Smt. Laxmi Devi vs Sethani Mukand Kanwar and Two Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 247 of 1962

Decision Date: 9 October 1964

Coram: P.B. Gajendragadkar, K.N. Wanchoo, M. Hidayatullah, J.R. Mudholkar

In this matter the petitioner, Smt Laxmi Devi, filed a suit against the respondents, Sethani Mukand Kanwar and two others. The judgment was delivered on 9 October 1964 by a five‑judge bench of the Supreme Court of India consisting of Chief Justice P B Gajendragadkar, Justice K N Wanchoo, Justice M Hidayatullah, Justice J R Mudholkar and Justice P B Gajendragadkar listed again as the presiding judge. The case is reported in the official law reporters as 1965 AIR 834 and in the Supreme Court Reporter as 1965 SCR (1) 726, with subsequent citations including R 1971 SC1201 (4) and F 1976 SC 737 (14). The substantive legal provisions examined were sections 2(d), 5 and 100 of the Transfer of Property Act, 1882, together with Order 21, rule 90 of the Code of Civil Procedure, 1908, which deals with the concept of substantial injury in applications seeking to set aside an auction sale. The headnote of the reported judgment explains that the second respondent had obtained a money decree against the third respondent and, in execution of that decree, caused the suit property to be put on auction, which was purchased by the appellant. Before the auction, a separate decree in favour of the first respondent for arrears of maintenance had resulted in a charge being declared over the third respondent’s properties, including the suit property. Consequently, the first respondent moved an application under Order 21, rule 90, to set aside the auction sale on the ground of substantial injury.

The Supreme Court held that the appeal should be allowed. While section 5 of the Transfer of Property Act defines “transfer of property” as a transfer effected inter vivos, section 2(d) expressly states that, except as provided in Chapter IV, the Act does not affect transfers that are made in execution of decrees. Because the positive provision in section 2(d) prevails over the definition in section 5, the provisions of Chapter IV and section 100 of that Chapter apply to auction sales that are executed pursuant to decrees. Section 100 provides that a charge cannot be enforced against any property that has been transferred to a person for consideration without notice of the charge. The Court observed that the failure to refer to the first respondent’s charge in the proclamation of sale under Order 21, rule 66, created a material irregularity, which consequently prevented the first respondent from enforcing her charge against the property purchased by the appellant. The Court further noted that, although the injury was implicit in the irregularity, the application could not be dismissed merely because the petition did not contain an express averment of substantial injury as required by the proviso to Order 21, rule 90(1). However, the Court concluded that the injury claimed by the first respondent did not amount to a substantial injury, because other properties existed that were subject to the charge and could satisfy the maintenance claim. The judgment therefore set aside the order of the High Court and dismissed the application to set aside the auction sale.

The Court observed that the irregularity itself implied an injury, and therefore it would be overly technical to dismiss the application merely because the pleading did not contain an express averment of substantial injury as required by the proviso to Order 21 Rule 90(1) of the Code. Nevertheless, the Court held that the application must be dismissed because the injury claimed by the first respondent did not amount to a substantial injury in fact. The Court noted that other properties were subject to the charge and that those properties would be available to satisfy all of her legitimate claims for maintenance. The Court cited several authorities in support of this view, namely Nawal Kishore v. The Municipal Board, Agra, I.L.R. [1943] AU. 453 (F.B.); R. L. Nanadkeolvar v. Sultan Jahan, I.L.R. 31 Pat. 722; and Munna Singh Allah Singh v. Wasti Ram Saraf and others, A.I.R. 1960 Punj. 296, which were approved. The Court also referred to Arumilli Surayya v. Pinisetti Venkataramanamma and others, A.I.R. 1940 Mad. 701, and Creet v. Ganga Ram Gool Rai, I.L.R. [1937] 1 Cal. 203, which were overruled. The judgment was rendered in a civil appellate jurisdiction, namely Civil Appeal No. 247 of 1962, which arose from the judgment and order dated 29 July 1960 of the Rajasthan High Court in D. B. Civil Miscellaneous Appeal No. 54 of 1957. Counsel for the appellant comprised Bishan Narain, Amar Chand Inani and B. P. Maheshwari, while counsel for the first respondent was B. D. Sharma. The judgment was delivered by Chief Justice Gajendragadkar.

