1. This is a petition under Section 104 of the Constitution of Jammu & Kashmir, challenging the order dated 23.03.2019, passed by the Principal District Judge, Samba, whereby an application under Order I Rule 10 of the Civil Procedure Code filed by the petitioner seeking impleadment as a party respondent in the appeal proceedings under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short the "Act"), has been rejected.
2. Briefly stated, the material facts are as under:-
3. The State Bank of India respondent No. 2 herein initiated action against the respondent No. 1 M/s Cecil Pharmaceuticals Pvt. Ltd under the provisions of the Act and in that regard issued a notice to the respondent No. 1 under Section 13(2) of the Act and took possession of the unit. An auction notice came to be issued under Section 13(4) of the Act by the Bank, which was challenged under Section 17(A) of the Act on 10.01.2019. Vide order dated 10.01.2019, the learned Principal District Judge, Samba directed the Bank not to finalize the auction process.
4. The Bank, in the meantime, appears to have issued an auction sale notice on 07.12.2018, declaring its intention to sell the property mortgaged with the Bank. The petitioner herein submitted its bid on 04.01.2019 in terms of the auction sale notice dated 07.12.2018 and also made an earnest deposit of Rs. 32 lacs with the respondent-Bank on the same date. On 09.01.2019, the petitioner was declared as a successful bidder in the auction process.
5. The petitioner claims that an amount of Rs. 3.23 crores was deposited by it on 10.01.2019 with the respondent Bank, who then executed two sale certificates in favour of the petitioner. One such certificate was in respect of the factory, land and building and second in regard to the plant and machinery installed therein. The said sale certificates were executed purportedly on 10.01.2019. The petitioner claims that the actual physical possession of the said property was handed over to the petitioner on 10.01.2019 itself.
6. In the background of the aforementioned facts, an application came to be filed by the petitioner under Order I Rule 10 read with Section 151 of the Civil Procedure Code, 1908 before the Principal District Judge, Samba, seeking impleadment as a party respondent in the proceedings pending before him. In the application so submitted before the Court, it was asserted that the applicant (petitioner herein) had become the owner of the factory, including the land, plant and machinery and the title of the said property had since passed in its favour.
7. It was in those circumstances prayed in the application that the petitioner was required to be impleaded as a party respondent, inasmuch as, their rights would be materially affected and had a right of being heard, being a necessary/proper party in the proceedings. The Court, however, by virtue of the order impugned dated 23.03.2019, rejected the application of the petitioner primarily on the ground that the presence of the petitioner could not at all help in the effective and complete adjudication of the issue with which it was seized, i.e., whether the pre-auction auction of the Bank under the Act was sustainable or not.
8. It was further held that instead of resolving the issues, the presence of the applicant at that juncture would create complications and divert focus from the central issues, which required to be adjudicated. It was held that the validity of sale in favour of the applicant by the Bank would depend upon the adjudication by the Court on the validity of the procedural action taken by the respondent at the pre-auction stage. It was also held that while the petitioner was the highest bidder in the auction proceedings and the sale certificate had been issued in his favour, yet the same had not been confirmed in favour of the applicant, as the Court had directed the Bank not to finalize the auction process or confirm the sale.
9. The settled legal position, based upon an interpretation of Order 1 Rule 10(2) is that a person is a "necessary party" if in his absence no effective decree can be passed, while a "proper party" is one in whose absence an effective order can be made but whose presence is necessary for a complete and effective adjudication of the matter.
10. In Ramesh Hiranand Kundanmal Vs Municipal Corporation of Greater Bombay, (1992) 2 SCC 524 it was held:-
" the main object of the rule cannot be said to prevent multiplicity of actions though it may incidentally have that effect. But that appears to be a desirable consequence of the rule rather than its main objective. The person to be joined must be one whose presence is necessary as a party. What makes a person a necessary party is not merely that he has relevant evidence to give on some of the questions involved; that would only make him a necessary witness. It is not merely that he has an interest in the correct solution of some question involved and has thought of relevant arguments to advance. The only reason which makes it necessary to make a person a party to an action is that he should be bound by the result of the action and the question to be settled, therefore, must be a question in the action which cannot be effectually and completely settled unless he is a party. The line has been drawn on a wider construction of the rule between the direct interest or the legal interest and commercial interest. It is, therefore, necessary that person must be directly or legally interested in the action in the answer ."
11. The application under Order 1 Rule 10 cannot be decided in isolation in a case where there is a transfer of the subject matter of the lis pendentelite. In those circumstances, the provisions of Order XXII Rule 10 of the Civil Procedure Code have to be invoked, which envisages thus:-
"Order XXII Rule 10. Procedure in case of assignment before final order in suit.
(1) In other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved.
(2) The attachment of a decree pending an appeal therefrom shall be deemed to be an interest entitling the person who procured such attachment to the benefit of sub-rule (1)."
12. The provisions of Order 22 Rule 10 can be invoked notwithstanding the fact that the application filed was one only in terms of Order 1 Rule 10. Reference in this regard is made to Thomson Press (India) Ltd Vs Nanak Builders & Investors P. Ltd and others, (2013) 5 SCC 397, where the Apex Court held thus:-
"53. A simple reading of the above provision would show that in cases of assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved. What has troubled us is whether independent of Order I Rule 10 CPC the prayer for addition made by the appellant could be considered in the light of the above provisions and, if so, whether the appellant could be added as a party-defendant to the suit. Our answer is in the affirmative. It is true that the application which the appellant made was only under Order I Rule 10 CPC but the enabling provision of Order XXII Rule 10 CPC could always be invoked if the fact situation so demanded. It was in any case not urged by counsel for the respondents that Order XXII Rule 10 could not be called in aid with a view to justifying addition of the appellant as a party-defendant. Such being the position all that is required to be examined is whether a transferee pendete lite could in a suit for specific performance be added as a party defendant and, if so, on what terms."
