Illegal Auction Sale By Public Authority Can Be Set Aside Under Article 226; Writ Court Not Bound By Order 21 Rule 90 CPC : Supreme Court

The Supreme Court on Tuesday (July 9) held that a person aggrieved by an auction sale conducted by the public functionary in gross violations of the mandatory provisions of law cannot be called upon to establish the dual conditions stipulated in Order XXI Rule 90 of the Code of Civil Procedure, 1908 (“CPC”) for setting aside the auction sale.

“We are of the view that in cases such as the one at hand wherein the legality, validity and propriety of the auction sale conducted by the State through its authorities is questioned on the ground of mala fides, undue favour for extraneous considerations and gross violation of the mandatory provisions of law, it would be hazardous to apply the principles enshrined in Order XXI Rule 90 of the CPC.”, the bench comprising Justices JB Pardiwala and Manoj Misra said.

The Court said that when a writ petition was filed by the person challenging the sale of its property in gross violation of the mandatory provisions of law, then a person cannot be asked to challenge the sale under Order 21 Rule 90 of CPC.

Order 21 Rule 90 of CPC grants a remedy to the judgment debtor to challenge the sale of its property on grounds of material irregularity and fraud committed while selling off. Two conditions need to be satisfied by the judgment debtor to set aside the sale i.e., the material irregularity and fraud committed in selling of the property, and the injury suffered by the judgment debtor because of such irregularity or fraud committed in selling of the property.

Taking note of the Explanation contained under Section 141 of CPC and placing reliance on the case of Chilamkurti Bala Subrahmanyam v. Samanthapudi Vijaya Lakshmi and Another reported in (2017) 6 SCC 770, the Court held that the provisions of CPC would not be applicable to the proceedings under Article 226 of the Constitution, and it would be a travesty of justice to the person if he was asked to challenge the sale proceedings, being nullity in the eyes of law, under Order 21 Rule 90 of CPC.

“Times have changed. Human values and ethics in public functionaries have degraded to a considerable extent. Corruption is on a rampage.Having regard to the same and in order to protect and uphold the rule of law, the courts have a duty to ensure that the State authorities have conducted public auctions in a fair and transparent manner and have not done anything by which public exchequer has suffered. It would be too much to say that although the writ court may find an auction sale conducted by a public functionary to be in gross violation of the mandatory provisions of law and the action of such public functionary to be arbitrary, yet the aggrieved party complaining about the same should be told to establish the dual conditions stipulated in Order XXI Rule 90 of the CPC.”, the judgment authored by Justice JB Pardiwala said.

The Court observed that once the action of the State is found to be unfair and arbitrary, then the first and foremost aspect that the writ court should look into is fairness and transparency on the part of the State in conducting the auction sale to conform with Article 14 of the Constitution.

The Court held that the provisions of Order 21 Rule 90 of CPC are in any case not applicable to writ proceedings.

"The High Court while exercising jurisdiction under Article 226 of the Constitution has jurisdiction to pass appropriate orders. Such power can neither be controlled nor affected by the provisions of Order XXI Rule 90 of the CPC. It would not be correct to say that the terms of Order XXI Rule 90 should be mandatorily complied with while exercising jurisdiction under Article 226 of the Constitution."

In the present case, the properties owned by the Respondent No.1 were sold to the Appellant in an Auction sale by the Tehsildar in collusion with the Appellant, in contravention of the mandatory provisions of the Maharashtra Land Revenue Code, 1966.

The sale of the Property took place before the expiry of the mandatory 30 days notice in breach of the provisions of Section 194 of the Revenue Code. The sale certificate was issued on the same day, i.e., on the date of the auction itself, much before the confirmation of sale by the Additional Collector which was in teeth to Section 212 of the Revenue Code.

The Court stated that it was not a case of irregularity but a case of illegality committed by the Tehsildar in selling off the Respondent No. 1 property without following the provisions of the Maharashtra Land Revenue Code. Therefore, the Court believed that an application of Order 21 Rule 90 of CPC to make Respondent No.1 prove the illegality would result in a gross travesty of justice.

“If we were to condone or overlook all the illegalities we have taken note of in para 63 of this judgment, applying the provisions of Order XXI Rule 90 of the CPC, the same would result in nothing but gross travesty of justice.”, the court said.

“The public functionaries should be duty conscious rather than power charged. Its actions and decisions which touch the common man have to be tested on the touchstone of fairness and justice. That which is not fair and just is unreasonable. And what is unreasonable is arbitrary. An arbitrary action is ultra vires. It does not become bona fide and in good faith merely because no personal gain or benefit to the person exercising discretion has been established. An action is mala fide if it is contrary to the purpose for which it was authorised to be exercised. Dishonesty in discharge of duty vitiates the action without anything more. An action is bad even without proof of motive of dishonesty, if the authority is found to have acted contrary to reason.”, the Court added.

It is important to mention that though the Court found the purchase of Respondent No.1 property by the Appellant as illegal, but refrained the Appellant from transferring the possession of the suit property to Respondent No.1. Instead, the Court directed the Appellant to deposit a sum of Rs. 4,00,00,000/- (Rupees Four Crore Only) with the respondent No. 6-Asset Reconstruction Company against whom Respondent No.1 owes debt. 

The Court said that the failure of the Appellant to deposit the required amount would result in a direction to the competent authorities to take over the possession of the entire unit with the land in question and put the same once again for sale by way of a fresh auction process.

Counsels For Petitioner(s) Mr. P.S. Patwalia, Sr. Adv. Mr. Abhay Kumar, AOR Mr. Janak R.shah, Adv. Mr. Shagun Ruhil, Adv.

Counsels For Respondent(s) Mr. Sachin Patil, Adv. Mr. Siddharth Dharmadhikari, Adv. Mr. Aaditya Aniruddha Pande, AOR Mr. Bharat Bagla, Adv. Mr. Sourav Singh, Adv. Mr. Aditya Krishna, Adv. Ms. Preet S. Phanse, Adv. Mr. Adarsh Dubey, Adv. Mr. Geo Joseph, Adv. Mr. Durgesh Gupta, Adv. Mr. Risvi Muhammed, Adv. Mr. K.M. Nataraj, A.S.G. (Not Present) Mr. Mukesh Kumar Maroria, AOR Mr. Adit Khorana, Adv. Ms. Nisha Bagchi, Adv. Mr. Shailesh Madiyal, Adv. Mr. T.s. Sabarish, Adv. Mr. Ishaan Sharma, Adv. Mr. B.K. Satija, Adv. Mr. Amar Dave, Sr. Adv. Ms. Amrita Narayan, Adv. Mr. Mohit D. Ram, AOR Mr. Ashwin Rakesh, Adv. Mr. Anubhav Sharma, Adv. Mr. Madhav Sharma, Adv.

Case Title: M/S AL-CAN EXPORT PVT. LTD. VERSUS PRESTIGE H.M. POLYCONTAINERS LTD. & ORS.

Citation : 2024 LiveLaw (SC) 453

Click here to read/download the Judgment