Twin Conditions Of Material Irregularity Or Fraud And Substantial Injury Has To Be Satisfied Before An Auction Sale Can Be Set Aside Under Order XXI Rule 90(3) CPC : Supreme Court

The Supreme Court observed that the twin conditions of material irregularity or fraud and substantial injury has to be satisfied before an auction sale can be set aside  under Order XXI Rule 90(3) of Code of Civil Procedure.

No sale could be set aside unless the Court is satisfied that the applicant has sustained substantial injury by reason of irregularity or fraud in completing or conducting the sale, the bench comprising Justices Sanjay Kishan Kaul, S. Ravindra Bhat and MM Sundresh observed.

In this case land owners filed an execution application against Ludhiana Improvement Trust for recovery of the compensation amount, along with interest, seeking to make the recovery through attachment of property. Later, the attached property was sold to Jagan Singh & Co  by way of auction conducted by the Court Auctioneer on 12.08.1992 for a consideration of Rs.22.65 lakhs. The Trust filed an application before the Court of the Senior Sub Judge, Ludhiana, under Order XXI Rule 90 of the Code to set aside the ex parte attachment and auction of the Trust's property. Dismissing the said application, the Executing Court upheld the auction sale. The First appellate court dismissed the Trust's appeal. The High Court, set aside these order observed that although there were glaring irregularities, yet the sale was confirmed. 

Before the Apex Court, Senior Advocate P.S. Patwalia who appeared for the appellant contended that the Judgment Debtor could not satisfy the test by merely pointing out material irregularity but had to further establish to the satisfaction of the Court that the material irregularity or fraud has resulted in causing substantial injury to the Judgment Debtor. On the other hand, Senior Advocate Neeraj Kumar Jain who appeared for the respondent supported the impugned judgment on the ground that the High Court had found material irregularities and illegalities causing substantial injury to the Trust.

In appeal, the bench taking note of the factual aspects of the case, observed that the dual test of material irregularity of fraud and substantial injury is not satisfied in the present case.

"In fact, neither part of the dual test is satisfied. The Respondent Trust cannot be permitted to say that merely because the property was auctioned there is some substantial injury. No doubt there were some structures shown in the site plan itself, however, they were merely basic structures of a godown and a quarter."

The court further noted that the Executing Court and the First Appellant Court duly supported the reasoning based on various failures of the Judgment Debtor: (a) did not file objections at the time of presentation of execution petition; (b) did not file any objections at the time of order of attachment; (c) no objections filed when proclamation under Order XXI Rule 66 of the said Code was made; (d) no objections filed even at the time of public auction being actually conducted.

While allowing the appeal, the bench further observed:

"Learned senior counsel for the Appellant rightly drew the attention of this Court to Order XXI Rule 90 (3) of the said Code to contend that it is clearly stated that no application to set aside a sale on grounds of irregularity or fraud under the Rule can be entertained on any ground which the applicant would have taken on or before the date on which the proclamation of sale was drawn up. The Explanation to the Rule further says that mere absence of or defect in attachment of the property sold should not by itself be a ground for setting aside the sale under this Rule. The Judgment Debtor/Respondent Trust failed to avail any of these opportunities at different stages..

...The mandatory nature of the twin conditions to be satisfied before an auction sale can be set aside as provided under Order XXI Rule 90(3) of the said Code which has been discussed by this Court in various judicial pronouncements."

The bench also granted costs to the Appellant against Respondent quantified at Rs.1 lakh.

Case details

Jagan Singh & Co vs Ludhiana Improvement Trust | 2022 LiveLaw (SC) 733 | CA 371 OF 2022 | 2 September 2022 | Justices Sanjay Kishan Kaul, S. Ravindra Bhat & MM Sundresh

Headnotes

Code of Civil Procedure, 1908 ; Order XXI Rule 90(3) - The twin conditions of material irregularity of fraud and substantial injury has to be satisfied before an auction sale can be set aside under Order XXI Rule 90(3) -No sale could be set aside unless the Court is satisfied that the applicant has sustained substantial injury by reason of irregularity or fraud in completing or conducting the sale. (Para 11, 38)

Constitution of India, 1950 ; Article 300A - Though the right in property is not a fundamental right, it is still a constitutional right under Article 300A of the Constitution of India. Thus, a person can be deprived of the rights of the property only in a manner known to law. (Para 30)

Code of Civil Procedure, 1908 ; Order XXI - Order XXI is exhaustive and in the nature of a complete Code as to how the execution proceedings should take place. This is the second stage after the success of the party in the civil proceedings. It is often said in our country that another legal battle, more prolonged, starts in execution proceedings defeating the right of the party which has succeeded in establishing its claim in civil proceedings - There cannot be a licence to prolong the litigation ad infinitum. (Para 39)

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