This appeal originated from an application filed by the first respondent, Smt. Mukand Kanwar, contesting the validity of an auction sale conducted on 14 May 1954 in execution of a money decree in favour of Ratan Lal Dani, Secretary of the Hindu Charitable Aushdhalaya, Ajmer (the second respondent), and against Umrao Mal, the third respondent. The property disposed of at the auction was the “old Daikhana” situated in Ajmer. On 24 June 1950, Umrao Mal, the owner of the property, mortgaged it to the appellant, Laxmi Devi. Subsequently, the second respondent obtained a money decree against the third respondent for a substantial sum, and in execution of that decree, he caused the property to be brought to sale. Accordingly, the auction was held on 14 May 1954, and the appellant purchased the property subject to the pre‑existing mortgage in her favour. The mortgage amount was Rs. 33,264, and as the successful bidder the appellant paid Rs. 2,800, thereby acquiring the equity of redemption that vested in the third respondent, the judgment‑debtor. The present proceedings challenged the validity of this sale. Prior to the execution of the mortgage, the third respondent had executed a document in favour of his mother, the first respondent, which guaranteed her maintenance and created a charge over certain of his properties. On the basis of that document, the first respondent instituted civil suit No. 233 of 1952 against the third respondent, claiming arrears of maintenance and seeking a declaration that the properties specified in the plaint, which were identical to those covered by the earlier agreement, were subject to a charge for her maintenance.

In this case, the trial court had granted a decree for arrears of maintenance to respondent No. 1 but declined to declare the charge claimed over the properties, and the decree was pronounced on 31 July 1952. Respondent No. 1 appealed that decree by filing appeal No. 80 of 1952 before the Judicial Commissioner of Ajmer; the appeal succeeded and the charge over the properties was declared in her favour, with the decision pronounced on 10 February 1954. Following the auction sale on 14 May 1954, two separate applications were filed under Order 21 Rule 90 of the Code of Civil Procedure on 28 June 1954: one by respondent No. 3, the judgment‑debtor, and the other by respondent No. 1. The application of respondent No. 3 was dismissed on 30 April 1955, whereas the application of respondent No. 1 proceeded to trial before the Executing Court. The Executing Court examined three questions: whether any irregularity under Order 21 Rule 90 had vitiated the sale; whether respondent No. 1 was a person whose interests were affected by the sale; and whether any alleged irregularity had caused her substantial loss. The Court decided all three questions in favour of respondent No. 1 and consequently set aside the sale on 4 May 1955. The appellant challenged that decision before the Judicial Commissioner of Ajmer, arguing that respondent No. 1’s application failed to satisfy the requirements of Order 21 Rule 90 because it did not allege substantial injury resulting from the alleged irregularities. The Judicial Commissioner rejected that argument. The appellant then contended that respondent No. 1 was not competent to make the application; this contention was also rejected. Finally, the appellant argued that the Executing Court’s finding of substantial injury was unsupported and that the appellant had been denied an opportunity to present evidence because the three issues had been framed at a very late stage. The Judicial Commissioner upheld this last plea, set aside the Executing Court’s finding on substantial injury, and remitted the case for fresh determination of that issue, directing disposal in accordance with law. The order was pronounced on 26 August 1955.

In August 1955, after the case had been remanded, the Executing Court re‑examined the question of whether respondent No 1 had suffered substantial injury and concluded that she had failed to demonstrate any such injury; consequently, the court ordered that her application under Order 21 rule 90 be dismissed and that the sale be confirmed, an order that was pronounced on 27 April 1957. Aggrreed by this order, respondent No 1 filed an appeal, and because the High Court of Judicature at Rajasthan had then been constituted, the appeal was heard before that High Court. The High Court held that the Executing Court erred in finding that respondent No 1 had not proved substantial injury, rejected the contentions raised by the appellant in support of the Executing Court’s decision, and thereby allowed the application made by respondent No 1 and set aside the contested sale; the appellate order was issued on 29 July 1960. The appellant has now approached this Court with a certificate of appeal issued by the High Court, and it is observed that the sale effected on 14 May 1954 remains unconfirmed. On behalf of the appellant, counsel for the appellant conceded that, as a person holding a charge over the property sold at the auction, respondent No 1 could rely on section 100 of the Transfer of Property Act and was therefore competent to file an application under Order 21 rule 90. Order 21 rule 90(1) provides, inter alia, that when any immovable property has been sold in execution of a decree, any person whose interests are affected by the sale may apply to the court to set aside the sale on the ground of a material irregularity or fraud in publishing or conducting it. The proviso to this rule, which is relevant here, stipulates that no sale shall be set aside on the ground of irregularity or fraud unless, on the facts proved, the court is satisfied that the applicant has sustained substantial injury because of such irregularity or fraud. While acknowledging that respondent No 1 was entitled to make an application as a person whose interests were affected by the impugned sale, counsel for the appellant argues that, if the application is properly construed, the material factual allegations required under Order 21 rule 90(1) have not been made, and therefore the application should be dismissed on that ground alone. On the merits, counsel contends that there is no evidence upon which a finding in favour of respondent No 1 that she suffered substantial injury due to any irregularity in the conduct of the sale can be based, and that the application, although filed, is defective because it fails to allege the injury resulting from the alleged irregularity.

