Manilal Mohanlal Shah And Others vs Sardar Sayed Ahmed Sayed Mahmad And Another

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 93 of 1953

Decision Date: 14 April 1954

Coram: Ghulam Hasan, Mehar Chand Mahajan, Vivian Bose

In the matter titled Manilal Mohanlal Shah and Others versus Sardar Sayed Ahmed Sayed Mahmad and Another, the Supreme Court of India delivered its judgment on 14 April 1954. The opinion was authored by Justice Ghulam Hasan, and the bench comprised Justice Ghulam Hasan, Justice Mehar Chand Mahajan, and Justice Vivian Bose. The petitioners were Manilal Mohanlal Shah and several other persons, and the respondents were Sardar Sayed Ahmed Sayed Mahmad and another individual. The judgment was recorded under the citation 1954 AIR 349 and also appears in the 1955 Supreme Court Reports at page 108. The case is referenced in the citator as D 1967 SC 1344 (7,10). The substantive issue concerned the Civil Procedure Code of 1908, specifically Order XXI, rules 84 and 85, which stipulate that a purchaser must deposit twenty‑five per cent of the purchase price immediately upon being declared the purchaser and must pay the remaining balance within sixteen days of the sale. The court examined whether these provisions are mandatory and what legal effect follows if they are not complied with. The court held that the requirements of rules 84 and 85 are indeed mandatory; failure to make the immediate deposit and to pay the balance within the prescribed period results in the sale being void ab initio. Consequently, non‑payment by a defaulting purchaser renders the entire sale a nullity, and the inherent powers of the court cannot be used to override these mandatory provisions or to exempt the purchaser from the deposit obligation. The judgment also addressed Order XXI, rule 72, which states that a decree‑holder may not bid for or purchase property at a court‑auction executing his own decree without express permission of the court. When permission is granted, the decree‑holder may claim a set‑off; however, if purchase occurs without permission, the court retains discretion to set aside the sale upon application by the judgment‑debtor or any other interested party. This rule, the court clarified, is directory rather than mandatory. The court supported its reasoning by referring to several earlier decisions, including Rai Radha Krishna and Others v. Bisheshar Sahai and Others (49 A. 312), Munshi M.D. Ali Meah v. Kibria Khatun (Weekly Notes (Cal.) p. 350), Annapurna Dasi v. Bazley Karim Fezley Moula (A.I.R. 1941 Cal. 85), Nawal Kishore and Others v. Buttu Mal and Subhan Singh (I.L.R. 57 All. 658), Haji Inam Ullah v. Mohammad Idris (A.I.R. 1943 All. 282), Bhim Singh v. Sarwan Singh (I.L.R. 16 Cal. 33), Nathu Mal v. Malawar Mal and Others (A.I.R. 1931 Lah. 15), and A.B. Davar v. Thinda Ram (A.I.R. 1938 Lah. 198). The case was heard under civil appellate jurisdiction as Civil Appeal No. 93 of 1953, arising from a Special Leave petition granted by the Supreme Court on 5 March 1951.

