*THE HON’BLE SRI JUSTICE K.C.BHANU +CIVIL REVISION PETITION Nos.1150 OF 2009. %15-04-2010 # C.Rayam Babu …Petitioner-J.Dr Vs. $ 1.B.K.L. Traders rep. by its Proprietor, B.Venkateswarlu and another ….Respondents-D.Hr and Auction Purchaser !Counsel for the Petitioner: Mr.D.Ramalinga Swamy ^Counsel for the Respondents: Mr. M.S.Ramachandra Rao <Gist : >Head Note: ? Cases referred: 1.(2006) 3 SCC 49 2.AIR 1977 SC 1789 3.AIR 1990 SC 119 4.AIR 1988 Mad. 106 5.AIR 1997 SC 938 6.207 (4) ALT 529 7.2008 (6) ALT 432 8. 2004 (5) ALT 149 9.AIR 1971 SC 2337 10.AIR 1974 SC 1331 11.1997 (5) ALT 269 12.AIR 1981 Mad 151 THE HON’BLE SRI JUSTICE K.C.BHANU CIVIL MISCELLANEOUS APPEAL NO.1150 OF 2009 DATED:15-04- 2010. Between C.Rayam Babu … Appellant-Judgment Debtor And 1.B.K.L. Traders rep. by its Proprietor, B.,Venkateswarlu and another. …Respondents-Decree Holder and Auction Purchaser THE HON’BLE SRI JUSTICE K.C.BHANU CIVIL MISCELLANEOUS APPEAL NO.1150 OF 2009 JUDGMENT: This appeal under Order XLIII Rule 1 of the Code of Civil Procedure, 1908 (for short ‘CPC’) is filed against the order, dated 05-11-2009, in E.A.No.342 of 2008 in E.P.No.14 of 2006 in O.S.No.123 of 2003, on the file of the Senior Civil Judge, at Gajuwaka, Visakhapatnam. 2. The above application was filed by the J.Dr. under Order XXI Rule 66 (2) CPC and XXVI Rule 19 CPC to set aside the sale, dated 28-11-2008 on two grounds viz., the upset price fixed by the Executing Court is far below the market value of the schedule property and that the Executing Court has not followed the very spirit and object of Order XXI Rule 64 CPC. The said application was dismissed on the ground that when the upset price was fixed at Rs.50,00,000/-, no bidders have come forward and therefore, the Court has no option except to conduct the sale reducing the upset price. Thereafter, basing on the valuation certificate, the Court again conducted the sale perfectly. Challenging the same, the J.Dr. filed the present appeal. 3. Now the point that arises for consideration in this appeal is whether the sale is liable to be set-aside on the ground of material irregularity? 4. Learned counsel appearing for the appellant-J.Dr. contended that Order XXI Rule 64 CPC has not been followed in as much as the decretal amount is around Rs.7,00,000/-, whereas the value of the property even according to the D.Hr. is Rs.80,00,000/- and a part of the property could have been put to sale so as to satisfy the decree. His further contention is that when the value of the property as per the Basic Value Register is not less than Rs.80,00,000/- even according to the D.Hr. Fixing upset price at Rs.50,00,000/- is very low and subsequently at Rs.45,00,000/- is illegal and it is a material irregularity so as to set aside the sale and hence, he prays to allow the appeal. He also contended that there is an obligation imposed upon the Court to follow Rule 64 of Order XXI. He relied on several decisions, which will be referred to at appropriate time. 5. On the other hand, learned counsel appearing for the 1st respondent-D.Hr contended that when the J.Dr had given an opportunity to give his estimate of the property, he has not produced any material to show that the property to be sold is valued Rs.90,00,000/-, that basing on the D.Hr’s and Amin’s Value, upset price has been fixed and just before the sale is conducted, the J.Dr filed the valuation certificate which cannot be taken into consideration, that the Court directed the D.Hr to file the valuation certificate, that there is no material irregularity in conducting the sale which caused prejudice to the J.Dr., that mere material irregularity by itself is not a ground to set aside the sale, that when the upset price was fixed at Rs.50,00,000/-, nobody has participated in the auction and in those circumstances, the Court has no option except to reduce the upset price and accordingly, the 2nd respondent-Auction Purchaser became the higher bidder and he deposited the sale proceeds into the Court and the conduct of the J.Dr is only to drag on the matter with a view to create a third party interest, that he was convicted in cheque bounce cases and hence, he prays to dismiss the appeal. He also relied on several decisions, which will be referred to at appropriate time. 6. The learned counsel for the 2nd respondent herein (auction purchaser) contended that bid amount borrowed on heavy interest, was held up because of the proceedings, that 2nd respondent has no interest in the property and therefore, he prays to set aside the sale. 7. There cannot be any dispute that J.Dr can move