The Court observed that the petition filed by respondent No. 1 was defective because it failed to allege, in any terms, that the irregularity claimed in the petition had caused respondent No. 1 to suffer substantial injury. The petition stated that, prior to the disputed auction sale, a proclamation had been issued; however, that proclamation did not refer to the charge in favour of respondent No. 1 that had already been recognised by decree in the suit between respondent No. 1 and respondent No. 3. The Court noted that the omission of reference to that charge fell squarely within the provisions of Order 21 Rule 66 of the Code. Order 21 Rule 66(2)(e) required that a proclamation be drawn up and that it specify, as fairly and accurately as possible, any encumbrance to which the property proposed to be sold was liable. Consequently, the Court held that the failure to mention the charge in favour of respondent No. 1 constituted an irregularity within the meaning of Order 21 Rule 90(1). The Court further observed that this conclusion was not in dispute. Nevertheless, the contention advanced by the respondent was that the petition did not demonstrate the injury suffered by respondent No. 1 as a result of the alleged irregularity, and that this deficiency amounted to a serious infirmity which, in the Court’s view, ought to lead to dismissal of the petition. In response, counsel for respondent No. 1 relied on the proposition that the auction sale would effectively wipe out or extinguish the rights that had accrued to respondent No. 1 by virtue of the decree‑created charge. He argued that the very fact that the auction had been conducted without notice of the charge amounted to substantial injury to the interests of respondent No. 1. That argument was anchored in the latter part of Section 100 of the Transfer of Property Act, a provision to which the Court indicated it would shortly refer. At this stage, the Court explained that if counsel’s contention were correct – that an auction of immovable property, following a proclamation issued under Order 21 Rule 66 which omitted any reference to an existing charge, materially affected the rights of the charge‑holder – then injury would automatically arise from the irregularity alleged in respondent No. 1’s petition. Accordingly, the Court held that it would be inappropriate to dismiss the petition solely on the ground that no specific allegation of substantial injury had been made, as required by the proviso to Order 21 Rule 90(1). The Court reiterated that, before an application under Order 21 Rule 90 can succeed, the applicant must demonstrate that the sale in question was vitiated by a material irregularity or fraud in its publication or conduct, and, per the proviso, must also show that the irregularity or fraud caused the applicant to suffer substantial injury. Accordingly, the Court agreed with counsel for the respondent that the petition should contain an allegation of the injury, and it accepted the submission that the failure to expressly articulate such injury should not, by itself, render the petition dismissible.

The Court observed that a claim must contain an allegation of a material irregularity together with an allegation of substantial injury. However, the Court held that in the present case the alleged material irregularity itself necessarily implied a substantial injury to respondent No 1, and therefore it would be overly technical to dismiss the application merely because the petition did not set out an explicit and separate statement of the injury. The Court therefore examined whether the allegation that a material irregularity existed could be treated as an allegation that respondent No 1 had suffered substantial injury as a legal consequence of that irregularity. To decide this issue, the Court considered whether the latter part of section 100 of the Transfer of Property Act was applicable. Section 100 defines the nature of a charge on property and stipulates that, except as expressly provided by any law then in force, a charge may not be enforced against property that has been transferred to a purchaser for valuable consideration without notice of the charge. The Court noted that respondent No 1 could rightfully claim to be a charge‑holder within the meaning of section 100. Consequently, the latter part of section 100 becomes relevant, because it provides that a charge cannot be enforced against a transferee who acquires the property without being aware of the charge.