In this case, the Court noted that the judgment and decree dated 28 January 1949 of the High Court of Judicature at Bombay were issued in appeal from Order No 43 of 1947, which itself arose out of the order dated 14 April 1947 of the Court of the Joint First‑Class Sub‑Judge at Ahmedabad in Darkhast No 249 of 1940. The appellant, appearing in person for himself and the co‑appellants, was opposed by the respondent, represented by the Solicitor‑General for India and counsel. The judgment of the Court, delivered by Justice Ghulam Hasan, concerned an appeal brought by the auction‑purchasers by way of special leave and raised the question of the validity of a sale of certain properties that had taken place on 13 August 1942. The respondents in the proceedings were the judgment‑debtor and the legal representative of the deceased decree‑holder. The decree‑holder had applied on 30 March 1940 for execution of his decree by the sale of four lots of property belonging to the judgment‑debtor. The four lots were valued at a total of Rs 1,50,000 and were subject to a prior mortgage of Rs 60,000 in favour of the auction‑purchasers. According to the terms of the mortgage deed, the mortgagees were entitled to proceed first against the first three lots, while the fourth lot could be proceeded against only if the sale price of the first three lots proved insufficient to satisfy the mortgage debt. The first three lots, which are the sole focus of the present appeal, were sold to the mortgagees for Rs 53,510 on 13 August 1942. The sale was effected free from encumbrance by an order of the Court passed at the initiative of the decree‑holder and the mortgagees, but the judgment‑debtor was not given notice of the sale. It was observed, however, that on an application by certain third parties, their right of annuity over the properties sought to be sold was recorded in the sale proclamation. On the same day, the mortgagees applied for a set‑off, stating that the purchase price amounted to Rs 53,510 while the sum due to them under the mortgage was Rs 1,20,000. The Court allowed the set‑off at that time. It is significant that the mortgagees had neither filed a suit nor obtained a decree to recover the mortgage money. The order notifying the claim to annuity was challenged by the judgment‑debtor in a revision petition before the High Court, but the challenge was dismissed on 10 November 1943 by Justice Sen, who observed that, since the sale had already taken place, the proper remedy for the judgment‑debtor was to move the Court for setting aside the sale. Accordingly, the judgment‑debtor filed an application on 20 November 1943 under Order XXI, Rule 90 of the Civil Procedure Code seeking to have the sale set aside (Exhibit 51). In that application, allegations of fraud and collusion against the mortgagees were made, specifically asserting that the three lots had been sold at a grossly inadequate price because they had been undervalued in the proclamation and that the mortgagees had failed to pay the required 25 percent deposit of the bid, thereby rendering the sale improper.

In this matter, after the first application concerning the alleged fraud and collusion of the mortgagees remained pending, the judgment‑debtor filed a second application on 15 January 1947. In that later filing, the judgment‑debtor contended that the sale of the three lots should be declared a nullity because the purchaser had failed to make the deposit required by rule 84 of Order XXI of the Civil Procedure Code and had also failed to pay the balance of the purchase price as mandated by rule 86. The applicant further prayed that the property be resold in order to realise its true value. The court observed that the earlier order permitting a set‑off had been made without jurisdiction, and because the second application was essentially based on the same grounds, no separate order was issued; the earlier application (Exhibit 51) was disposed of on the identical basis. The trial court examined the valuation of the lots at the time of attachment on 30 April 1940, noting that each of lots 1, 2 and 3 had been assessed at Rs 40,000. However, at the time of the proclamation of sale on 6 March 1942 the first two lots were revalued at Rs 45,000 each while the third lot was placed at a mere Rs 8,000. The court stressed that the property comprised not only the surveyed numbers but also bungalows and superstructures, and that the lower later valuation was likely to mislead prospective bidders. Consequently, the trial court set aside the sale on the ground that the procedural requirements of Order XXI, rules 84 and 85 had not been complied with: the purchase price had not been deposited, and a set‑off had been wrongly allowed in the absence of the judgment‑debtor, a step the court was not empowered to take. The court remarked, “There is nothing to show that these opponents took any permission from the Court to bid at the auction and in fact they could hardly have obtained any such permission, they being mortgagees whose dues had yet to be proved and determined. If they could ask for set‑off, there is no reason why they should not be required also to seek previous permission from the Court to bid under Order XXI, rule 72, of the Civil Procedure Code. It may be noted that one of these opponents is himself a pleader and he was not justified in taking such an unauthorised order from the Court without fully acquainting with all the facts.” The judgment further observed that, without proving their mortgage claim, the opponents had purchased the properties at a grossly undervalued price and had not paid that amount in Court, resorting instead to the device of set‑off. The court described the entire procedure as “more fraudulent and materially irregular” and held that it caused great injury to the judgment‑debtor. Finally, the court concluded that although the application under rule 90 was barred by limitation, the sale was void rather than merely irregular, and therefore the property had to be resold irrespective of any pending application by the judgment‑debtor.

The Court observed that the property in question had to be dealt with irrespective of whether the judgment‑debtor made any application. The High Court of Bombay, consisting of Justice Chagla and Justice Gajendragkar, had dismissed the appeal filed by the mortgagee‑purchasers. The dismissal was based on the view that the order of the trial Court was made under Order XXI, rule 84 and/or rule 86 of the Civil Procedure Code, and consequently no appeal lay against that order. The High Court further held that the order permitting set‑off was made without jurisdiction and that the subsequent deposit of the purchase price on 14 December 1945, which was made long after the prescribed period, could not confer any benefit. One of the purchasers at the auction, who was also a pleader, argued the appeal before this Court. The central issue for determination was whether the failure to make the deposit required by Order XXI, rules 84 and 85, constituted merely a material irregularity that could be set aside only under rule 90, or whether the failure rendered the sale wholly void. It was contended that the case fell within the former category and, because the application under rule 90 was barred by limitation, the sale could not be set aside. Another contention was that, since the Court had earlier allowed the set‑off and had condoned the failure to deposit, the mistake of the Court should not prejudice the purchasers, who would have deposited the purchase price but for that mistake. The Court found both of these contentions to be without merit. To resolve the controversy, a careful reference to the relevant provisions of Order XXI of the Civil Procedure Code was necessary. The pertinent rules are numbers 72, 84, 85 and 86.

