RSA No. 3100 of 2009 (1) IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH RSA No. 3100 of 2009 Date of Decision: September 2, 2009 Surat Singh and others ......Appellants Versus IFCI Ltd. and others .......Respondents CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA. 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? Present: Shri A.K. Chopra, Senior Advocate, with Ms. Shilpa Malhotra, Advocate, for the appellants. HEMANT GUPTA, J. (Oral). Defendant Nos. 1 to 8, legal heirs of Balwant Singh, are in second appeal aggrieved against the judgment and decree passed by the Courts below, whereby the plaintiff's suit for declaration challenging the ex- parte decree dated 8.12.1994 obtained by Balwant Singh, was decreed. The facts leading to the present appeal are chequered but also show that how the process of Court can be abused by the parties to defeat and delay the proceedings for recovery of the loan amount. On 15.4.1987, the land measuring 14 bighas 1 biswa was purchased by defendant No.12, namely, M/s International Ceramics Ltd. (hereinafter referred to as `the Company' ) vide sale deed executed by Phoola Ram and Sher Singh son of Sukh Lal (Exhibit P.3), whereas RSA No. 3100 of 2009 (2) mutation of purchase in respect of specific area is Exhibit P.1. Another parcel of land measuring 6 bighas 14 biswas was purchased by the Company vide sale deed dated 25.7.1989 Exhibit P.4 executed by Lakhi son of Sukh Lal. The mutation is Exhibit P.3. The Company after purchase raised loan of more than Rs.10 crores on the security of the land by executing equitable mortgage. The documents of loan are Exhibits P.13, P.14, P.15, P.19, P.20 to P.28 etc., whereas the amount outstanding against the Company is contained in certificate Exhibit P.16. The Original Application before the Debt Recovery Tribunal, filed by respondent No.1, is Exhibit P.18. Balwant Singh, predecessor-in-interest of the present appellants, filed a suit for declaration and for mandatory injunction on 25.8.1991. In the said suit, the sale deeds Exhibits P.3 & P.4 and mutations Exhibits P.1 & P.2 were challenged on the ground that the sale by defendant Nos. 2, 3 and 4 is of specific khasra numbers though the land is joint and that defendant No.1-Company intends to raise construction over the specific khasra numbers, therefore, the sale deeds are null and void. In the said suit, an ex-parte decree was granted by the learned trial Court on 8.12.1994, when it was held to the following effect in the judgment:- “As the defendants no. 2 to 4 had no right to sell away the specific khasra number, so these sale deeds Ex.P.4 and Ex.P.5 are null and void and not bindings on the rights of the plaintiff. Similarly the mutations 655 and 725 sanctioned on the basis of the sale deed are also null and void and does not create the title in favour of the defendant No.1. Consequently defendant no.1 has no right to raise the construction over the specific khasra numbers. The evidence of the plaintiff goes unrebutted. RSA No. 3100 of 2009 (3) There is nothing on record that why the evidence of the plaintiff be not admitted. In view of it, I am of the confirmed opinion that the sale deed dated 21.4.1987 and 25.7.1989 and mutation Ex. P.6 and Ex. P.7 i.e. No. 655 and 725 are declared null and void. Defendant No. 1 has no right to raise the construction over the suit property and the suit of the plaintiff is hereby decreed to this effect. Decree-sheet be prepared accordingly and file be consigned to the record room.” Though the decree was declaratory and could not have been executed, still Balwant Singh filed an execution petition so as to claim possession of the property sold to the Company and in the said execution, vide Rapat Rozmancha dated 14.4.1996, the possession was purportedly delivered to the decree holder vide Exhibit D.6. On 24.5.1997, respondent No.1-plaintiff herein filed an application before the Executing Court for suspension of the legal proceeding in view of the fact that the Company has filed an application dated 11.1.1997 before the Board of Industrial and Financial Reconstruction for being declared as a sick Company. Even though, the application was pending and also a Receiver appointed by the Executing Court, still the execution was dismissed as withdrawn on 28.3.1998. The Company has also filed an application dated 15.5.1996 for setting aside of ex-parte decree dated 8.12.1994. The said application was dismissed in default on 20.5.1998. On 24.4.1998, Surat Singh son of Balwant Singh filed a separate suit (Exhibit D.9) for permanent injunction