Mr Sharma argued that the purchaser at the auction obtained the property through the auction sale and, in that respect, the property had been transferred to him. He further asserted that the proclamation of the auction did not disclose the charge, so the purchaser had no notice of the charge while the sale was supported by consideration. Accordingly, Mr Sharma maintained that the appellant’s situation fell squarely within the proviso of section 100, which would preclude respondent No 1 from enforcing her charge against the property bought at the auction, thereby causing her substantial injury. The Court recognized that this line of argument raised the question of whether the relevant provision of section 100 is intended to apply to transactions that arise out of auction sales. To answer this, the Court turned to two other provisions of the Transfer of Property Act. Section 2(d) provides that, except as provided by section 57 and Chapter IV of the Act, nothing in the Act shall affect any transfer by operation of law or by execution of a decree or order of a competent court. The effect of this provision is to exclude the Act’s provisions from applying to such transfers, including the provisions of section 100, unless the saving clause in section 2(d) supplies an exception. The saving clause expressly preserves the operation of section 57 and Chapter IV, which deals with mortgages and charges, thereby bringing section 100 within its scope. Thus, the Court concluded that, notwithstanding the general exclusion in section 2(d), the latter part of section 100 does apply to transfers by operation of law, such as those effected by an auction sale.

The Court observed that the provision which refers to “a decree or order of a Court of competent jurisdiction” is clear and emphatic. It declares that nothing contained in the Transfer of Property Act shall apply to transfers that are made by operation of law or by a decree or order of a competent court, and that statement naturally embraces the entire Section 100. However, Section 2(d) itself contains a saving clause that creates an exception for the cases mentioned in Section 57 and for the matters dealt with in Chapter IV. Chapter IV governs mortgages of immovable property and charges and comprises Sections 58 to 104; consequently Section 100 also falls within Chapter IV. The effect of the saving clause is therefore to bring Section 100 within the scope of transfers that occur by operation of law. The Court noted that, on the footing of Section 2(d) alone, there is no doubt that the latter part of Section 100 would apply to cases of auction sales. Although Section 2(d) was originally enacted before the latter part of Section 100 was added to the Act, that latter part was inserted in 1929 by Section 50 of Act 20 of 1929. The Court held that this historical fact does not alter the construction of the saving clause in Section 2(d). Once the additional provision became part of Section 100, it was automatically incorporated into Chapter IV and consequently fell within the saving clause. The Court reasoned that, had the Legislature intended the 1929 addition to be excluded from the saving clause, it would have amended Section 2(d) expressly for that purpose. Accordingly, Section 2(d) by itself clearly supports the contention that an appellant who purchased property at an auction can claim immunity from the enforcement of the charge in favour of respondent No. 1 on the basis of the provisions contained in the latter part of Section 100.

The Court then turned to the difficulty created by Section 5 of the Transfer of Property Act. Section 5, inter alia, defines “transfer of property” as an act by which a living person conveys property, either presently or in the future, to one or more other living persons. In other words, the definition is intended to cover transfers that are effected by inter vivus acts of the parties. An auction sale, however, does not constitute such an inter vivus act. Consequently, the Court held that Section 5 appears to exclude auction sales from the purview of Section 100 altogether. This conclusion is consistent with the purpose expressed in the preamble of the Act, which indicates that the Transfer of Property Act was enacted to define and amend those parts of the law relating to the transfer of property by the act of parties. The Court therefore identified a tension between the broad saving clause of Section 2(d) and the narrower definition of “transfer of property” in Section 5, and noted that this tension needed to be resolved in order to determine the applicability of Section 100 to auction purchases.

The judgment observed that the preamble of the Transfer of Property Act states that the Act was enacted because it was considered expedient to define and amend certain aspects of the law relating to the transfer of property by act of parties. This statement, when read together with section 5, appears to create a tension with the positive provision contained in section 2(d). The author of the judgment explained that this tension must be resolved by giving precedence to the explicit language of section 2(d) over the definition of “transfer of property” contained in section 5. While acknowledging that the purpose of the definition in section 5 is to indicate the class of transfers to which the Act is intended to apply, the judgment stressed that a definition cannot override the clear and specific direction expressed in the words of section 2(d). The effect of the saving clause in section 2(d) is to emphasize that the provisions of section 57 and those in Chapter IV are applicable to transfers that occur by operation of law. Consequently, the judgment concluded that the positive provision in section 2(d) must prevail, and that notwithstanding the definition in section 5, the latter part of section 100 must be understood to include sales by auction.

