer or who fails to deposit the amount offered as per procedure laid down in the C.P.C. Consequently, when the auction purchaser deposited the entire amount, interfering with the auction sale which had achieved finality would be an incorrect interference. 39. Fresh bids need not now be accepted. Since the Plaintiff?s decree is satisfied in full. The amount of the auction sale has been deposited with the B.M.C. The amount is in excess of the B.M.C. taxes. That amount can pay off the unsecured creditors would be adjusted for the Official Assignee?s part commission.

40. It must be appreciated that the Defendants were defaulters at all times. They defaulted in the payment of taxes of the B.M.C. Hence, their property was put up for auction. They defaulted in making payment to the Plaintiff - Bank. Hence, the right of the mortgagee is exercised. It would be rather insolent for the Defendants to claim a higher price of the property that no longer belongs to them, even assuming that they were not adjudged Insolvent. The Defendants? right, title, interest has long since ceased. Only the Plaintiff?s right to recover the decretal amount remains corresponding with Shah?s right to redeem the mortgage.

41. The court cannot be swayed merely by higher

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amount offered to Court that runs counter to the rights of the earlier contracting parties that crystalized upon the contract being successfully completed unless, of course, the encumbrances subject to which the contract was completed are not removed. 42. It was understandable for the Applicant to claim the refund of the deposited amount of Rs. 2 lakhs and to withdraw the offer made by him. The Applicant cannot certainly be tied to their offer after knowing the legal rights, title and interest of Shah as the owner. The Court, therefore, cannot hold the Applicant responsible. It is, however, esoteric, how the Applicant can claim any legal interest in the property upon payment of only a small part of the offered amount. It is too late in the day to confirm the sale in favour of the Applicant, merely because the Applicant has now deposited a higher amount. Yet, a rider thereto may be added that if the encumbrance of the Plaintiff remains on the mortgaged property, the sale of the property would not only be expedient, but the only recourse. Since the mortgaged property has been put up for auction since 1995 in execution of the decree of 1974, the Applicant?s offer amount is now deposited and the present valuation has also been obtained, the amount as also the valuation may be allowed to be utilised by the Plaintiffs in execution of their decree in D.R.T., Mumbai. 43. Hence, the following order :- (i) 3 pay orders of Rs. 5 lakhs, Rs. 10 lakhs and Rs.30,63,676/- shall be deposited to the Credit of the suit. (ii) The Plaintiffs shall be entitled to withdraw the amount of the 3 pay orders. (iii) The execution application of the Plaintiffs stands disposed of by satisfaction of the consent decree dated 16.6.1974 as modified on 3.11.1976 in full by such deposit. (iv) The Applicant shall have the option to withdraw or keep deposited the amount of Rs.2.75 crores lying to the credit of this Suit. (v) If the amount is left deposited, it shall be transferred by the Prothonotary, Sr. Master, High Court, Bombay to the credit of the D.R.A.T. proceedings as and when ordered by that Court. (vi) Defendant No.3, who got the property revalued on behalf of the Defendants shall pay the valuer?s fees as per rules. (vii) Chamber Summons and the Commissioner?s Report are disposed of accordingly. (viii) This order is stayed for 2 weeks.