Case: Bakul M Kapadia Vs. Bank of India

( 2 ) THE Notice of Motion which is taken out on 15th December, 1992 by the appellant, is for the following prayers :a)this Honble Court do direct the Court Receiver, High Court, Bombay not to put up for sale, the immovable properties of the 1st defendant company tilli)the investigation into the quantum of and responsibility for the damage done to the immovable properties of 1st defendant company is ascertained and the quantum of and responsibility for loss of properties of the 1st defendant company is ascertained as also the cause and quantum of responsibility for the loss due to the sale of movable properties of 1st defendant Company at a gross undervalue is ascertained and ii) determination of liability of the 1st defendant company to the plaintiff in view of the written statement of defendant No. 5. (b)in the alternative, this Honble Court do appoint an approved valuer to assess the present market value of the immovable properties of the 1st defendant company and consequently revise upwards the minimum bid of Rs. 4 crores as this Honble Court may deem fit. in order to appreciate the contentions of the appellant, it is necessary to state the facts. On3 the Bank of India, respondent No. 1 to this appeal, filed a suit to recover from the 2nd respondent M/s. Jasmine Mills Pvt. Ltd. a sum of Rs. 1,76,89,829. 08 and to realise the securities by way of a mortgage of the immovable properties of the 2nd respondent and its various movables which were hypothecated to the Bank. The appellant is a guarantor of the debts of the company to the bank and is defendant No. 5 in the suit. On 24th November, 1983 anm receiver was appointed in respect of movables and immovable properties of the 2nd respondent under Order 40, Rule 1 of the Civil Procedure Code but without the power of sale. Pursuant to this order, Court Receiver took possession of all these properties on 28th November, 1983( 3 ) ON 18th January, 1984 an order was passed by this Court for winding up the 2nd respondent M/s. Jasmine Mills Pvt. Ltd. The Official Liquidator, therefore, came on the scene. Thereafter the suit of the 1st respondent was continued after obtaining leave under section 466 of the Companies Act( 4 ) BY an order dated 13th August, 1984 another Judge of this Court confirmed the appointment of the Court Receiver under Order 40, Rule 1 of the Civil Procedure Code in respect of all properties of the 2nd respondent Company. This order also gives the Court Receiver a power of sale of the properties. This order was passed after giving notices to all the parties including the present appellant who is a guarantor in respect of the amounts advanced by the 1stk to M/s. Jasmine Mills Pvt. Ltd. No appeal was filed from this order challenging the power of sale conferred on the Court Receiver( 5 ) FROM the year 1984 to 1987 various applications were made by thes of the 2nd respondent Company regarding a proposed scheme of compromise with the creditors and at their request the Bank did not proceed with the sale. Ultimately from the year 1988 onwards the Court Receiver prepared particulars and conditions of sale which were finalised at various meetings which were held before the Court Receiver( 6 ) AT the meetings held before the Court Receiver on 12th April, 1990 and 8th August, 1990 the appellant appeared in person before the Court Receiver and proposed that the immovable property of the Company in winding up should be sold by private treaty and not by public auction. The Official Liquidator who was also present at the meeting convened by the Court Receiver, however, did not agree to the properties being sold by private treaty and submitted that the properties should be sold by public auction. From April, 1990 to April, 1991 several meetings were held before the Court Receiver in respect of the proposed sale, inter alia, of immovable properties at which Official Liquidator as well as the appellant were also present. Nobody opposed the sale of the immovable properties in question( 7 ) THEREAFTER four infructuous sales took place between October, 1990 and July, 1992. The appellant took out a Notice of Motion No. 1416 of 1992 some time prior to July, 1992 praying that pending the hearing and final disposal of this suit, the Court Receiver and the plaintiffs be restrained from advertising the auction sale or proceeding with the auction sale of the immovable property known as Jasmine Mills premises situated at Mahim which was to be sold by auction on 7th July, 1992. There was a further prayer that the Court Receiver should be directed to invite offers for giving the premises or any part thereof on leave and Licence basis. This Notice of Motion was dismissed by a learned Single Judge of this Court by his order dated 6th July, 1992. The learned Single Judge in the order has observed that prima facie the 5th defendant had taken out this Notice of Motion at a belated stage with a view to delay and/or defeat the claim of the plaintiffs and the workers of the Company which was in liquidation. In the order, the