M/S. Inox Air Products Ltd. vs M/S. Harshita Ltd.
2010 Latest Caselaw 3468 Del

*          HIGH COURT OF DELHI : NEW DELHI

+                    Ex. P. No.50/2001

%                        Judgment decided on: 26th July, 2010

M/S. INOX AIR PRODUCTS LTD.           ......Decree Holder
                  Through: Mr. Pravir K. Jain, Adv.

                     Versus

M/S. HARSHITA LTD.                    .....Judgment Debtor
                     Through: Mr. K.R. Chawla, Adv. for auction
                              purchaser.
                              Mr. Pankul Nagpal, Adv. for
                              Objector/PNB
                              Mr. B.S. Mann, Adv. for judgment
                              debtor.

Coram:
 HON'BLE MR. JUSTICE MANMOHAN SINGH

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                            No

2. To be referred to Reporter or not?                         Yes

3. Whether the judgment should be reported                    Yes
   in the Digest?

MANMOHAN SINGH, J.

1. By this order I shall dispose of the pending EAs filed by

the Objector/Punjab National Bank. The brief facts are that the

decree holder had obtained an ex parte decree for sum of

Rs.11,43,3237.88 together with costs and interest @ 18% by

decree and judgment dated 25th August 2000 in Suit bearing

No.1107/98 against M/s. Harshita Ltd., Somnath Chambers II, New

Delhi hereinafter referred to as judgment debtor.

2. The decree-holder has filed the present execution

petition and prayed for warrant of attachment in respect of

moveable properties mentioned in the list of properties annexed as

Annexure "B" and for immoveable properties mentioned in the

list of property as Annexure "C".

3. Annexure "C" which contains the details of the

immoveable properties sought to be attached and sold reads as

under:-

"Property No.307 approximately 525 sq. ft, Somdutt Chambers II, Bhikaji Cama Place, New Delhi."

4. That in order to decide the pending EAs filed by the

Objector it is necessary to refer few orders passed by the court.

The Execution was first time listed before court on 15th March 2001.

The court issued the warrants for attachment in respect of the

properties mentioned in Annexure "B" and "C" and also ordered

that the judgment debtors shall not create any charge on the

properties till the next date of hearing. Upon service of warrants of

attachment by order dated 18th March, 2003, the matter was put up

before the Joint Registrar to prepare a schedule of the properties

put to auction and report back after the properties are auctioned.

5. On 8th July 2003 an order was passed by the Joint

Registrar that in terms of order dated 18th March 2003 the property

bearing No.302-307, Somdutt Chambers II, New Delhi was put up

for auction. The proclamation of sale of the said property was

ordered to be issued by way of public auction as per the details

given in the order. Later on in EA 593/03 it was ordered on

22.08.2003 that the schedule of the sale of the property as directed

be issued.

6. In compliance of orders, the public auction in terms of

warrants of attachment was issued in the Statesman on 19th

September 2003 and Nav Bharat Times on 20th September 2003.

The notice by way of beat of drums and affixation was also issued

on 7th September 2003.

7. The applications were filed by the owners of Flat No.303

and 304 stating that they have nothing to do with the judgment

debtors and in view of the documentary evidence placed on record,

their flats may not be put to sale for execution of warrants of

attachment issued by this court. Interim orders were passed with

the consent of the learned counsel for the decree holder to the

effect that their flats shall not be put to sale in execution of

warrants of attachment issued by this Court.

8. The auction for Flat No.306 and 307 was held on 7th

November 2003. The report of the Court Auctioneer dated 3rd

November, 2003 and 7th November, 2003 are placed on record.

Therefore, three further EA Nos.11/04, 12/04 and 13/04 out of

which two were filed by the auction purchasers of Flat No.307 and

the third one was on behalf of the court Auctioneer. The same were

listed before court on 3th March, 2004 when counsel for the objector

also appeared. The details are given as under :-

a) EA 11/04 was filed by the auction purchaser of Flat No.307

praying that the sale certificate be issued to the auction

purchaser by declaring the sale as absolute and possession

may also be directed to be given to the auction purchaser of

Flat No.307.

b) E.A. No.12/04 was filed by the auction purchaser of Flat

No.306 with the similar prayer.

c) The third application being E.A. No.13/04 was filed by Court

auctioneer praying to release his commission of Rs.26,400/-

and the government share of 5% of the total amount received

from the two auction purchasers namely Shri Kuldip Singh S/o

Sh. Bir Singh who is the auction purchaser of property No.306

and property/flat No.307 of Sh. B.K.Soni (HUF). The total

sum of auction of two flats 306 and 307 comes to Rs.