an application to set aside the sale under Order XXI Rule 90 CPC on two ground of material irregularity or fraud in publishing or conducting sale. 8. Sub-rule (1) of Rule 90 of Order XXI states that where any immovable property has been sold in execution of a decree, any person adversely affected may apply to the court for setting aside sale on the ground of material irregularity or fraud in publishing or conducting the sale. Sub-rule (2) is in the nature of proviso to sub-rule (1) and declares that no sale shall be set aside unless the applicant proves substantial injury by reason of such irregularity or fraud. Sub-rule (3) bars the Court from entertaining an application for setting aside the sale on any ground which the applicant could have taken on or before the date of proclamation of sale. Explanation to Rule 90 clarifies that mere absence of or defect in attachment of property sold would be no ground for setting aside the sale. The expression material irregularity has not been defined in the Code. It can, however be said that it must one on the part of the Court of its officers and it should be shown that there had been a disregard of some provision of law relating to execution. 9. The appellant’s counsel contended that the material irregularity is, fixing upset price far below the value mentioned in the certificate given by the Sub-Registrar. No doubt, at the time of terms of settlement, the J.Dr. has not come forward with an application giving the value of the property as per the Sub-Registrar’s valuation. According to the J.Dr, after issuing proclamation of sale in a paper publication fixing the market value, he filed the certificate given by the Sub-Registrar with regard to value of the property. Even before sale is conducted, the D.Hr was also directed to submit the valuation certificate. Accordingly, the D.Hr submitted the valuation certificate on 26-11-2008 giving the value of the property as Rs.82,73,412/-, whereas in the valuation certificate, dated 04-11-2008, furnished by the J.Dr, the value of the property was shown as Rs.95,69,564/-. For the purpose of deciding the upset price, the Court has to take into account the valuation given either by J.Dr or by D.Hr or in some cases, the Court can get the required information from the competent authority. 10. As seen from the paper publication with regard to conducting auction, the D.Hr valued the property at Rs.12,00,000/-, whereas the Amin valued the property at Rs.8,00,000/- and market value of the property is Rs.2,12,000/-. It is not in dispute that sale was conducted on 28-11-2008. The valuation certificates produced by the J.Dr and D.Hr is 20 or 25 days prior to conducting the auction. It is not known how the market value of the property was shown as Rs.2,12,000/- in the auction notice published in the newspaper. It is the case of the J.Dr that on seeing the paper publication, he produced the document on 10-11-2008, which was the certificate issued by the Sub-Registrar, Pedagantyada, Visakhapatnam. The certificate issued by the Sub-Registrar, Pedagantyada, Visakhapatnam is not in dispute. Such is the case, the Executing Court though mentioned the market value of the property at Rs.2,12,000/- in the paper publication, in all fairness, would have fixed the value of the property as evidenced by the certificate issued by the Sub-Registrar and as produced by the D.Hr. Even if the D.Hr valuation of the property is to be accepted, the property should be auctioned only after fixing the upset price at Rs.85,00,000/-. The basis for fixing the upset price at Rs.50,00,000/- in the first instance is not based upon any material on record. Simply because the bidders have not come forward, the same cannot and would not be a ground to reduce the upset price far below the value of the Basic Value Register. Therefore, in those circumstances, it can be said that it is a material irregularity in conducting the sale. Court has discretionary power to fix the upset price and that discretion has to be exercised judiciously basing on the material available on record. That has not been done so in this case. 11. Second contention of the learned counsel for the J.Dr. is that the value of the property is more than Rs.80,00,000/-, that the Executing Court ought to have put a part of the property to sale as the value of the decree is around Rs.7,00,000/- or less than Rs.8,00,000/- including interest and costs. For recovery of that amount, it may not be proper to put the entire property into sale in as much as sale of the part of the property would realize the decretal amount. Rule 