learned Judge has noted that the Receiver was initially appointed on 24th November, 1988 without the power of sale. The power of sale was conferred on him on 13th August, 1984. In exercise of this power of sale the sale of movables had been effected on 9th February, 1990 and the sale of the immovable property was fixed for 7th July, 1992. The learned Judge has also pointed out that the present appellant being one of the Directors of the Company prior to its going into liquidation, was aware of all the proceedings in the suit as well as the Notice of Motion. He was also present before the Receiver at the meeting held on 8th August, 1990 when the appellant as well as the advocate for defendant Nos. 2, 3 and 4 requested the Receiver to sell the property by private treaty and requested the Receiver that an opportunity be given to the parties to bring private offers. He has noted that on account of the objection of the Official Liquidator to a sale by private treaty, the sale by public auction was proposed. The learned Judge also referred to the report submitted by the Court Receiver dated 21st February, 1991 of which notice was given to the 5th defendant. On the report the Court had directed the Receiver to hold a fresh auction sale and to consider fresh offers. This order was also passed in the presence of the present appellant. In view of this conduct of the present appellant, the learned Judge also observed that the contention of the present appellant that the sale be not effected, was not bona fide. He, therefore, dismissed the Notice of Motion. We have referred to this Notice of Motion and the order passed thereon at some length because very similar arguments are also advanced before us and that too on the Notice of Motion which contains somewhat different prayers. We also note that none of the contentions raised before us in this connection by learned Counsel for the appellant for preventing sale of the immovable property by the Court Receiver, were urged before the learned Single Judge. We will come to this point a little later( 8 ) AFTER the dismissal of the Notice of Motion No. 1416 of 1992, the Court Receiver submitted a report dated 13th July, 1992 in connection with a sale which was held with a reserved bid of Rs. 4 crores as fixed by this Court. The Court Receiver had received only one offer of Rs.. The offerer also deposited Rs. 10 lakhs. The Court Receiver had submitted the report and sought directions whether he should accept this offer. When this report came up for consideration before the learned Single Judge of this Court on 5th August, 1992, the present appellant appeared and asked for a months time to produce a substantially higher offer. Ultimately the learned Judge observed that he was inclined to postpone the confirmation of sale on the following undertaking given by the present appellant : he would agree to pay the difference between the interest, given on a fixed Deposit for a term of 45 days by a Nationalised Bank and 18% per annum on the amount of Rs. 10 lakhs deposited by the offerer and on his undertaking to pay security charges for a period of 45 days at the rate of Rs. 21,000/per month. This was in view of the statement made before the learned Judge by the present appellant that if he was given six weeks time, he would obtain a valuation of the property in accordance with the amended Development Control Rules and produce an offer substantially higher than the offer of Rs.. At this stage, the Advocate for the offerer said that if the Court was not inclined to accept the offer, his client may be permitted to withdraw the offer and the deposit may be refunded to him( 9 ) ACCORDINGLY the learned Judge permitted the offerer to withdraw the offer, and directed the Court Receiver to refund the deposit of Rs. 10 lakh. The learned Judge thereupon directed the property to be put up for sale by public auction on the same reserve bid. He also said that since the sale held had been virtually cancelled at the instance of the present appellant, he should pay the costs of advertisement for a fresh sale. We are informed that the appellant has paid the costs of advertisement. However, the appellant has not produced any offer at all for the purchase of the said immovable property whether substantially higher than Rs. 4 crores or otherwise, although considerable time has elapsed since the above order of the learned Single Judge( 10 ) HE has now taken out the present Notice of Motion on 15th December, 1992. In the meanwhile the Court Receiver held a meeting on 6th February, 1993 at which, inter alia, he fixed a fresh schedule of advertisement and auction sale of the immovable property. Thereafter the appellant made anm application on 8th February, 1993 in his pending Notice of Motion asking for stay of the sale. This application has been disposed of by the impugned order under which the learned Judge has extended the proposed date of sale fixed by the Court Receiver by four weeks, and has not granted any other relief and has disposed of the Notice of Motion for the postponement of the sale.