13,60,000/-.

9. A notice for 15th March, 2004 to these applications was

issued and further directions were issued to the court auctioneer to

file an affidavit for holding of public auction in terms of directions

given by the court.

10. By order dated 15th March, 2004, the bid of two auction

purchasers in respect of two Flat Nos. 306 and 307 was accepted

and court passed an order for issuance of sale certificates and

warrants of possession in favour of the auction purchasers. Out of

the deposited sale amount a sum of Rs.6575/- was remitted to the

Government towards expenses for auction and a sum of

Rs.26,400/- was ordered to be deducted and paid to the court

auctioneer as her fee. It was further ordered that the balance

amount be released in favour of the decree-holder after the

warrants of possession are executed.

11. Later on Punjab National Bank, the objector had filed four

applications being EA No.197/2004, EA No.250/2004, EA

No.251/2004 and EA No.67/2005. The first application being EA

No.197/2004 was filed by the objector under Order 21 Rule 58 CPC

on 22.4.2004 for adjudication of claim relating to rights and interest

in property bearing No.307, Som Dutt Chambers-II, Bhikaji Cama

Place, New Delhi, mainly on the ground that the objector

was secured creditor of M/s. Harshita Limited previous owner of the

said flat with other several immovable properties against availing

several financial limits from the objector. Left with no option, the

objector was constrained to file an application before the Debt

Recovery Tribunal for recovery of its dues i.e. Rs.5,27,50,219.83 p

along with interest both pendentelite and future from the date of

filing of OA till the realization of the amount. The said proceedings

were pending. It is contended that since the flat in question was

the mortgaged property with the objector, therefore, the said flat

could not be subject matter of the auction/attachment before this

Court. Therefore, it was prayed that the objection filed by the

objector be adjudicated upon relating to attachment or sale of the

property bearing No.307, Som Datt Chambers-II, Bhikaji Cama

Place, New Delhi.

12. On 22.06.2004 Pubjab National Bank/objector filed

second application under Order 21 Rule 58 and Rule 90 CPC being

EA No.250/2004 for adjudication of the claim of the objector in

relation to property/flat No.306, Som Datt Chambers-II, Bhikaji

Cama Place, New Delhi, being the first and paramount equitable

mortgage charge. In addition to the facts stated in the first

application, it was contended by the objector that the Flat No.306

was also mortgaged in favour of the objector who has the first and

paramount charge over the said flat as well other properties. It is

stated that against this flat also proceedings for recovery

were pending before the Debt Recovery Tribunal being O.A.

No.259/1999 and during the course of pendency of the said

proceedings it transpired that M/s. Harshita Limited had been

ordered to be wound up in accordance with the provision of the

Companies Act by the Rajasthan High Court vide order dated

29.8.2003 in Company Petition No.44/2000 titled as Indbank

Merchant Banking Services Ltd. vs. M/s. Harshita Limited and

Official Liquidator was directed to attach all the properties of

Harshita Limited and take charge thereof and in fact the objector

had moved the application before the Tribunal to implead the

Official Liquidator as one of the parties in the said proceedings.

13. It was stated that now all of a sudden it had transpired

that the property No.306 which was equitably mortgaged with the

objector by Sh. Satish Chandra Sharma had been sold by the

auctioneer in the present execution proceedings and as such the

objector who had first and paramount charge of the said

property/flat No.306 prayed in the application to set aside the sale

on the ground of material irregularity in auctioning of the said

property/Flat No.306 as the fraud had been played in publishing the

sale proclamation or conducting the sale in respect of the said flat

as the said flat could not have been put to auction on various

grounds, namely, that Schedule-C of the list of immovable

properties does not contain the property/Flat No.306. Therefore,

the said property could not have been auctioned or put to sale for

the purpose of recovering any amount due and payable by M/s

Harshita Limited. Further it was stated that the said flat is owned

by Sh. Satish Chandra Sharma in his personal capacity who had

delivered the title deed of the said property to the objector with the

intention to create equitable mortgage in 1997 to secure

various facilities sanctioned to and availed by M/s. Harshita

Limited.