64 enables an executing court to order sale of the attached property as a whole or such portion thereof as may seem to satisfy the decree. If the value of the property is considerably high and the decree to be satisfied is small, the Court should allow only such portion of the property attached to be sold which would be sufficient to satisfy the claim of decree holder. It is not the case of decree-holder that site to an extent of 977.84 sq. yards is not divisible nor division is impracticable or undesirable. Out of that extent, the Court could have conveniently demarcated a portion. As seen from the schedule of property, it can be easily be divided into two portions. One portion consists RCC building and the other portion is asbestos sheet building. Even the market value assistance certificate issued by competent authority shows the built up area of RCC structure is 3404 feet and the remaining built up area of ACC tin sheet structure is 2961 feet. When a part of property can be sold, then only such portion of property should be sold. This is not just a discretion, but an obligation imposed on the Court. The sale held without examining this aspect and not in conformity with this mandatory requirement is illegal and without jurisdiction. Under Rule 64 there is a duty cast upon the Court to sell only such property or portion thereof as necessary to satisfy the decree. It is a mandate of legislature, which cannot be overlooked. On this aspect, it is pertinent to refer a decision reported in BALAKRISHNAN V MALAIYANDI KONAR [1], wherein it was held thus: “The provision contains some significant words. They are "necessary to satisfy the decree". Use of the said expression clearly indicates the legislative intent that no sale can be allowed beyond the decretal amount mentioned in the sale proclamation. (See Takkaseela Pedda Subba Reddi v Pujari Padmavathamma (AIR 1977 sc 1789). In all execution proceedings, Court has to first decide whether it is necessary to bring the entire property to sale or such portion thereof as may seem necessary to satisfy the decree” 12. Learned counsel for the J.Dr relied on a decision reported in TAKKASEELA PEDDA SUBBA REDDY V PUJARI PADMAVATAMMA AND OTHERS [2], wherein it was held thus: “Under this provision the Executing Court derives jurisdiction to sell properties attached only to the point at which the decree is fully satisfied. The words "necessary to satisfy the decree" clearly indicate that no sale can be allowed beyond the decretal amount mentioned in the sale proclamation.” Admittedly, in this case, the value of the property mentioned in the sale proclamation is around Rs.7,00,000/-. Before the date of auction, it is known to the Executing Court that the value of the property is more than Rs.80,00,000/-. 13. He also relied on a decision reported in AMBATI NARSAYYA V M.SUBBA RAO AND ANOTHER [3], wherein it was held thus: “It is of importance to note from this provision that in all execution proceedings, the Court has to first decide whether it is necessary to bring the entire attached property to sale or such portion thereof as may seem necessary to satisfy the decree. If' the. property is large and the decree to be satisfied is small, the Court must bring only such portion of the property. the proceeds of which would be sufficient to satisfy the claim of the decree-holder It is immaterial whether the property is one or, several. Even if the property is one, if a separate portion could be sold without violating any provision of law only such portion of the property should be sold. This, in our opinion, is not just a discretion, but an obligation imposed on the Court. Care must be taken to put only such portion of the property to sale the consideration of which is sufficient to meet the claim in the execution petition. The sale held without examining this aspect and not in conformity with this requirement would be illegal and without jurisdiction. “ From the above decision, it is clear that the Court at the first instance shall decide whether it is necessary to bring the entire property for sale or a part of the property if brought to sale, would satisfy the decretal amount. That aspect of the case has been overlooked by the Executing Court. 