1 1. M/s. Reliable Computers vs. Rajasthan Financial Corporation & Ors. (S.B. Civil Writ Petition No.4807/2006) 2. Rajasthan Financial Corporation Vs. M/s Reliable Computers & Ors. (S.B. Civil Writ Petition No.4449/2006) Dated : 12th June, 2009 HON'BLE MR. JUSTICE SANGEET LODHA Mr. S.D.Purohit for the petitioner in Writ Petition No.4807/06 and for respondent no.1 in Writ Petition No. 4449/06. Mr. Anil Bhandari for Mr. N.M.Lodha, for the respondent no. 1 in Writ Petition No.4807/06 and for the petitioner in Writ Petition No. 4449/06. Mr. Suresh Shrimali & Mr. Sajjan Singh, for the respondents no. 3 & 4 in Writ Petition No.4807/06 and for respondents no. 5 & 6 in Writ Petition No. 4449/06. Reportable 1. These writ petitions arise out of an order dated 28.7.06 passed by the District Judge, Bhilwara in execution case No.35/02 filed by the Rajasthan Financial Corporation ( in short “RFC”) for execution of order dated 22.5.01 passed in proceedings u/s 31 of the State Financial Corporation Act, 1951 ( in short “the Act of 1951” hereinafter). 2. M/s Reliable Computers, a partnership firm was sanctioned a loan of Rs.7,50,000 by the RFC . As per the loan agreement , the loanee was required to make repayment of loan amount with the interest @ 19% in 17 quarterly installments. The loanee defaulted in making the payment in terms of the agreement therefore, an application under Section 31 of the Act of 1951 2 was filed by the RFC against the loanee firm and its partners before the District Judge, Bhilwara, inter alia with the prayer for recovery of an amount of Rs.14,58,815/- with future interest, by way of sale of property mortgaged as security for loan. The loanee firm or its partners did not appear despite service therefore, the application preferred by the RFC was allowed by the court below vide order dated 22.5.01 directing the recovery of the amount of Rs. 14,58,815/- alongwith interest on sum of Rs.7,50,000/- w.e.f. 22.9.2000, by way of auction of the property mortgaged. The validity of the said order was not assailed by the loanee or its partners, the petitioners herein, by taking any appropriate remedy and therefore, the said order dated 22.5.01 has attained finality. 3. The decree holder RFC filed an application under Order XXI Rule 11 of Civil Procedure Code, 1908 ( in short “CPC”) for execution of order dated 22.5.01 before the District Judge, Bhilwara. The execution application was ordered to be registered by the Executing Court vide order dated 6.7.02 and straight away directions were issued that on deposit of the requisite charges, the proclamation for auction sale may be issued. From perusal of the record of the Executing Court, it is apparent that no attachment in terms of Order XXI Rule 54 was made and no notice requiring the judgment debtor to attend the court on a specified date to take notice of the date to be fixed for settling 3 the terms of proclamation of sale was ordered to be issued. It appears that the description of the property was not correctly mentioned and therefore, the matter remained pending for issuing the proclamation on furnishing the correct description of the property. Ultimately, vide order dated 18.5.04 a fresh proclamation with necessary corrections regarding the description of the property was ordered to be issued under Order XXI Rule 66 of CPC. However, the requisite process fee was not deposited by the decree holder and therefore, even thereafter, the matter remained pending for issuing the proper proclamation. As per the order sheet dated 20.9.06 the auction proclamation was received duly served and accordingly, an order directing issuance of warrant for auction in terms of Order XXI Rule 66 was passed. The auction was carried out on 27.5.06 wherein being highest bidder for Rs.12,11,000/- the auction was knocked down in favour of the respondent nos. 5 & 6. They deposited 1/4th of the bid amount i.e. Rs.3,03,750/-. 4. However, on 29.5.06 the RFC preferred an application before the Executing Court stating therein that the bid received is not adequate and the same was given by collusion therefore, the property may be put to fresh auction. The applications were also preferred by some of the intending purchasers S/Shri Ashok Kumar, Sanju Totla, Mahaveer Mehta and Harmendra Singh stating that they are ready to purchase the property at higher 4 bid which was quoted at Rs. 16,00,000/- and 16,50,000/-. The application was also preferred by the judgment debtors that they are ready to settle the account by making payment of the decreetal amount Rs.14,58,815/- to the RFC. The auction bidder also preferred an application showing his readiness to deposit the remaining amount. However, the applications preferred by the RFC, judgment debtors and other intending purchasers were rejected by the Executing Court and while confirming the highest bid , the highest bidders were directed to deposit the remaining amount vide order dated 28.7.06. Hence, these writ petitions , one at the instance of the RFC and another on behalf of the judgment debtors. 