14. The objector has also given the reference of Flats No.303

and 304 which have been ordered to be released from the sale.

Therefore, it is contended that there is an error apparent on the

face of the record in respect of the Flat No.306 at the time of

settling the sale proclamation as the said property was not

correctly sold by the Court Auctioneer which belonged to Sh. Satish

Chandra Sharma who was neither the party in the present

execution proceedings nor any decree had been obtained by the

decree holder. The alternative prayer in the application is also

made that in any event the sale consideration/auctioned amount of

the property/Flat No.306 be paid to the objector to which decree

holder is not entitled to claim the same.

15. The third application being EA No.251/2004 was filed

under Section 151 CPC for stay praying that in view of the facts

stated in earlier two applications the auction purchaser of Flat

No.306 be restrained from selling, parting with, creating any third

party interest or otherwise dealing with the property/Flat No.306,

Som Datt Chambers-II, Bhikaji Cama Place, New Delhi.

16. The fourth/last application being EA No.67/2005 was filed

under Section 151 CPC on 8.2.2005 stating that the public auction

held on 3.11.2003 and 7.11.2003 in respect of Flats No.306 and

307 shall be deemed as null and void since the decree holder has

filed to obtain the requisite permission to get the property sold

belonging to the judgment debtor which is mandatory by virtue of

Section 537 of the Companies Act, 1956. It is prayed in the

application that the orders for sale of Flat No.307 be set

aside/quashed and the objection filed by the Punjab National Bank

be allowed.

17. EA No.197/2004 was listed on 4.5.2004. On the said

date notice was issued by this Court and interim order was passed

that the possession of Flat No.307, Som Dutt Chambers II, Bhikaji

Cama Place, New Delhi, shall not be handed over to the Auction

Purchaser in terms of the orders dated 15th March, 2004. EAs

No.250/2004 and 251/2004 were listed before the Court first time

on 30.6.2004 wherein the interim order was passed to the effect

that auction purchaser shall not sell, part with or create any third

party interest in Flat No.306, Som Dutt Chambers-II, Bhikaji Cama

Place, New Delhi and the amount deposited by the auction

purchaser in the court shall not be released in favour of the decree

holder. In EA No.67/2005, which was listed on 21.2.2005, notice

was issued to the decree holder as well as counsel for the auction

purchaser and the interim orders earlier passed in relation to Flats

No.306 and 307 were ordered to be continued by the Court.

18. By order dated 18.7.2005 it was clarified by the Court on

the basis of the statement made by the decree holder that Flats

No.302 to 305 were not in the possession of the judgment debtor at

the time of the execution of the decree. Therefore, the present

execution was now confined only to the two Flats No.306 and 307

for which the attachment has been effected and even auction has

taken place. The sale had been confirmed and possession had

been transferred to the auction purchaser in respect of Flat No.306.

19. The main contention of the auction purchaser of Flat

No.306 is that the application to set aside the sale is barred by

limitation as the sale of this Flat took place on 3.11.2003. The

application for setting aside the sale was filed by the objector on

22.6.2004 which is beyond the period of 60 days under Article 127 of

the Limitation Act. It is also alleged that the objector has no locus

standi to file the objection as its interest is not affected by the same

on the ground of material irregularity or fraud in publishing and

conducting the auction. The objector can claim the said property by

an independent suit.

20. It is averred that objection raised by the objector under

Order 21 Rule 58 CPC that the Flat No.306 could not have been

auctioned or put to sale could have been raised on or before the

date on which the proclamation of sale was drawn up. Now the said

objection cannot be entertained in view of the bar under Order 21

Rule 58 (a) of the CPC which reads as under:

58(a). Where, before the claim is preferred or objection is made, the property attached has already been sold.