14. He also relied on a decision reported in M.L. MUBARAK BASHA AND OTHERS V MUNI NAIDU [4], wherein it was held thus: “A reading of the above provision would in unequivocal terms indicate that it is the function of the Court, while proclamation is drawn up to fix the amount of the recovery for which the sale is ordered and also to specify such other particulars as are necessary in that behalf to be material for the property of conducting the sale. The value of the property given by the decree-holder - judgment - debtor and the upset price is to be fixed under the residue clause relating to writ rules made by the High Court” 15. He also relied on a decision reported in ELUMALAI NAICKER V KISHTMBAL AMMAL [5], wherein it was held thus: “As observed above, when the court fixes the upset price that fixation is only for facilitating the conduct of the sale and to safeguard the interests of the judgment debtor by fixing a reserve price. The object of fixing the upset price is to fix the lowest sum for which the property which is being auctioned will be sold or in other words, it is the sum from which the bidding may start. The upset price, therefore, has some relation to the price which the property intended to be sold in the auction is expected to fetch.” 16. He also relied on a decision reported in SOMISHETTY GANGA RAM V DR.P.RAMALINGAM [6], wherein it was held thus: “In fact in the second proviso to Order XXI, Rule 66 of the Coe, it is clearly stated that the said proclamation shall also include the estimation, if any given by either or both of the parties. It is thus clear that in any case, when a proclamation is made, the Court shall make a mention of the valuation of the property as declared by the decree holder as well as the judgment debtor.” 17. He also relied on a decision reported in N.PRABHAKAR NAIDU V NELLORE FINANCE CORPORTION, REP. BY ITS MANAGING DIRECTOR, J.H. REDDY [7], wherein it was held thus: “It may be true that the decree-holder may not be able to realize the amount at all, but however at the same time the interest of the judgment- debtor also equally to be protected. The object underlying is to see that the property sold in the court auction not to be sold away for unreasonable price.” 18. He also relied on a decision reported in A.C.NAGARAJU V N.SREENIVASA REDDY [8], wherein it was held thus: “When the Executing Court thought it appropriate to et the valuation, furnished by the appellant herein, cross-verified through proper sources, the easiest and most reliable method for the Court is to ascertain the same from the concerned Sub-Registrar. Such a step was not taken.” From the above decisions, it is clear that the upset price of the property should be fixed basing on the valuation that may be furnished either by the J.Dr. or D.Hr. Before fixing the upset price, admittedly the Court was having valuation reports furnished by the J.Dr and D.Hr which were given by the competent authority. It is not the case that at the time of fixing upset price, no material with regard to value of the property was available. Therefore, the Court while fixing the upset price ought to have followed either the valuation of property given by the J.Dr. or D.Hr. 19. On the other hand, learned counsel appearing for the D.Hr relied on a decision reported in RADHY SHYAM V SHYAM BEHARI SINGH [9], wherein it was held thus: “Rule 90 of U. XXI of the Code, as amended by the Allahabad High Court, inter alia, provides that no sale shall be set aside on the ground of irregularity or even fraud unless upon the facts proved the Court is satisfied that the applicant has sustained injury by reason of such irregularity or fraud. Mere proof of a material irregularity such as the one under Rule 69 and inadequacy of price realized in such a sale, in other words injury, is, therefore, not sufficient. What has to be established is there was not only inadequacy of the price but that that inadequacy was caused by reason of the material irregularity or fraud. A connection has thus to be established between the inadequacy of the price and the material irregularity.” 20. He also relied on a decision reported in M/S KAYJAY INDUSTRIES (P) LTD V M/S ASNEW DRUMS (P) LTD AND OTHERS [10], wherein it was held thus: “The expressions 'material irregularity in the conduct of the sale' must be benignantly construed to cover the climax act of the Court accepting the highest bid. Indeed, under the Civil Procedure Code, it is the Court which conducts the sale its duty to apply its mind to the material actors bearing its mind to the material factors bearing on the reasonableness of the price offered is part of the process of obtaining a proper price in the course of the sale. Therefore, failure to apply its mind to this aspect of the conduct of the sale may amount to material irregularity Mere, substantial injury without material irregularity is not enough even as material irregularity not