5. It is contended by Mr. S.D.Purohit, the learned counsel for the judgment debtors that in execution proceedings for the sale of judgment debtors' property , it is absolutely necessary that wide publicity should be given as to the date, time and place of public auction to ensure that maximum number of intending purchasers attend the auction. The learned counsel submitted that all necessary details are also required to be incorporated in the proclamation so as to enable the intending purchaser to judge the nature and value of the property. It is submitted by the learned counsel that no such steps were taken therefore, the auction has not fetched the actual value of the property. The learned counsel submitted that before putting the property to 5 auction, no notice either under Order XXI Rule 54 or under Order XXI Rule 66 was issued by the Executing Court to the judgment debtor therefore, the sale in execution of the decree in nullity and void ab initio. The learned counsel submitted that the notice on judgment debtor under Order XXI Rule 66(2) unless waived by the appearance or remained ex parte is a fundamental step of procedure of the court in execution and the same cannot be dispensed with under any circumstances. The learned counsel submitted that the petitioner was ready to satisfy the decree and therefore, there was no occasion for the Executing Court to confirm the highest bid particularly, keeping in view the fact that many intending purchasers had offered the higher bids. The learned counsel submitted that it is apparent from the material on record that the property was auctioned for the lesser price by collusion. The learned counsel submitted that the judgment debtor is ready to compensate the auction purchaser, the respondent no. 5, by paying a reasonable amount as determined by this court. 6. The learned counsel appearing on behalf of the RFC, while adopting the arguments advanced on behalf of the judgment debtors submitted that there was no proper publication of proclamation of sale by public auction, neither the pamphlets were distributed nor any advertisement/notice was published in the newspaper. The learned counsel submitted that looking to 6 the value of the property, it was incumbent upon the Executing court to take resort to the proper mode of publication for wide publicity. The learned counsel submitted that before asking for auction the decree holder RFC had assessed the value of the property at Rs.20 lacs. The learned counsel submitted that the duty of the Executing Court to see as to how the maximum price can be obtained. The learned counsel submitted that a bare perusal of the proclamation notice itself would show that it has been prepared in a very routine manner so much so, even the estimated value of the property has not been mentioned in the proclamation issued. The learned counsel submitted that the auction proceedings concluded in violation of mandatory provisions of Order XXI Rule 54 and Order XXI Rule 66 of CPC are void ab initio. 7. Per contra, the learned counsel appearing on behalf of the auction purchaser submitted that the application filed under Section 31(1) of the Act of 1951 by the RFC before the District Judge against the defaulting loanee was not in the nature of the suit for recovery of loan by sale of mortgaged property and the order passed on such application cannot be treated to be a decree therefore, the provisions of CPC which regulates the sale of the property in execution of the decree cannot be applied to the proceedings lodged for recovery of the amount by auction of mortgaged property in terms of the order passed in proceedings 7 u/s 31 of the Act of 1951. In this regard, the learned counsel has relied upon a decision of the Hon'ble Supreme Court in the matter of “Gujarat State Financial Corporation vs. Natson Manufacturing Co.Pvt. Ltd. & Ors., (1979) 1 SCC ,193. The learned counsel submitted that the order dated 22.5.01 passed by the court below after giving an opportunity of hearing to the judgment debtors by itself is sufficient compliance of Order XXI Rule 54 of CPC and since the notice in terms of Order XXI Rule 54 has already been served upon the petitioner therefore, by virtue of proviso to Order XXI Rule 66(2) no fresh notice under Order XXI Rule 66 was required to be issued to the decree holder and the judgment debtors. The learned counsel submitted that the application as framed by the judgment debtors was neither maintainable under Order XXI Rule 89 nor under Order XXI Rule 90 therefore, the same were liable to be rejected for this reason alone. The learned counsel submitted that it is absolutely incorrect that the highest bid for the property in question knocked down in favour of the auction purchasers is not adequate. The learned counsel submitted that during the auction proceedings officers of the RFC were present and no such objection regarding the adequacy of the bid amount was ever raised on their behalf at the time of the auction therefore, they cannot be permitted to raise any such objection after the conclusion of the auction proceedings. 8 8. I have considered the rival submissions and perused the record. 9. It is true that the proceedings u/s 31 of the Act of 1951 against the defaulting loanee by the Financial Corporation for recovery of the amount outstanding by sale of the property pledged, mortgaged or hypothecated or assigned to the Financial Corporation as security for loan or advance are not akin to the proceedings of suit before the civil court of competent jurisdiction. But then, the procedure in respect to the application u/s 31 is provided under Section 32 of the Act of 1951 and as per sub-section (8) of Section 32, an order of attachment or sale under the said section shall be carried into effect as far as practicable in the manner provided in the CPC for attachment or sale of property in execution of a decree as if the Financial Corporation were the decree holder. Therefore, it goes without saying that while executing the order passed by the learned District Judge in terms of Section 31 for recovery of the amount claimed by way of auction of the mortgaged property, the procedure laid down in this regard under Order XXI of CPC has to be followed as far as it is practicable. 