21. As in the present case objections have been preferred

after the confirmation of the sale by the objector who is neither the

owner nor the judgment debtor and he is merely claiming the right,

title and interest on the basis of equitable mortgage. Therefore, the

said objection filed by the objector is barred under the said provision.

22. The other contention is made that the objection under

Order 21 Rules 58 & 90 CPC on the ground of irregularity or fraud in

publishing and conducting the sale is also barred by time. Under the

said provision, the objector was required to establish that

there was not only inadequacy of the price but inadequacy

was caused by reason of material irregularity or fraud. Neither the

objector could produce any cogent evidence in relation to

inadequacy of price nor are specific grounds mentioned. Therefore,

the objection is completely outside the scope of the said provision.

23. The allegation of the objector that the property was sold

at a throw away price was also denied by the auction purchaser. It

is alleged that the property was purchased for Rs.5,50,000/- at the

time of auction and there were encumbrances over the said

property. The total amount of encumbrances comes approximately

to Rs.8,00,000/-. The auction purchaser has also spent amount for

purchase of Non-Judicial Stamp Papers. Thus, the amount comes

approximately to Rs.14,00,000/-.

24. The other auction purchaser of Flat No.307 has also filed

the reply and made his contention inter alia is that the auction of

this Flat was held on 7.11.2003. The auction purchaser was

declared as highest bidder. He deposited the total bid amount in

this Court. Vide order dated 15.3.2004, this Court accepted and

confirmed the same and further ordered that the sale certificate

and warrants of possession be issued in favour of the auction

purchaser.

25. It is contended that the auction purchaser is a bonafide

purchaser of the said Flat in terms of order dated 15.3.2004 and he

was the highest bidder at Rs.7,65,000/-. The said amount was

deposited in this Court by way of bank draft on 7.11.2003. Similar

objection was raised that objection filed by the Punjab National

Bank is barred by the provision of Order 21 Rule 58 CPC as no

objection would be maintainable if the sale has already been

confirmed. The auction purchaser has not denied the averment

made in EA No.67/2005 pertaining to the winding up orders passed

by Rajasthan High Court. However, it is argued that the secured

creditors are outside the scope of winding up proceedings. Therefore

Section 537 of the Companies Act is not applicable even otherwise

the same being barred by time. Since the Flat No.307 belongs to

judgment debtor and the said flat has been put for auction after

complying all the formalities in accordance with the provisions of law,

therefore, there is no merit in respect of Flat No.307 and EA

No.197/2004 and EA No.67/2005 be dismissed with cost.

26. On 30th April 2007 it was reported that Mr. B.K.Soni HUF,

auction purchaser of property i.e. Flat No.307 the Karta of HUF has

expired on 28th February 2007 and EA No.215/2007 was filed

seeking leave to substitute the name of deceased Karta by his

successor Mr. Aditiya Soni who is the eldest son.

27. Later on by order dated 22nd February 2008, EA was

allowed and Sh.Aditiya Soni was ordered to be substituted as the

Karta of B.K.Soni, HUF, auction purchaser in respect of Flat No.307.

The second EA No.48/06 filed by the same auction purchaser for filing

the additional affidavit was also allowed by the same order.

OBJECTION TO THE PROPERTY/FLAT BEARING NO. 307

28. The objector has filed the objection in relation to flat

bearing no. 307 under the provision of Order 21 Rule 58 and 90 CPC

which reads as under:

"ORDER XXI--EXECUTION OF DECREES AND ORDERS

58. Adjudication of claims to, or objections to attachment of, property-

(1) Where any claim is preferred to, or any objection is made to the attachment of, any property attached in execution of a decree on the ground that such property is not liable to such attachment, the Court shall proceed to adjudicate upon the claim or objection in accordance with the provisions herein contained:

Provided that no such claim or objection shall be entertained-

(a) where, before the claim is preferred or objection is made, the property attached has already been sold; or

(b) where the Court considers that the claim or objection was designedly or unnecessarily delayed.

(2) All questions (including questions relating to right, title or interest in the property attached) arising between the parties to a proceeding or their representatives under this rule and relevant to the adjudication of the claim or objection, shall be determined by the Court dealing with the claim or objection and not by a separate suit.