13. On a perusal of the order impugned, it is clear that the Court, while rejecting the application for impleadment held that the petitioner/ applicant was not a necessary or a proper party, it did not at all refer to the enabling provisions of Order XXII Rule 10. While the Court noticed the fact that there petitioner was the highest bidder in the auction process and a sale certificate had been issued in its favour, it did not consider the impact of the entire transaction which stood completed by receipt of the entire auction amount of Rs. 3.23 crores and the purported handing over of the possession of the factory, its plant and machinery. It appears that the Court was of the opinion that the sale and receipt of money including the auction process was contrary to its order of injunction dated 10.01.2019. While it may be open to the Bank or the petitioner to show or the Court to determine whether at all there was any violation of the Court orders or that the transaction stood completed before the order was passed or stood communicated, yet that issue could always be determined by the Court and the party liable for punishment. However, merely because a transfer is in breach of an injunction may not by itself render the transfer or sale ineffective much less could the Court ignore to test the application of Order XXII Rule 10 to the facts of the case, especially those emerging post the auction and transfer of the property and its effect on the petitioner.
14. The issue of impleading a transferee pendentelite and the need for ordering so came up for consideration in Khemchand Shanker Choudhary Vs Vishnu Hari Patil, (1983) 1 SCC 18.
The Apex Court held thus:-
"6. Section 52 of the Transfer of Property Act no doubt lays down that a transferee pendente lite of an interest in an immovable property which is the subject matter of a suit from any of the parties to the suit will be bound in so far as that interest is concerned by the proceedings in the suit. Such a transferee is a representative in interest of the party from whom he has acquired that interest. Rule 10 of Order 22 of the Code of Civil Procedure clearly recognises the right of a transferee to be impleaded as a party to the proceedings and to be heard before any order is made. It may be that if he does not apply to be impleaded, he may suffer by default on account of any order passed in the proceedings. But if he applies to be impleaded as a party and to be heard, he has got to be so impleaded and heard. He can also prefer an appeal against an order made in the said proceedings but with the leave of the appellate court where he is not already brought on record. The position of a person on whom any interest has devolved on account of a transfer during the pendency of any suit or a proceeding is somewhat similar to the position of an heir or a legatee of a party who dies during the pendency of a suit or a proceeding, or an official receiver who takes over the assets of such a party on his insolvency. An heir or a legatee or an official receiver or a transferee can participate in the execution proceedings even though their names may not have been shown in the decree, preliminary or final. If they apply to the court to be impleaded as parties they cannot be turned out."
15. In Amit Kumar Shaw Vs Farida Khatoon, (2005) 11 SCC 403, the Court observed thus:-
"16. The doctrine of lis pendens applies only where the lis is pending before a court. Further pending the suit, the transferee is not entitled as of right to be made a party to the suit, though the court has a discretion to make him a party. But the transferee pendente lite can be added as a proper party if his interest in the subject-matter of the suit is substantial and not just peripheral. A transferee pendente lite to the extent he has acquired interest from the Defendant is vitally interested in the litigation, where the transfer is of the entire interest of the Defendant; the latter having no more interest in the property may not properly defend the suit. He may collude with the Plaintiff. Hence, though the Plaintiff is under no obligation to make a lis pendens transferee a party, under Order 22 Rule 10 an alienee pendente lite may be joined as party. As already noticed, the court has discretion in the matter which must be judicially exercised and an alienee would ordinarily be joined as a party to enable him to protect his interests. The Court has held that a transferee pendente lite of an interest in immovable property is a representative-in-interest of the party from whom he has acquired that interest. He is entitled to be impleaded in the suit or other proceedings where the transferee pendente lite is made a party to the litigation; he is entitled to be
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heard in the matter on the merits of the case To the same effect is the decision of this Court in Rikhu Dev, Chela Bawa Harjug Dass v. Som Dass (deceased) through his Chela Shiama Dass, (1976) 1 SCC 103." To the same similar effect is the judgment of the Apex Court in Thomson Press (India) Ltd Vs Nanak Builders & Investors P. Ltd., (2013) 5 SCC 397 . 16. Applying the ratio of the aforementioned judgments to the facts of the present case, it can be seen that the transferee, i.e., the Bank respondent No. 2 herein, having auctioned the property and having received the entire amount from the petitioner may not have any further interest in the proceedings pending before the learned Principal District Judge, Samba in the proceedings under Section SARFAESI Act and may, therefore, be indifferent to the issues raised or may collude with the respondent No. 1 herein in the said proceedings, which would severely prejudice the rights of the petitioner herein. The interest of the petitioner in the proceedings is not peripheral rather the same is substantial. 17. Having considered the entire matter, in my opinion, the rejection of the application for impleadment by the Court blow was legally erroneous. Interest of justice, in my opinion, would be best served if the petitioner is impleaded as a party respondent. I, accordingly, order so. Order impugned dated 23.03.2019 is set aside.