restraining the plaintiff herein, BIFR and Central Bank of India to interfere into the peaceful physical possession of said Surat Singh. In the said suit, written statement on behalf of the plaintiff, herein, was filed on 22.5.1998. In the said suit, RSA No. 3100 of 2009 (4) there was an ad-interim injunction granted, but the suit was withdrawn on 7.5.2002. The present suit for declaration challenging the exparte decree dated 8.12.1994 has been filed on 4.9.2001, inter-alia, on the ground that the said decree is ineffective, null and void, non-est and not binding on the rights of the plaintiff as the same has been obtained in collusion with defendant Nos.1 to 4 of the said suit and the same is liable to be set aside. The plaintiff also claimed a relief of permanent injunction for restraining defendant Nos. 1 to 11 from getting any benefit under the said judgment and decree. In the suit, it was pleaded that Lekh Ram, Phoola and Sher Singh inherited total land measuring 85 bighas 5 biswas along with Lakhi and Balwant Singh. It was pleaded that in the sale deed dated 15.4.1987, Balwant Singh, the decree holder has confirmed the oral partition and gave consent for sale. It was pleaded that the Company has constructed a huge building after purchase of land and after obtaining necessary permission from the competent authority for erecting structure and erected plant and machinery after availing credit facility. It was pleaded that plaintiff and defendant Nos. 14 and 15 were not impleaded in the civil suit, which led to decree dated 8.12.1994 and that Balwant Singh has obtained such decree by misrepresentation and fraud and the same is not binding on the plaintiff at all. It was pleaded that the decree is null and void and without affording a reasonable opportunity to the creditors and particularly not satisfying fully as to the physical possession of the property in question. It was pleaded that the decree has been obtained with the motive to defeat the recovery of the amount by the plaintiff and for wrongful gains by the said decree holder. RSA No. 3100 of 2009 (5) The decree is without jurisdiction; in violation of the principles of statute and of natural justice. In the written statement, it was pointed out that the Company got executed sale deeds from Phoola, Sher Singh and Lekh Ram, without getting the land partitioned and that no co-sharer has a right to sell land comprising in specific khasra number without getting the same partitioned. Thus, the sale deeds were said to be illegal, null and void, based upon fraud and misrepresentation. It was also pointed out that the plaintiff was aware of the judgment and decree dated 8.12.1994 as an application under Section 22 of the Sick Industrial Company (Special Provisions) Act, 1985 was filed on 25.10.1997 in the execution petition. It was denied that Balwant Singh confirmed oral partition and gave consent to sell the land in question. The learned trial Court found that active connivance of the original land owners and the Company is not only evident but palpably obvious. The role of the Company was found to be dubious and extremely questionable. It was found that though the sale consideration was paid before the Sub Registrar, but the Company never sought refund of the same from the original owners nor taken any steps to agitate their rights in the suit. It was also found that the sale was challenged on the ground that the vendors did not have any right to alienate specific khasra numbers, but in view of the full Bench judgment of this Court in Bhartu v. Ram Sarup, 1981 PLR 204, the sale of a specific khasra number is still a sale of a share only and that the sale deed does not become fraudulent or void. The Company did not contest the suit which led to decree dated 8.12.1994. It also noticed that if the facts would have been brought to the notice of the Court, the judgment and decree could not have been passed. Grant of such judgment RSA No. 3100 of 2009 (6) and decree is suggestive of the collusion between the parties so as to defeat the rights of the creditors. It was also found that since the act in obtaining decree was fraudulent, therefore, the decree obtained by playing fraud is a nullity and non-est. The learned first Appellate Court confirmed the finding recorded by the learned trial Court. It was found that the execution petition in which the plaintiff filed an application for suspension of legal proceedings, was dismissed as withdrawn on 28.3.1998. It was found that Shri Manpreet, Advocate, was appointed as a Receiver and he has taken physical possession of