1989 (8) TMI 341 - SC - Indian Laws

Court ruling on execution of mortgage sale order under State Financial Corporation Act clarifies rights of redemption and sale process.

The court held that Order 34 Rule 5 of the Code of Civil Procedure applies during the execution of an order of sale of mortgaged property under Section 32 ... Order 34 Rule 5 CPC - equity of redemption - execution of an order under Section 32 of the State Financial Corporation Act - legal fiction treating an order under the Act as a decree for purposes of execution - applicability of the Code of Civil Procedure to proceedings under the Act 'as far as practicable' - right to redeem during the pendency of an appeal against confirmation of saleOrder 34 Rule 5 CPC - execution of an order under Section 32 of the State Financial Corporation Act - applicability of the Code of Civil Procedure to proceedings under the Act 'as far as practicable' - legal fiction treating an order under the Act as a decree for purposes of execution - Applicability of Order 34 Rule 5 CPC to a sale effected in execution of an order under Section 32 of the State Financial Corporation Act. - HELD THAT: - Section 32(8) of the Act provides that an order of attachment or sale under the Act shall be carried into effect, as far as practicable, in the manner provided in the Code for attachment or sale in execution of a decree, thereby creating a limited legal fiction that the order is to be treated as a decree for purposes of execution and the Corporation as a decree-holder. The expression 'as far as practicable' requires that the provisions of the Code governing execution apply in their entirety except where a particular provision cannot practicably be applied; the party asserting non-applicability must show how it is impracticable. Order 34 Rule 5 is a provision of the Code having material bearing on execution of a decree for sale of mortgaged property and permits redemption in execution proceedings before confirmation. There is nothing in the Act, its Rules or Orders which extinguishes the mortgagor's equity of redemption or which is inconsistent with Section 60 of the Transfer of Property Act. The limited legal fiction in Section 32(8) is therefore to be given effect so that provisions of the Code governing execution, including Order 34 Rule 5, apply mutatis mutandis to sales under Section 32 unless shown impracticable. No such impracticability was demonstrated.Order 34 Rule 5 CPC is applicable to sales effected under Section 32 of the Act for the limited purpose of execution, and the relief thereunder can be granted.Right to redeem during pendency of appeal - finality of sale - equity of redemption - Effect of a pending appeal against confirmation of sale on the availability of redemption under Order 34 Rule 5 CPC. - HELD THAT: - Where an appeal is pending against an order dismissing an application to set aside an execution sale and confirming that sale, the sale does not attain absolute finality for purposes of running periods or for extinguishing the mortgagor's remedy. Precedent establishes that confirmation by the executing court is inchoate while an appeal from that confirmation remains undecided; consequently the judgment-debtor retains the right to make the deposit and redeem under Order 34 Rule 5 until the confirmation becomes final. Since the equity of redemption is not extinguished by the mere confirmation of sale so long as appeal remedies subsist and no statutory provision to the contrary in the Act exists, the mortgagor may avail himself of the redemption remedy during the pendency of the appeal.A pending appeal against confirmation of sale prevents the sale from becoming absolute and preserves the mortgagor's right to redeem under Order 34 Rule 5 CPC.Disposition of deposits and restoration of sale setting-aside - return of mortgage deed and striking off execution - Reliefs to be granted where Order 34 Rule 5 CPC is allowed in execution under Section 32 of the Act. - HELD THAT: - Having held that Order 34 Rule 5 applies and that the mortgagor's equity of redemption subsists during the pendency of the appeals, the Court granted the reliefs consequent upon successful deposit and redemption: restoration of the order setting aside the auction sale in favour of the first purchaser; setting aside the subsequent auction in favour of the second purchaser; direction that the Corporation return the mortgage deed since it had accepted a full and final settlement; striking off execution by the executing court in full and final satisfaction; and directions for payment over to the respective purchasers of the amounts deposited by them together with