Rule 72 provides that (1) no holder of a decree in execution, where property is to be sold, may bid for or purchase the property without the express permission of the Court; (2) where a decree‑holder purchases with such permission, the purchase‑money and the amount due on the decree may, subject to the provisions of section 73, be set off against each other; and (3) where a decree‑holder purchases, either personally or through another person, without the required permission, the Court may, if it thinks fit, upon an application by the judgment‑debtor or any other person whose interests are affected by the sale, set aside the sale by order. Rule 84 states that (1) on every sale of immovable property the person declared to be the purchaser must immediately pay a deposit of twenty‑five percent of the purchase‑money to the officer or other person conducting the sale, and that in default of such deposit the property shall be resold forthwith; and (2) where the decree‑holder is the purchaser and is entitled to set off the purchase‑money under rule 72, the Court may dispense with the requirement of this rule. Rule 85 provides that the full amount of purchase‑money payable shall be paid by the purchaser into Court before the Court closes on the fifteenth day from the sale of the property, the amount to be paid being reduced by any set‑off to which the purchaser may be entitled under rule 72.

The Court explained that a purchaser who is also a decree‑holder may enjoy any set‑off to which rule 72 permits him, but this benefit is subject to the conditions laid down in the procedural rules. Rule 86 provides that if the purchaser fails to make the required payment within the time fixed by the preceding rule, the Court may, at its discretion, after first recovering the expenses of the sale, forfeit the deposit to the Government, cause the property to be resold, and declare that the defaulting purchaser has lost any claim to the property or to any part of the monies that may later be realised from the resale.

Having set out the operative provisions, the Court summarised their effect. It held that a decree‑holder is not entitled to buy property at a Court auction in execution of his own decree unless he first obtains the Court’s express permission. When such permission is granted, the decree‑holder may claim a set‑off; however, if he purchases without permission, the Court retains a discretion to set aside the sale on an application by the judgment‑debtor or by any other person whose interests are affected, as provided in rule 72. The Court observed that this provision is directory rather than mandatory, referring to the decision in Rai Radha Krishna and Others v. Bisheshar Sahai and Others. The moment a person is declared the purchaser, rule 84 obliges him to deposit twenty‑five per cent of the purchase‑money, except where the purchaser is the decree‑holder, in which case the Court may dispense with the deposit requirement. The language of rule 84 makes the deposit obligation mandatory for purchasers who are not decree‑holders.

The Court further noted that rule 85 makes it mandatory for the purchaser to pay the full purchase‑money within fifteen days of the sale, although a decree‑holder remains entitled to the advantage of a set‑off under rule 72. If the purchaser fails to remit the full amount within the fifteen‑day period, the Court may, at its discretion, forfeit the deposit, but its discretion ends there; the duty to order a resale of the property is obligatory. Moreover, rule 86 imposes an additional consequence: a purchaser who does not comply forfeits any claim to the property.

Applying these principles to the facts, the Court observed that the purchasers in the present case had not obtained any decree based on their mortgage, and the claim of Rs 1,20,000 that they advanced before the execution Court had neither been adjudicated nor determined. On the day of the sale, the mortgagees—one of whom was a pleader—applied for a set‑off on the basis of the mortgage. The Court, without giving the matter any analytical consideration, immediately ordered that the set‑off be allowed. The Court held that this claim could not be entertained under rule 84, which is applicable only to a decree‑holder, and therefore the trial Court lacked jurisdiction to permit the set‑off. The Court concluded that the appellants had misled the trial Court into issuing an erroneous order and had obtained the benefit of a set‑off despite being fully aware that no decree existed on the mortgage and that their claim remained undetermined.