the assets and, therefore, the execution petition, could not have been dismissed being fully satisfied. Subsequently, the civil suit filed by Surat Singh was also dismissed as withdrawn on 7.2.2002. The application filed by the Company to set aside exparte judgment and decree was got dismissed in default on 2.5.1998. The Company has not disclosed about the factum of mortgage and/or hypothecation of land in favour of the plaintiff and other financial institutions. With the aforesaid finding, the appeal was dismissed. Before this Court, learned counsel for the appellants has vehemently argued that the suit has been decreed by the Courts below on the basis of inferences without any evidence. In the plaint, the particulars of fraud have not been disclosed, which is mandatory in terms of Order 6 Rule 4 CPC. What has been stated in the plaint is that the decree obtained is result of fraud, but how it is the result of fraud is not disclosed. Therefore, the finding recorded by the Courts below that the exparte decree dated 8.12.1994 is result of fraud is vitiated in law. Reliance is placed upon Bishundeo Narain & another v. Seogeni Rai and others, AIR 1951 SC 280, RSA No. 3100 of 2009 (7) to contend that the party pleading fraud must set forth full particulars of the case and the same can only be decided on such particulars, and there cannot be any departure from such particulars in evidence. It is also argued that action of the Company in its dealing with the Bank, may be illegal, but that will not affect the rights of the present appellants, who as co-sharers have challenged the sale in favour of the Company. The rights and liability of the Company cannot be treated as the rights and liabilities of defendant Nos. 1 to 8. It is also argued that inferences of fraud are drawn against the Company, but such inferences cannot be used against the appellants. It is also argued that the equitable mortgage is not registered nor permission has been sought to file the present suit under Section 446 of the Companies Act, 1956. Therefore, the present suit is not maintainable. It is also argued that the original sale deeds have not been produced, which are the basis of the suit for declaration that the decree is void. It is also argued that an application to seek partition filed by the Company was dismissed in default, which shows that the land continues to be jointly owned by the co-sharers. Therefore, the Company could not raise construction on the specific portion. The decree dated 8.12.1994 cannot be challenged by third persons i.e., the plaintiff by way of the present suit, particularly when there is no evidence of any connection remote or near of Balwant Singh with the Company; its Directors or share holders. Having heard learned counsel for the appellants at some length, I am of the opinion that it is a case where the interests of a financial institution are sought to be frustrated by abusing the judicial process and by concealing and misstating the material facts at every step of the proceedings. It is the availability of the legal advice to the Company, which RSA No. 3100 of 2009 (8) has been used to the detriment of the financial institution, which is wholly unfair. The argument that the particulars of fraud have not been disclosed as required by Order 6 Rule 4 of the Code of Civil Procedure, is not correct. In the plaint, the entire sequence of events from the date of purchase of land, obtaining of financial assistance from the plaintiff and construction of building, has been mentioned. It is also pointed out that the delay in filing of suit by Balwant Singh is not explained, though he had knowledge of construction for years together. It is pleaded that the motive of filing of suit is attributable only to monetary gain rather than on valid legal footing and it is for this reason, no Bank or financial institutions, were impleaded in the suit. It has been further pleaded that the decree obtained is by misrepresentation and fraud and is not binding at all on the plaintiff. It is also pleaded that the decree has been granted without opportunity to the creditors and by not being fully satisfied as to physical possession of the property in question. No local inspection regarding nature of the property was got conducted and the decree was obtained in collusion with the parties to the suit. Whether the decree is result of collusion is an inference is on conclusion to be arrived at on the basis of facts pleaded. None of the facts, which is relevant, which led to the decree is not found to be lacking in pleadings. Therefore, the