The judgment then turned to the judicial consideration of this issue by various High Courts. It noted that the majority view among the High Courts supports the conclusion that auction sales fall within the ambit of the latter part of section 100. The judgment cited the case of Nawal Kishore v. The Municipal Board, Agra, where a full bench of the Allahabad High Court was asked to resolve a conflict between two earlier division‑bench decisions. In the earlier decision of Rai Indra Narain v. Muhammed Ismail, the Allahabad High Court had held that auction sales were excluded from the scope of the latter part of section 100, whereas in Municipal Board, Kanpore v. Roop Chand Jain, the opposite view was adopted. The full bench preferred the latter view, holding that when the relevant clause in the latter part of section 100 refers to property “in the hands of a person to whom such property has been transferred,” the term “transfer” is broad enough to include both transfers by act of parties and transfers by operation of law. The judgment further mentioned that the Patna High Court in R. L. Nanadkeolvar v. Sultan Jehan adopted the same approach, thereby reinforcing the position that auction‑purchasers are covered by the latter part of section 100.

By the Punjab High Court, the decision in Manna Singh Al1ah Singh v. Wasti Ram Saraf and Others was cited. The Court noted that the judgments of the Madras High Court in Arumilli Surayya v. Pinisetti Venkataramanamma and Ors., and of the Calcutta High Court in Creet v. Ganga Ram Gool Raj, which seem to advocate the opposite view, did not, in its opinion, correctly represent the true legal position in the matter. Consequently, the Court said that the appeal must be considered on the ground that, because the proclamation preceding the auction sale failed to mention the charge in favour of respondent No. 1, that respondent would be unable to enforce her charge against the property bought by the appellant at the auction. The Court therefore described the sale as having been carried out in a materially irregular manner and observed that, as a result of this irregularity, some injury had been caused to respondent No. 1.

The Court then identified the next issue as whether the injury sustained by respondent No. 1 could be characterised as “substantial injury” within the meaning of the proviso to Order 21 Rule 90(1). It explained that this question was essentially a factual one. The High Court, the appellate Court observed, had held that once it was shown that the charge would become unenforceable against the auction‑purchaser by reason of the provisions of Section 100, it followed as a matter of law that respondent No. 1 had suffered substantial injury, and therefore the impugned sale ought to be set aside. The Court declared that it was not prepared to accept that proposition.

It was explained that it could not be reasonably assumed, as a matter of law, that in every case where a charge became unenforceable against an auction‑purchaser because the proclamation failed to refer to that charge, the charge‑holder invariably suffered substantial injury. The Court stressed that the determination of whether the injury was substantial had to depend on several relevant facts, including the number of properties sold at auction, how many of those properties were subject to the charge, and the extent of the claim that the charge‑holder could legitimately expect to enforce against the charged properties. All these matters, and other pertinent considerations, had to be examined before concluding whether the injury to the charge‑holder was substantial.

Applying this approach to the present case, the Court observed that five properties were subject to the charge. Of those, only property No. 3 had been sold at the auction. It appeared that properties Nos. 1 and 2 were already unavailable to the charge‑holder. Accordingly, the Court indicated that the assessment of whether the injury suffered by respondent No. 1

In determining whether the injury to respondent No 1 was substantial, the Court examined the relative values of properties numbered 4 and 6. The Executing Court had previously considered this issue after the Judicial Commissioner returned the matter to it, and it had expressly concluded that the injury to respondent No 1 could not be described as substantial. According to that finding, the two remaining properties—property 4 valued at Rs 1,18,967 and property 6 valued at Rs 1,25,464—would be sufficient to satisfy all of respondent No 1’s legitimate claims against the judgment‑debtor, respondent No 3. The Executing Court also took into account the amount that respondent No 1 was entitled to claim as maintenance from respondent No 3, and it noted that respondent No 1 was an elderly woman over seventy years of age. On the basis of these considerations, the Executing Court concluded that, on the whole, the sale of property 3 to the auction purchaser did not cause a substantial injury to her. The present Court found it difficult to depart from that conclusion. Consequently, although respondent No 1 was able to demonstrate that her charge could not be enforced against the appellant, she had not shown that this circumstance resulted in a substantial injury. Accordingly, the proviso to Order 21 Rule 90 of the Code was not satisfied in this case. While the appeal was pending, respondent No 3, Umrao Mal, died, leaving his mother—respondent No 1—and his widow as his heirs. The estate of Umrao Mal therefore devolved upon the two widows, and respondent No 1 consequently became the owner of a portion of the properties against which she might otherwise have pursued execution of the maintenance decree. For these reasons, the appeal was allowed, the order of the High Court was set aside, and the application made by respondent No 1 under Order 21 Rule 90 was dismissed. No order as to costs was made throughout. Appeal allowed.