(3) Upon the determination of the questions referred to in sub-rule (2), the Court shall, in accordance with such determination,-

(a) allow the claim or objection and release the property from attachment either wholly or to such extent as it thinks fit; or

(b) disallow the claim or objection; or

(c) continue the attachment subject to any mortgage, charge or other interest in favour of any person; or

(d) pass such order as in the circumstances of the case it deems fit.

(4) Where any claim or objection has been adjudicated upon under this rule, the order made thereon shall have the same force and be subject to the same conditions as to

appeal or otherwise as if it were a decree.

(5) Where a claim or an objection is preferred and the Court, under the proviso to sub-rule (1), refuses to entertain it, the party against whom such order is made may institute a suit to establish the right which he claims to the property in dispute;

but, subject to the result of such suit, if any, an order so refusing to entertain the claims or objection shall be conclusive.

29. It clearly appears from the facts that when the objections

were filed by the Punjab National Bank on 22.04.2004, the flat in

question was already sold on 13.11.2003 and the entire

consideration was deposited in the court. Hence Proviso (a) of Rule

58 would directly apply in the matter and objections filed by the

Punjab National Bank are also beyond the period of 60 days, the

time provided in Article 127 of the Limitation Act. Undisputedly

the auction purchaser of the flat has now become aware of the fact

that the property purchased by him is under equitable mortgage

with the objector. This flat was admittedly belonging to judgment

debtor, its detail was correctly given in the Schedule „C‟ of the

property. The property was sold by the court auctioneer. No

cogent evidence has been produced by the objector that there is

any irregularity committed at the time of sale. The objections were

not filed in time. There is no material on record to show that any

fraud has been committed. So in any case, the interest of the

objector is not affected by the same. The objector who claim a

permanent title to the judgment debtor in the property can raise

the said claim by an independent suit or proceeding as in the

present case only interest of the judgment debtor in the property is

sold. The other submissions raised by the objector are without any

substance and have no bearing on the facts and circumstances of

the present dispute. Therefore, the objections are not tenable and

the same are dismissed. The interim order passed on 04.05.2004

is vacated.

30. In view of the order passed on 15.03.2004 the sale

certificate and warrants of possession be issued in favour of the

auction purchaser. E.A. Nos. 197/2004 and 67/2005 are disposed

of.

OBJECTION TO THE PROPERTY/FLAT BEARING NO. 306

31. In view of the facts mentioned in the earlier part of the

order, it is clear that no execution for attachment of this flat was

filed. Schedule „C‟ does not contain the details of immovable

property in respect of this flat. The flat was sold on 07.11.2003.

Vide order dated 15.03.2004 the auction was accepted by the court

and an order to issue sale certificate was made. The auction

purchaser also took the possession of the said flat. The objections

were filed by the objector/Punjab National Bank on 23.06.2004

which is admittedly after the expiry of 60 days. However, the said

objections are also filed under Rule 90 of Order XXI CPC which

reads as under:

90. Application to set aside sale on ground of irregularity or fraud

(1) Where any immovable property has been sold in execution of a decree, the decree-holder, or the purchaser, or any other person entitled to share in a rateable distribution of assets, whose interests are affected by the sale, may apply to the Court to set aside the sale on the ground of a material irregularity or fraud in publishing

or conduction it.

(2) No sale shall be set aside on the ground of irregularity or fraud in publishir 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.

(3) No application to set aside a sale under this rule shall be entertained upon an ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up.

32. It reveals from the record that notice of proclamation of

sale in respect of flat no. 306 was prepared along with other flats

bearing nos. 302 to 305 which were not in the list of immovable

properties of Schedule „C‟ attached with the execution petition.

One is failed to understand as to why such an error took place while

settling the proclamation notice, although later on this Court

passed an order in respect of flat no. 303 and 304 to the effect that

those flats should not be put to sale in the execution of warrants of

attachments issued by this court. In the objections filed by the

objector/Punjab National Bank, certain serious allegations for

irregularity and fraud in publishing the sale proclamation and

conducting the sale in respect of this flat have been made. The

learned counsel for the objectors has also referred various

decisions in support of his submissions. Relevant decisions referred

by him are:

a) In case titled as A.P. Ismail Rowther, Vs. Mynoon Bivi

and Others, AIR 1966 Madras 84 it is held that:

"(b) Civil. P.C. (1908), S. 151 - Court has got inherent power to set aside sale on ground of material irregularity or fraud, even though the petitioner had locus standi

or not to file application for setting aside the sale.

