Order XXI Rule 90 CPC | Stranger To Suit Can Challenge Sale If Entitled To Share In Rateable Distribution Of Assets: Kerala High Court

The Kerala High Court on Wednesday clarified that a person, including a stranger to the suit apart from the judgment debtor or those claiming derivative title from the judgment debtor, is competent to challenge a sale of property under Order XXI Rule 90 of the CPC if their interests are affected by the sale.

A Division Bench of Justice Anil K Narendran and Justice A Badharudeen added that the categories covered by this rule include the decree-holder, the purchaser, anyone entitled to share in a rateable distribution of assets, and any person whose interests are affected by the sale.

"Going by the facts of the case with particular mention with regard to status of Sundareshan as a person, who obtained decree and applied for execution of the decree, he could very well challenge the sale by filing application under Order XXI Rule 90 of the CPC and his stature is that of “any other person entitled to share in a rateable distribution of assets”. This position has been clarified by this Court in Govindan Master v. Janaki V. & others [2011 (3) KHC 581].  Therefore, it has to be held that a person, who could claim rateable distribution of assets of the judgment debtor/s, has competence to challenge the sale by invoking Order XXI Rule 90 of the CPC, though he is not a party to the Suit."

The appellants are the legal representatives of Gopinathan, who sought to set aside the sale of a property conducted in 2010. The respondents were the decree holder/ auction purchaser and the judgment debtors. The appellants alleged fraud, claiming the property was sold at a lower price due to collusion between the decree-holder and judgment debtors and that crucial information was concealed.

Aggrieved by the lower court's decision, they approached the High Court challenging the sale. 

Advocates M.R Rajesh and E.S Sandhya appearing for the appellants contended that although the petition was filed after the 60-day period, it was not time-barred under Section 17 of the Limitation Act since fraud is alleged, and time starts from the date of notice of fraud, rendering the lower court's dismissal on limitation grounds unsustainable. 

Advocates P. Aniyan, K. Jagadeesh, Priya Nair, V. Renju and Vakkom N. Vijayan appearing for the respondents contended that no fraud occurred during the decree execution and claimed that the petition to set aside the sale is time-barred and violates Order XXI Rule 90(3) by introducing new grounds after the sale proclamation.

The Court initially looked into the question of whether non-parties and individuals claiming through the judgment debtor can challenge a court sale under Order XXI Rule 90. 

It was found that Order XXI Rule 90 allows the decree-holder, the purchaser, any other person entitled to share in a rateable distribution of assets, or any person whose interests are affected by the sale of immovable property to apply to set aside the sale on grounds of material irregularity or fraud in its conduct.

In Unnikrishnan & Ors v. Kunhibeevi & Ors [2011 (1) KHC 352], it was clarified that "any person" under Order XXI Rule 97 includes strangers to the suit, although it highlighted that the scope of Rule 97 (resistance or possession of immovable property) differs from Rule 90 (setting aside a sale due to irregularity or fraud).

In the present case, the decree-holder was found entitled to claim a share in the rateable distribution of the judgment debtor's assets. He fell under the category of "any other person entitled to share in a rateable distribution of assets" and has the right to challenge the sale under Order XXI Rule 90 despite not being a party to the suit, as clarified in Govindan Master v. Janaki V. & Ors [2011 (3) KHC 581].

Therefore, it was held that a person eligible for rateable distribution of the judgment debtor's assets has the competence to challenge the sale under Order XXI Rule 90 of the CPC, even if they are not a party to the suit.

Regarding the issue of limitation periods, the Bench upheld the application of Order XXI Rule 90, which allows a person to challenge a court sale on grounds of material irregularity or fraud in publishing and conducting the sale. The Court emphasised that the word "fraud" is explicitly included as a reason to set aside the sale under this provision. It reiterated that a petition to set aside a sale under this provision must be filed within 60 days from the date of the sale, as prescribed by Article 127 of the Limitation Act. 

The Bench held that to establish fraud for setting aside a sale, it must be proven that the sale was concealed from the applicant's knowledge due to fraudulent conduct. Mere inadequacy of the sale price does not suffice to set aside the sale unless it leads to substantial injury or consequential injustice. The Court acknowledged that fraud in the execution of a sale continues until the judgment debtor knows about it, but the limitation period should be strictly followed, starting from the date of sale.

Reliance was placed on several precedents allowing applications to set aside sales based on obvious and manifest illegality in conducting the court sale. However, it noted exceptions when the sale was affected by fraud, and the judgment debtor only discovered it later. In such cases, the limitation period might be extended.

Additionally, the ruling distinguished between challenges under Order XXI Rule 90 and Section 47 of the CPC. The former covers pre-sale irregularities and frauds, while the latter addresses post-sale illegalities causing substantial harm to the judgment debtor. The period of limitation for filing an application under Order XXI Rule 90 is 60 days from the date of sale, as per Article 127 of the Limitation Act. On the other hand, for applications under Section 47, the period of limitation is three years from the date when the right to apply accrues.

Due to lack of evidence supporting the fraud allegation and considering the legal principles, the Court concluded that the sale could not be set aside. However, it was clarified that dismissal of the appeal does not bar the appellants from pursuing their charge decree obtained in a separate case.

The appeal was accordingly dismissed and the order that set aside the sale was confirmed.

Case Title: Nirmala & Ors v. Sundaresan & Ors

Citation: 2023 LiveLaw (Ker) 374

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