Court's reasoning:
In the first place, the order which is so sought to be challenged in this Notice of Motion, although there is no prayer to that effect, is an order passed as far back as on 13th August, 1984. Nine years have elapsed since the order was passed. The appellant was party to the proceedings in which this order was passed. He has throughout been fully aware of this order and has in fact appeared before the Court Receiver in several meetings to determine the mode of selling of the said property pursuant to the said order of 13th August, 1984. No explanation is forthcoming from the appellant for the delay of 9 years in challenging this order. On this ground alone, the entire submission of the appellant deserves to be rejectedWe fail to see how this entitles the appellant to challenge the order of sale in a mortgage suit. The mortgagor in the present case is a private Limited Company registered under the Companies Act, 1956. Such a Company has a separate legal existance. It is the Company which has created a mortgage in respect of its property in favour of the 1st. Therefore, it is the Company as such mortgagor which is entitled either to redeem the mortgage or to contest the mortgage suit of the 1stk or to arrive at such arrangements as it may be considered appropriate in connection with this with the 1st. An individual shareholder cannot be considered as a mortgagor at all; nor is an individual shareholders entitled to redeem a mortgage created by the private limited Company in favour of a third party. He has no claim to the equity of redemption of such mortgage. As a shareholder, therefore, the appellant cannot be heard in a mortgage suitIn the present case, the question of subrogation does not arise because the guarantor has not discharged the mortgage debt of the principal debtor, nor has he even offered to do so. In fact it is stated very frankly by learned Counsel for the appellant that he is not in a position to do so. The question, therefore, of the appellant being entitled to the security created in favour of the mortgagee by stepping into the shoes of the mortgagee does not ariseWe have carefully gone through this part which deals with the right of a secured creditor in the winding up proceedings and the rights and obligations of the Official Liquidator qua the sale of any property of the Company so secured. We fail to see that this decision has any bearing on the question before us. The appellant, therefore, either as a guarantor or as a shareholder has no right to challenge the order of sale at the instance of the mortgagee in a mortgage suit( 17 ) EVEN otherwise, on merits, we do not see any reason for setting aside the order of 13th August, 1984. It has been strongly urged by Mr. Sanghavi, learned Counsel for the appellant that equity of redemption can be extinguished only by act of parties or a decree of the Court. He relied upon section 60 of the Transfer of Property Act and Order 34 of the Code of Civil Procedure. He has submitted that in the present case, there is no decree passed in the mortgage suit which would extinguish the equity of redemption and, therefore, no order could have been passed directing the Court Receiver to sell the property. He, therefore, submits that the order dated 13th August, 1984 is a nullity and must be ignored( 18 ) THIS argument is fallacious. We may assume for the sake of argument that the order directing the Court Receiver to sell the property was wrongly passed or that this order is contrary to law. Even so, such an order cannot be considered as a nullity. It is only when the Court has no inherent jurisdiction to pass an order that the order becomes a nullity. In the case of (Hira Lal v. Kali Nath) A. I. R. 1962 S. C. 199, it has been held that the validity of a decree can be challenged in execution proceedings only on the ground that the Court which passed the decree was lacking in inherent jurisdiction in the sense that it could not have seizin of the case because the subject matter was wholly foreign to its jurisdiction or that the defendant was dead at the time the suit had been instituted or decree passed, or some such other ground which could have the effect of rendering the Court entirely lacking in jurisdiction in respect of the subject matter of the suit or over the parties to it.These observations of the Supreme Court have been cited with approval by the Patna High Court in the case of (Rabindra Narain v. Nirmala) A. I. R. 1978 Patna 162. In that case, Patna High Court considered a case where, in a mortgage suit, a preliminary decree had been passed in terms of a compromise. The mortgagor failed to pay the instalments as per the terms of the compromise. A final decree was passed in this mortgage suit without a fresh preliminary decree. The Court said that the consent decree was not covered by Order 34, Rule 4 and it was not necessary to have a fresh preliminary decree. It held that the final decree could not be considered as a nullity. A Division Bench of our High Court (P. D. Desai, C. J. and S. H. Kapadia, J.) in Appeal No. 622 of 1992 decided on 20th October, 1992 has also relied upon the judgment of the Supreme Court in the case of Hira Lal v. Kali Nath, (supra ). It has also said, it is a settled principle of law that the validity of a decree can be challenged in execution proceedings only on the ground that the Court which passed the decree was lacking in inherent jurisdiction in the sense that it could not have seizin of the case because the subject was wholly foreign to its jurisdiction. In the present case, the mortgage suit is filed in the Court which had jurisdiction to decide the suit. The order of sale was also passed by the Court which clearly had jurisdiction in the matter. At the highest, the order may be considered as wrong in law. But this does not render such an order a nullity. It is binding on all parties unless it is set aside. The remedy in such a case for the aggrieved party is to file an appeal. But in this case, nothing has been done and the order has been allowed to stand for nine years and has been acted upon by all parties including the appellant. We do not see any reason why such an order should be treated as a nullity or should be ignored. This contention has, therefore, no merit( 22 ) THERE is, therefore, no merit in the contention of the appellant that the order of 13th August, 1984 is a nullity and no sale can take place pursuant to that order. The Division Bench under its order dated 16th March, 1993, while admitting the present appeal has observed that it was admitting the appeal, not because it was satisfied about the contentions of the appellant, but only because a complaint was made that the trial Judge disposed of the motion at anm stage, in spite of the objection of the appellant. The only ground that we find in the Memo of Appeal in this connection is ground (b) which is to the effect that the learned Judge ought not to have disposed of the notice of motion without granting the reliefs as prayed for in the Notice of Motion. In any case even otherwise we do not find any merit in the various contentions which are raised by the appellant before us. We have heard the appellant at length because of the grievance that they have not been heard in the Notice of Motion. In view of the above, there is no merit in the Notice of Motion particularly when the appellant has not pressed any of the reliefs asked for in the Motion, but has only addressed us on the validity of the order passed on 13th August, 1984( 23 ) THE appellant applies that the advertisement should not be issued for a period of 8 weeks. We do not see any reason for granting this application.