the 5% sums deposited by the mortgagor and accrued interest.Allow the redemption application under Order 34 Rule 5; set aside the High Court's confirmation, restore the Additional District Judge's order setting aside the sale, invalidate the subsequent auction, return the mortgage deed to the mortgagor, strike off execution, and direct payment of deposited amounts as specified.Final Conclusion: The application under Order 34 Rule 5 CPC was maintainable and is allowed; Order 34 Rule 5 applies to sales effected under Section 32 of the State Financial Corporation Act for purposes of execution, the mortgagor's equity of redemption survives pending appeal against confirmation of sale, and consequential directions were issued restoring the setting-aside of the sale, invalidating the later auction, returning the mortgage deed, striking off execution and directing payment of deposited sums. Issues Involved:1. Applicability of Order 34 Rule 5 of the Code of Civil Procedure during the execution of an order of sale of mortgaged property u/s 32 of the State Financial Corporation Act, 1951.2. Effect of an appeal on the confirmation of sale.3. Nature of an order passed by the District Judge u/s 31 and 32 of the State Financial Corporation Act.4. Right of redemption under Section 60 of the Transfer of Property Act.5. Applicability of legal fiction in Section 32(8) of the State Financial Corporation Act.Summary:1. Applicability of Order 34 Rule 5 of the Code of Civil Procedure:The court examined whether Order 34 Rule 5 of the Code of Civil Procedure (the Code) applies during the execution of an order of sale of mortgaged property u/s 32 of the State Financial Corporation Act, 1951. The court held that the provisions of Order 34 Rule 5, which permit redemption of the mortgage during the execution of a final decree for sale, are applicable in the execution of an order under Section 32 of the Act. This is because the legal fiction created by Section 32(8) of the Act mandates that the order of sale be executed as if it were a decree in a suit for sale.2. Effect of an Appeal on the Confirmation of Sale:The court considered the effect of an appeal on the confirmation of a sale. It was held that the sale does not become absolute until the appeal is decided. This principle was supported by precedents such as Chandra Mani v. Anarjan Bibi and Sri Ranga Nilayam Ramkrishan Rao v. Kandokari Chellayamma, where it was established that an appeal against an order refusing to set aside an execution sale renders the sale and its confirmation fluidal and nebulous until the appeal is disposed of.3. Nature of an Order Passed by the District Judge u/s 31 and 32 of the Act:The court clarified that an application u/s 31(1) of the Act is not akin to a suit for enforcement of a mortgage. The order passed u/s 32 of the Act is not a decree stricto sensu but is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. This was supported by the decisions in Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co. (P) Ltd. and M/s. Everest Industrial Corporation v. Gujarat State Financial Corporation.4. Right of Redemption under Section 60 of the Transfer of Property Act:The court reaffirmed the right of redemption under Section 60 of the Transfer of Property Act, which can only be extinguished by the act of the parties or by a decree of a court. The court held that the right of redemption had not been extinguished in the present case, as the sale had not become absolute due to the pendency of the appeals.5. Applicability of Legal Fiction in Section 32(8) of the Act:The court emphasized that the legal fiction created by Section 32(8) of the Act, which mandates that an order of sale be executed as if it were a decree in a suit for sale, extends to all provisions in the Code regarding the execution of a decree for sale of mortgaged property. This includes the right to redeem the mortgage under Order 34 Rule 5 of the Code, as long as the equity of redemption has not been extinguished.Conclusion:The court allowed the application under Order 34 Rule 5 of the Code filed by Maganlal, set aside the order of the High Court confirming the sale in favor of the first purchaser, and restored the order of the Additional District Judge setting aside the auction sale. The subsequent auction sale held in favor of the second purchaser was also set aside. The court directed the return of the mortgage deed to Maganlal and the striking off of the execution in full and final satisfaction. The sums deposited by the first and second purchasers, along with the interest accrued, were ordered to be returned to them. Appeals were allowed with no order as to costs.