argument that particulars of fraud have not been disclosed, is not tenable. There is no dispute that the party pleading fraud must set forth full particulars of the case, but in the present case, the plaintiff has proved on record, the various instances of fraud and collusion which led to the passing of the decree. Some of the facts can be enumerated as under:- RSA No. 3100 of 2009 (9) [i] The suit is to challenge two sale deeds by the other co-sharers on the ground that sale is of a specific khasra numbers and thus, the sale is vitiated. The said plea is against the well settled principles of law enunciated by a Division Bench of this Court in Sant Ram Nagina Ram v. Daya Ram Nagina Ram, AIR 1961 Pb. 528, reiterated by the Full Bench of this Court in in Bhartu v. Ram Swarup's case (supra), wherein it has been held that sale by a co-owner of a specific khasra number shall be a sale of a joint holding. Simply for the reason that sale was of a specific khasra number, such sale cannot be rendered to be null and void, but such sale can only be said to be subject to right of partition. [ii] The suit has been filed after three years of the sale effected on 15.4.1987 in respect of the land measuring 14 bighas 1 biswa. Such sale could not have been declared to be null and void after more than 3 years. [iii] The Company has not contested the suit, pointing out that the building has been constructed by the Company and the same has been mortgaged in favour of the financial institution. [iv] None of the financial institutions, which have advanced huge loan, was impleaded in the proceedings. [v] An application filed by the Company for setting aside the ex-parte decree was got dismissed in default. [vi] In execution, Shri Manpreet Singh, Advocate, was RSA No. 3100 of 2009 (10) appointed as a Receiver, but still the execution petition was got dismissed as withdraw on 28.3.1998. [vii] Surat Singh son of Balwant Singh files a suit for permanent injunction and obtains injunction order, but after filing of the written statement by the financial institution, withdraws the same on 7.5.2002. [viii] Though the sale in favour of the Company was said to be null and void, still the Company has not taken any steps to recover the sale consideration allegedly paid to the vendors. In Nagubai Ammal and others v. B. Shama Rao and others, AIR 1956 SC 593, Hon'ble Supreme Court has explained distinction between the proceeding which is collusive and the one which is fraudulent. It was held to the following effect:- “15. Now, there is a fundamental distinction between a proceeding which is collusive and one which is fraudulent. “Collusion in judicial proceedings is a secret arrangement between two persons that the one should institute a suit against the other in order to obtain the decision of a judicial tribunal for some sinister purpose”. (Wharton's Law Lexicon, 14th Edn. p.212). In such a proceeding, the claim put forward is fictitious, the contest over it is unreal, and the decree passed therein is a mere mask having the similitude of a judicial determination and worn by the parties with the object of confounding third parties. But when a proceeding is alleged to be fraudulent, what is meant is that the claim made therein is untrue, but that the claimant has managed to obtain the verdict of the court in his favour and against his opponent by practising fraud RSA No. 3100 of 2009 (11) on the court. Such a proceeding is started with a view to injure the opponent, and there can be no question of its having been initiated as the result of an understanding between the parties. While in collusive proceedings the combat is a mere sham, in a fraudulent suit it is real and earnest.” In Ramchandra Ganpat Shinde and another v. State of Maharashtra and others, (1993)4 Supreme Court Cases 216, collusion was found to be a foundation to put forward a format of judicial process and a pretext of contest which in effect is unreal and a farce and the decree or order obtained on its basis is a mere mask having similitude of judicial determination with an object of confounding third parties. The Court has held to the following effect:- “In Nagubai Ammal v. B. Shama Rao, this Court held that collusion in judicial proceedings is a secret arrangement between two persons that the one should institute a suit against the other in order to obtain the decision of a judicial tribunal for some sinister purpose. In such a proceeding, the claim put forward is fictitious, the contest over it is unreal, and the decree passed therein is a mere mask having the similitude of a