..............

Even if the person who brought to light the fraud had no locus standi either under S. 47 or O. 21, R 90, the court had an ample reserve of inherent powers to satisfy itself suo motu that its process had been abused.

Because the source of information happened to be a person who had no locus standi, the court could not close its eyes and decline to exercise its inherent powers to set aside the sale on being satisfied that as a result of conspiracy a fraud had been perpetuated and its process had been abused."

b) In the case of Punjab Mercantile Bank Ltd. Vs. Sardar

Kishan Singh AIR 1963 Punjab 230 it is held that:

"Where fraud was perpetrate, length of time would not be admitted to refuse relief

- Party who wrongfully concealed facts would not be allowed to take advantage of his own wrong by setting up the law of limitation - Even if the person who brought to light the fraud had no locus standi, either under S. 47 or O. 21 R. 90 the Court had an ample reserve of inherent powers to satisfy suo motu that its process had been abused."

33. The learned counsel for the auction purchaser Mr. Mann

has argued that the objections are barred by limitation and are not

maintainable after confirmation of sale by this court. He has

referred few decisions on this aspect.

34. Although Article 127 of the Limitation Act is quite general

and applied to all applications based on whatever grounds to set

aside the sale in execution of decree but where there was non

compliance with the order fixed by the execution court for selling

property then the question of limitation does not arise. It will not

apply inter alia in the following cases:

a. Where there was non compliance with the order fixed by the executing court for selling property;

b. Where there was fraudulent concealment of proceedings till the time of the sale; c. Where after amendment of the application permitting a different item to be sold in the place of the original one, d. In case of clear evidence of fraud upon Court and its own carelessness in approving the sale proclamation.

35. Scope of Rule 90 of Order XXI is that where the

immovable property has been sold in execution of a decree, the

application filed by the decree holder or any other person whose

interest are affected by the sale, to set aside the sale on the

ground of irregularity or fraud is maintainable and as per the

settled law if there is an irregularity or fraud in publishing or

conducting it or if the irregularity or the fraud is apparent one then

the court has the jurisdiction to set aside the sale on filing of an

application. No doubt, the objector in the present case has given

the specific particulars of irregularities, thus, contentions of the

auction purchaser have no force. The decisions referred by the

counsel are not applicable to the facts of this case. It is pertinent

to mention in the present case that the decree holder and

judgment debtors did not bring to the notice of this court about the

occurrence of error in issuance of proclamation of sale until

objections were filed by the objector pertaining to this flat rather

they chose to file the evasive replies to the objections filed by the

Punjab National Bank.

36. It is also a matter of fact that the flat in question is not

belonging to the judgment debtor. It is owned by the

Chairman/Managing Director of the Judgment Debtor‟s company in

individual name who was not the party in the suit and in execution

proceedings.

37. For the aforesaid reasons, it appears that there is an

apparent error and irregularity which had taken place at the time of

settling the draft of sale of proclamation of flat no.306, Som Dutt

Chambers-II, Bhikaji Cama Place, New Delhi, the property which

was not mentioned in Schedule „C‟ of the list of immovable

property. Thus, the orders of sale of property/flat no. 306, Som

Dutt Chambers-II, Bhikaji Cama Place, New Delhi are recalled. The

auction purchaser is given three months time to deliver the

possession of the flat to this court by depositing the keys of the

said flat. The auction purchaser, however, is entitled to receive the

refund of the amount deposited by it with the Registrar General of

this court along with interest accrued thereon.

38. In view of the above, E.A. Nos. 250 and 251/2004 are

disposed of with liberty to the objector to file the objections in

accordance with law in-case of filing of fresh execution by the

decree holder for the balance amount due in respect of flat no. 306.

39. The execution petition along with pending E.As. are

disposed of.

MANMOHAN SINGH, J.

JULY 26, 2010 dp