In the present case there was a default in two respects. First, the purchaser failed to deposit the required twenty‑five percent of the purchase‑money, as required under rule eighty‑four. Second, the purchaser did not pay the balance of the purchase‑money within fifteen days of the date of the sale, a requirement imposed by rule eighty‑five. Both the deposit and the subsequent payment are mandatory under the combined effect of rules eighty‑four and eighty‑five. The law therefore gives the court the discretion to forfeit the deposit, but it also obliges the court to order a resale of the property. Consequently, on account of the default, the purchaser forfeits any claim to the property. The statutory provisions make it clear that unless the purchaser complies with the mandatory deposit and payment requirements, no sale exists in law in his favour, and no right to own or possess the property accrues to him.

The authority of several High Courts supports this interpretation. The Calcutta High Court, in Munshi Md. Ali Meah v. Kibria Khatun (1) and in Sm. Annapurna Dasi v. Bazley Karim Fazley Moula (2), held that where the purchaser failed to pay the balance of the purchase‑money as required by rule eighty‑five, the transaction could not be said to be a sale. A Division Bench of the Allahabad High Court expressed the same view in Nawal Kishore and Others v. Buttu Mal and Subhan Singh (3). The mandatory nature of rule eighty‑six was affirmed in another Allahabad decision, Haji Inam Ullah v. Mohammad Idris (4), where the court ruled that upon default the court must order a resale of the property, regardless of whether any party made an application. In Bhim Singh v. Sarwan Singh (5) the failure to make the deposit required by section 306 of the Code of 1882 (the predecessor of rule eighty‑five) was treated as a material irregularity that had to be examined under section 311 (now rule ninety), and not by a separate suit to set aside the sale. That court, however, did not decide whether the mandatory nature of section 306 meant that the sale should be regarded as a nullity for non‑compliance. The later decision of a single judge, Tapp J., in Nathu Mal v. Malawa Mal and Others (1), is distinguishable because, on the facts there, the auction‑purchaser had actually tendered the money, and the payment was postponed by agreement of the parties pending the resolution of an objection by the judgment debtor. The Court in that case also observed that the provisions of rule eighty‑five were “to be directory only and not absolutely mandatory.” The present Court does not agree with that observation. A Division Bench of the same High Court, consisting of Justices Tek Chand and Abdul Rashid, reaffirmed the mandatory character of the rule in A. R. Davar v. Jhinda Ram (2), holding that the court lacks jurisdiction to extend the time for payment of the balance under rule eighty‑five and must order a resale under rule eighty‑six.

In this matter, the Court stated that it possessed no authority to lengthen the period for payment of the balance of the purchase‑money under rule 85, and that it was required to order a resale under rule 86. After carefully reviewing the wording of the applicable rules and the judicial decisions relating to them, the Court concluded that the rule obliging a purchaser to deposit twenty‑five percent of the purchase‑money immediately upon being declared a purchaser, and to pay the remaining balance within fifteen days of the sale, is mandatory; consequently, failure to comply with these requirements means that no sale has taken place at all.

The Court further explained that the statutes do not envisage any circumstance in which a sale could be valid in favour of a purchaser who has not first deposited the required twenty‑five percent and subsequently paid the balance within the stipulated fifteen‑day period. Because the rules are premised on the existence of a valid sale, the Court held that there can be no allegation of material irregularity in the conduct of a sale that, under the rules, never actually occurred. The Court observed that a purchaser’s failure to pay the price renders the entire sale proceeding a complete nullity.

The Court noted that the very provision obligating the Court to order a resale when a default occurs demonstrates that the earlier sale proceedings are wholly erased, as if they never existed in the eyes of the law. Accordingly, the Court held that, given the facts of the present case, no sale had been effected and the alleged purchasers acquired no legal rights whatsoever.

The parties argued that the Court might allow a set‑off in execution proceedings by exercising its inherent powers, separate from the provisions of Order XXI, rule 19 of the Civil Procedure Code. The Court rejected this contention, stating that the inherent powers could not be used to circumvent the mandatory provisions of the Code or to relieve the purchasers of their duty to make the required deposit.

The Court observed that the appellants had misled the Court and were seeking to benefit from a mistake that they themselves had caused. The Court ruled that such parties could not be permitted to profit from their own wrongdoing. Consequently, the appeal was dismissed, costs were awarded against the appellants, and the appeal was formally dismissed.