Though S.52 TP Act Doesn't Make Pendente Lite Transfer Void, Court Can Invalidate Such Sale Exercising Contempt Power : Supreme Court

The Supreme Court has held that the Courts can set aside a sale transaction, which was carried out in violation of its directions, as void in the exercise of its contempt jurisdiction.

The Court held that although a sale transaction carried out during the pendency of court proceedings (pendente lite) would not become void due to the operation of the doctrine of lis pendens under Section 52 of the Transfer of Property Act, 1882, the Court can reverse such a sale transaction if it was done in contempt of judicial directions.

Accordingly, a bench comprising Justice JB Pardiwala and Justice Manoj Misra the assignment deed executed by a borrower transferring a secured asset in favour of a third party ignoring a judgment of the Supreme Court which confirmed the auction sale of the very same property under the SARFAESI Act.

The Court was deciding a contempt petition filed by Celir LLP which was the auction purchaser of the property. As per judgment dated September 21 in Celir LLP v. Bafna Motors (Mumbai), the Supreme Court set aside the High Court's judgment which allowed the borrower to redeem the mortgage. Further, the bank was directed to issue sale certificate to the auction purchaser (petitioner). However, during the pendency of the said proceedings, the borrower had assigned the property to a third party.

The borrower then filed the contempt petition alleging disobedience on the part of the respondents in handing over the possession of the property and annulling the release deed executed in favour of the borrower.

One argument which was raised during the hearing was that Section 52 of the TP Act does not render a pendente lite transfer void. The Court referred to the recent judgment in M/s Siddamsetty Infra Projects Pvt. Ltd. v. Katta Sujatha Reddy & Ors. which held that the doctrine of lis pendens kicks in the moment the petition was filed in the Court. Admittedly, the assignment deed was executed after the SLP was filed.

The Court further held that the Maharashtra amendment to Section 52 Act, which mandates that a notice of pendency must be registered, cannot enable a subsequent purchaser to claim absolute title even in the absence of such a notice.

"Although, the said provision is for the benefit of the third-party, yet such subsequent purchasers cannot as a matter of absolute right claim any title to such property solely on the ground of want of any notice of pendency being registered. To hold otherwise would undermine the object and purpose of the doctrine of lis pendens which is based on the principle of equity, good conscience, and public policy and discourage any thwarting or frustration of rights of the parties so litigating by unscrupulous and unanticipated transactions," the Court observed.

"Thus, we are of the considered view that even in the absence of a registered notice of pendency in terms of the amended Section 52 of TPA the said provision will not be rendered ipso-facto inapplicable, at best it would preclude the party seeking benefit of this doctrine to claim it as a matter of right, but by no stretch would it mean that the third-party conversely would be able to as matter of absolute right claim inapplicability of this doctrine," the Court said.

The Court also gathered from facts that the subsequent transferee was aware of the pendency of the proceedings in the Supreme Court.

Having held that the transaction was hit by lis pendens, the next issue was what was the consequence. The Court held that though the doctrine does not render the sale invalid as such, it subjects the transfer to the outcome of the litigiation.

"Thus, although Section 52 does not render a transfer pendente lite void yet the court while exercising contempt jurisdiction may be justified to pass directions either for reversal of the transactions in question by declaring the said transactions to be void or proceed to pass appropriate directions to the concerned authorities to ensure that the contumacious conduct on the part of the contemnor does not continue to enure to the advantage of the contemnor or anyone claiming under him," the Court observed.

Although the transaction was effected before the final judgment of the Court, it held that the transaction amounts to contempt.

"The Contempt jurisdiction of the court extends beyond the mere direct disobedience of explicit orders or prohibitory directions issued by the court. Even in the absence of such specific mandates, the deliberate conduct of parties aimed at frustrating court proceedings or circumventing its eventual decision may amount to contempt. This is because such actions strike at the heart of the judicial process, undermining its authority and obstructing its ability to deliver justice effectively. The authority of courts must be respected not only in the letter of their orders but also in the broader spirit of the proceedings before them," the Court observed.

"Thus, the mere conduct of parties aimed at frustrating the court proceedings or circumventing its decisions, even without an explicit prohibitory order, constitutes contempt. Such actions interfere with the administration of justice, undermine the respect and authority of the judiciary, and threaten the rule of law," the Court held.

The Court also noted that there were attempts by the borrower and the subsequent transferee to obstruct the implementation of the judgment.

At the same time, the Court refrained from holding them guilty of contempt and instead chose to give them an opportunity to comply with the judgment.

The Court declared the subsequent transfer to be invalid and passed consequential orders.

Senior Advocates Mukul Rohatgi and Neeraj Kishan Kaul for the petitioners; Senior Adv Dr AM Singhvi for the borrower; Senior Advocate Kapil Sibal for the subsequent transferee; Senior Advocate Raju Ramachandran for the bank.

Case : Celir LLP v. Ms Sumati Prasad Bafna and others

Citation : 2024 LiveLaw (SC) 991

Click here to read the judgment