10. It is not in dispute that the application for execution of the order was submitted by the RFC which is deemed to be a decree holder by virtue of the provisions of sub-section (8) of Section 32, in conformity with the provisions of Order XXI Rule 11 of 9 CPC. That apart, the order sheet of the execution proceedings makes it abundantly clear that the Executing Court considered it appropriate and intended to follow the procedure laid down under the CPC for attachment so also for issuing proclamation of sale by public auction of the mortgaged property. Even otherwise, there is absolutely no reason as to why the fair procedure laid down for the purpose under CPC which takes complete care of the interest of the decree holder, the judgment debtor and the persons purchasing the property in auction should not be adhered to by the Executing Court while executing an order passed in terms of Section 31 of the Act of 1951. In this view of the matter, in considered opinion of this court, the contention of the learned counsel for the auction purchasers that the provisions of CPC regulating the sales of immovable property in execution of the decree do not apply to the execution proceedings initiated for execution of the order passed u/s 31 of the Act of 1951 is absolutely devoid of any merit. 11. The contention of the learned counsel that the passing of the order u/s 31 by itself has to be treated sufficient compliance of Order XXI Rule 54 of the CPC is also bereft of any substance. It is to be noticed that u/s 31 , the order is passed by the competent court for sale of the mortgaged property for the recovery of the outstanding amount and the stage of execution of such order arises only thereafter. Moreover, admittedly, in the 10 instant case, after passing of the order no notice in terms of Order XXI Rule 54(1A) was issued requiring the judgment debtor to attend the court on a specified date to take notice of the date to be fixed for settling the terms of proclamation of sale. That apart, it is also not in dispute that no notice to the judgment debtor in terms of Order XXI Rule 66(2) was issued before drawing up the proclamation of intended sale of the mortgaged property. Since, no notice in terms of Order XXI Rule 54 (1A) for settling the terms of the proclamation was issued to the judgment debtor therefore, the proviso to Order XXI Rule 66(2) relied upon by the learned counsel for the auction purchaser cannot be invoked for dispensing with the requirement of notice to the judgment debtors in terms of Order XXI Rule 66(2) . 12. It is settled law that the provisions of Order XXI Rule 54 (1) & (2) are mandatory therefore, before issuing the proclamation of sale , the property has to be attached in the manner provided and other formalities regarding the publication of such attachment have to be complied with strictly. Similarly, the provisions of Order XXI Rule 66(1) & (2) are also mandatory and the proclamation of sale has to be issued in the manner provided after due notice to the decree holder and the judgment debtor. Thus, non compliance of the mandatory provisions of Order XXI Rule 54 & 66 renders the auction proceedings nullity and void ab initio. 11 13. Further, a perusal of the proclamation of sale issued under Order XXI Rule 66 by the Executing Court does not appear to have been published in the reasonable manner. Neither the pamphlets were issued nor any notice regarding the auction sale was published in any newspaper. The estimated value of the property is also not mentioned in the proclamation of sale . The highest bid of the auction purchaser cannot be considered to be adequate that is also apparent on the face of record. Besides, the objections raised by the judgment debtor and decree holder and the offers for higher value made by the intending purchasers, even the auction purchaser has offered a higher amount of Rs.14,65,000/- by way of an A/c Payee cheque in favour of the RFC of course, keeping in view the objection raised regarding the adequacy of the bid amount. Having gone through the record of the proceeding before the Executing Court , this court is satisfied that the irregularity committed in holding the auction proceedings the judgment debtor has sustained substantial injury and therefore, the sale in question deserves to be set aside. It is pertinent to note that the judgment debtor could not have raised the grounds regarding the irregularity committed before the proclamation of sale was drawn up inasmuch as no notice in terms of Order XXI Rule 66(2) was issued to him before drawing the proclamation of sale. Moreover, after perusal of the record of the Executing Court, this 12 court has no hesitation in holding that the auction proceedings does not inspire confidence and viewed from any angle, the same is not sustainable in eye of law. 14. In the result, the writ petitions succeed , the same are hereby allowed. The order impugned dated 28.7.06 passed by the District Judge, Bhilwara in execution case No. 35/02 is set aside subject to the condition that the judgment debtor deposits a sum equal to 5% of the purchase money to be paid to the auction purchaser, within a period of one month from the date of this order. It will be open for the judgment debtors to satisfy the decree by payment of entire decreetal amount to the RFC within a period of one month from the date of this order. If the decree is not satisfied by the judgment debtors within the stipulated period, the Executing Court shall issue the fresh proclamation of sale by way of public auction, in conformity with the relevant provisions of CPC noticed above. The judgment debtor and decree holders shall appear before the Executing Court on 15.7.09 for settling the terms of the proclamation of sale. No order as to costs. (SANGEET LODHA),J. Aditya/-