linked directly to inadequacy of the price is insufficient. And where a Court mechanically conducts the sale or routinely signs assent to the sale papers, not bothering to see if the offer is too low and a better price could have been obtained, and in fact the price is substantially inadequate, there is the presence of both the elements of irregularity and injury. But it is not as if the Court should go on adjourning the sale till a good price is got, it being a notorious fact that Court sales and market prices are distant neighbours. Otherwise, decree-holders can never get the property of the debtor sold. Nor is it right to judge the unfairness of the price by hindsight wisdom. May be, subsequent events, not within the ken of the executing Court when holding the sale, may prove that had the sale been adjourned a better price could have been had. What is expected of the Judge is not to be a prophet but a pragmatist and merely to make a realistic appraisal of the factors, and, if satisfied that, in the given circumstances, the bid is acceptable, conclude the sale. The Court may consider the fair value of the property, the general economic trends, the large sum required to be produced by the bidder, the formation of a syndicate, the futility of postponements and the possibility of litigation, and several other factors dependent on the facts of each case. Once that is done, the matter ends there. No speaking order is called for and no meticulous post mortem is proper. If the Court has fairly, even if silently, applied its mind to the relevant considerations before it while accepting the final bid, no probe in retrospect is permissible.” Basing on the above decisions, learned counsel for the D.Hr. contended that mere irregularity is not sufficient unless it is established that there was inadequacy of the price and by the reason of inadequacy, material irregularity has been caused. In the first instance, upset price was fixed at Rs.50,00,000/- and thereafter, it was reduced to Rs.45,00,000/-. Thereafter, the 2nd respondent became the highest bidder. Even according to the valuation given by the D.Hr. the value of the property is Rs.85,00,000/-, whereas according to the J.Dr. the value of the property is Rs.95,00,000/-. No reasons are assigned for fixing upset price far below the value of the property. Further the decretal amount is far less than that of the amount whereunder the entire property of the J.Dr has been sold. It is not the case of the D.Hr that the property that was sold was not divisible and the entire extent of the property has to be sold in public auction. Therefore, the above decision has no application to the present facts of the case. 21. In KAYJAY INDUSTRIES case (9 supra) relied on by the learned counsel for the D.Hr., it was further held thus: “Certain salient facts may be highlighted in this context. A Court sale is a forced sale and, notwithstanding the competitive element of a public auction, the best price is not often forthcoming. The judge must make a certain margin for this factor. A valuer's report, good as a basis, is not as good as an actual offer and variations within limits between such an estimate, however careful, and real bids by seasoned businessmen before the auctioneer are quite on cards. More so, when the subject-matter is a specialized industrial plant, which has been out of commission for a few years, as in this case, and buyers for cash are bound to be limited. The brooding fear of something out of the imported machinery going out of gear, the vague apprehensions of possible claims by the Dena Bank which had a huge claim and was not a party, and the litigious sequel at the judgment-debtor's instance, have 'scare' value in inhibiting intending buyers from coming forward with the best offers. Businessmen make uncanny calculations before striking a bargain and that circumstances must enter the judicial verdict before deciding whether a better price could be had by a postponement of the sale. Indeed, in the present case, the executing Court had admittedly declined to affirm the highest bids made on 16-5-19 6/06/1969 and 28/08/1969, its anxiety to secure a better price being the main reason. If Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through. The judgment-debtor's plea for postponement in the expectation of a higher price in the future may strain the credibility of the Court sale itself and may yield diminishing returns as was proved in this very case” No doubt, the above decision shows that the best price is not often forthcoming when the Court conducts sale, but at the