Security Furnished By Judgment Debtor In The Form Of A Rented Shop Belonging To A Third Party Cannot Be Accepted : Supreme Court

The Supreme Court has upheld the decision of the Allahabad High Court that the security furnished by the judgment debtor in the form of a rented shop belonging to a third party, of which the surety was a tenant, cannot be accepted as a security in law.

The bench of Justices K.M. Joseph and Hrishikesh Roy was considering an appeal against the decision of the High Court who had dismissed the writ petition filed against the order of the Trial Court, where the latter had rejected the surety provided by the appellants and had dismissed the application filed under Section 17 of the Provincial Small Cause Courts Act, 1887 against the ex-parte decree passed by the Court of Small Causes.

The top court further observed that the proviso to Section 17 of the Act contemplates that the applicant seeking to set aside an ex-parte decree must either make a deposit of the amount in question or give security. However, in view of the decision of the Apex Court in Kedarnath vs Mohan Lal Kesarwari and Ors., AIR 2002 SC 582, the provision with respect to deposit can be dispensed with by the court. Thus, the applicant can, in other words, seek a dispensation with the requirement of deposit and can seek leave for furnishing such security as the court may direct.

The court of Small Causes had passed an ex-parte decree in favour of the respondents and against the appellants for ejectment and recovery of arrears of rent, taxes, and damages. Against this, the appellants filed an application under Order IX Rule 13 read with Section 151 of the Code of Civil Procedure, 1908 (CPC) before the Trial Court, seeking to set aside the ex-parte decree. On the same day, the appellants also filed an application under Section 17 of the Provincial Small Cause Courts Act, 1887, to set aside the ex-parte decree.

The Trial Court passed an order holding that the appellants had complied with Section 17(1) of the Act in relation to making the deposit of the required amount; holding that the surety submitted by the appellants was sufficient. The Trial Court had thus allowed the application filed under Order IX Rule 13. The said order was set aside by the Additional District Judge (ADJ) in revision and the matter was remanded back to the Trail Court. Pursuant to this, the application filed under Section 17 of the Act was dismissed by the Trial Court. The surety provided by the appellants was also rejected. The said order was confirmed by the ADJ in the revision petition, and by the Allahabad High Court in the writ petition.

In the appeal filed by the appellants, the Supreme Court observed that in view of the proviso to Section 17(1) of the Act, when a decree is passed by a Court of Small Causes ex-parte, the applicant- who files an application to set aside the ex-parte decree- must deposit in the court, the amount due under the decree. In the alternative, he should give security for the performance of the decree ‘on a previous Application’ made by him in this behalf.

The bench further reckoned that the proviso to Section 17 of the Act contemplates a Section 17 application being filed before the application under Order IX Rule 13. The court noted that in view of the judgment of the Supreme Court in Kedarnath (2002), the words- ‘on a previous application’- as contained in the proviso to Section 17, have been understood to be an application, which may be made along with the application filed under Order IX Rule 13 of the CPC.

Noting that the appellants had filed an application under Order IX Rule 13 of the CPC and Section 17 of the Act, on the same day, the court said, “If the Application under Section 17 was accompanied with a cash deposit, then, the Application under Order IX Rule 13 would have been, indeed, maintainable.”

The court reckoned that on 06.05.2014, i.e., the date on which an application under Order IX Rule 13 of the CPC and Section 17 of the Act was filed before the court, the applicant/ appellant did not furnish any security.

The bench noted that it was only subsequently, on 12.05.2014, that an application was filed by the appellants with a prayer that the security in the form of a rental shop owned by the Municipal Corporation, Lucknow, may be taken on record.

“Therefore, the appellant had not in the said sense complied with the mandatory requirement of Section 17,” said the court.

The court added: “We must observe that what Section 17 of the Act contemplates in the proviso is that the applicant seeking to set aside an ex-parte decree inter alia must either make a deposit of the amount in question or give security. What this Court in Kedarnath (Supra) laid down was that the provision as to deposit can be dispensed with by the Court. The applicant can, in other words, seek a dispensing with of the deposit and seek leave for furnishing such security as the Court may direct.”

While noting that the appellants in their application filed under Section 17, did seek for permission to deposit/furnish surety for a sum of Rs.50,000 out of a total sum of Rs.98,624, the court said that the same could be treated impliedly as seeking a direction within the meaning of Section 17.

The court also observed that no orders were passed on the said application filed on 06.05.2014 under Section 17, and that within 6 days, on 12.05.2014, the appellants on their own purported to furnish security in the form of a rental shop owned by the Municipal Corporation, Lucknow, of which the surety was a tenant. The same was ‘allowed’ or ‘admitted’ by the Trail Court, before being set aside by the ADJ.

The court observed, “The courts in this case have held that the security provided by the appellants through the surety, is not acceptable in law having regard to Section 17 (2) as the shop belonged to the Municipal Corporation, Lucknow and it could not be sold for enforcing the surety.”

The bench took note that the High Court had concluded that the security provided by the appellant-applicants was unacceptable on two grounds. Firstly, it was not furnished along with the application under Order IX Rule 13 on 06.05.2014. Secondly, it was found that it was not acceptable in law.

The top court concluded, “We are in agreement with the courts that the security furnished by the appellants in the form of the rented shop belonging to a third party cannot be accepted as security in law. It is patent.”

The court noted that the appellants did not challenge the order of the ADJ dated 01.08.2017, where it had set aside the Trial Court’s order allowing the application made under Order IX Rule 13. The ADJ had quashed the Trial Court’s order where the latter had held that the appellants had complied with Section 17(1) of the Act and that the surety submitted by them was sufficient.

The court said, “The trial Judge was bound by the same as the appellants did not challenge the order dated 01.08.2017. The fact that the appellants, after participating in the remanded proceedings mounted a challenge in a writ to the order dated 01.08.2017 appears to us as not advancing the case of the appellants. This is both for the reason of the belated challenge as also the nature of the earlier order involved.”

The court thus concluded: “In the facts, having regard to the Order dated 01.08.2017 and the security being found unacceptable, we find no merit in the appeal generated by special leave. The appeal will stand dismissed. There shall be no order as to costs.”

Case Title: Arti Dixit & Anr vs Sushil Kumar Mishra & Ors

Citation : 2023 LiveLaw (SC) 473

Counsel for the Appellants: Mr. Haraprasad Sahu, Adv. Mr. Pramod Kr. Yadav, Adv. Mr. Pranaya Kumar Mohapatra, AOR

Counsel for the Respondents: Mr. Pradeep Kumar Yadav, Adv. Mr. Vishal Thakre, Adv. Mr. Gopal Singh, Adv. Mr. Sanjeev Malhotra, AOR

Provincial Small Cause Courts Act, 1887: Section 17- The Supreme Court has ruled that the security furnished by the judgment debtor in the form of a rented shop belonging to a third party, of which the surety was a tenant, cannot be accepted as a security in law-The top court further observed that the proviso to Section 17 of the Provincial Small Cause Courts Act contemplates that the applicant seeking to set aside an ex-parte decree must either make a deposit of the amount in question or give security. However, in view of the decision of the Apex Court in Kedarnath vs Mohan Lal Kesarwari and Ors., AIR 2002 SC 582, the provision with respect to deposit can be dispensed with by the court. Thus, the applicant can, in other words, seek a dispensation with the requirement of deposit and can seek leave for furnishing such security as the court may direct.

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