judicial determination and worn by the parties with the object of confounding third parties. This was reiterated in Rup Chand Gupta v. Raghuvanshi Pvt. Ltd. AIR 1964 SC 1889, in which this Court held that the collusion is an improper act done by an improper refraining from doing an act, for a dishonest purpose. In these two cases this Court set aside the collusive decree obtained by the parties. Collusion, thus, is a foundation to put forward a format of judicial process and a pretext of contest which in effect is unreal and a farce and the decree or order obtained on its basis is a mere mask having similitude of RSA No. 3100 of 2009 (12) judicial determination with the object of confounding third parties. The offending order is vitiated by collusion and formed foundation for election to the committee of the Society.” xx xx xx “17......For an order obtained by abuse of the process of the court or by playing fraud or collusion, this Court should not countenance such an argument and should not allow such an order to remain operative for a moment. We are not equally impressed with the argument that the respondent now became aware that Mr. Patil secured more than 4 to 5 thousand votes though the invalid votes are only 2 thousand, being of the members admitted after December 17, 1991, and that should be a factor for our declining to exercise the power under Article 136 to set aside the order of the High Court or the elections conducted pursuant to the permission granted by this Court. In our view, acceding to it would amount to putting a premium on fraud, collusion or abuse of the process of the court creating disbelief and disillusionment of the efficacy of judicial process and rule of law and a feeling would be generated that persons capable to manoeuvre and abuse the judicial process would reap the benefit thereof and get away with the orders. Every endeavour would be made to inculcate respect for fair judicial process and faith of the people in the efficacy of law.” In Lachhman Dass v. Jagat Ram and others, (2007)10 Supreme Court Cases 448, it was held that if the collusion between the parties is apparent on the face of the record, it is not necessary to specifically plead the same. In K.D. Sharma v. Steel Authority of India Limited, (2008) 12 RSA No. 3100 of 2009 (13) Supreme Court Cases 481, it was held to the following effect:- “26. It is well settled that “fraud avoids all judicial acts, ecclesiastical or temporal” proclaimed Chief Justice Edward Coke of England about three centuries before. Reference was made by the counsel to a leading decision of this Court in S.P. Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC page 1, wherein quoting the above observations, this Court held that a judgment/decree obtained by fraud has to be treated as a nullity by every court. 27. Reference was also made to a recent decision of this Court in A.V. Papayya Sastry v. Govt. of A.P., (2007) 4 SCC 221, considering English and Indian cases, one of us (C.K. Thakkar, J.) stated: (SCC p.231, para 22) “22. It is thus settled proposition of law that a judgment, decree or order obtained by playing fraud on the court, tribunal or authority is a nullity and non est in the eye of the law. Such a judgment, decree or order – by the first court or by the final court – has to be treated as nullity by every court, superior or inferior. It can be challenged in any court, at any time, in appeal, revision, writ or even in collateral proceedings.” The Court defined “fraud” as an act of deliberate deception with the design of securing something by taking unfair advantage of another. In fraud one gains at the loss and cost of another. Even the most solemn proceedings stand vitiated if they are actuated by fraud. Fraud is thus an extrinsic collateral act which vitiates all judicial acts, whether in rem or in personam.” From the reading of the above enunciation of law, it is apparent that the suit filed by Balwant Singh was an act of collusion with the Company and a pretext of contest which in effect was unreal and a farce. RSA No. 3100 of 2009 (14) The decree obtained on its basis is a mere mask having similitude of judicial determination with object of confounding third party i.e., the plaintiff. Such decree on the basis of sale of a specific khasra number could not have been granted as such sale is not illegal. Therefore, the grant of decree is nothing, but result of collusion between the parties so as to commit fraud with the financial institution. The argument that the rights and liabilities of the Company cannot be treated as the rights and