Safeguards and Finality in Auction Sales of Immovable Property

This article examines the recent judgment of the Hon’ble Supreme Court in Danesh Singh & Ors. v. Har Pyari (Dead) through LRs & Ors. [1], concerning execution proceedings under Order XXI of the Code of Civil Procedure, 1908 (CPC). It focuses on challenges to auction sales of immovable property, balancing the decree-holder’s right to realize decretal dues with safeguards against procedural irregularities, while limiting collateral attacks so as to maintain the finality of execution proceedings.

Facts Involved:

The dispute arose from a recovery suit instituted by a creditor Bank (Respondent No. 6) against a borrower (Respondent No. 3) who had mortgaged their property to secure a loan.

The Decree: The Trial Court passed an ex-parte decree on 12.11.1984 in favor of the creditor Bank, allowing for the recovery of money and recognizing the mortgage over the subject property.

The Transfer: After the passing of the decree, the Judgment Debtor (Respondent No. 3) sold the suit property to the Plaintiffs (Respondent Nos. 1 and 2) via registered sale deeds executed on 13.05.1985 and 24.06.1985.

Execution and Auction: Subsequently, on 08.10.1985, the Executing Court attached the mortgaged property. The property was then auctioned to satisfy the decree, and the Appellants (Auction Purchasers) purchased it. The sale was confirmed, and possession was handed over to them.

The Challenge: The Plaintiffs (Respondent Nos. 1 and 2) filed a separate civil suit seeking a declaration of title and possession. They argued they were bona fide purchasers for value without notice of the bank’s claim, as the Encumbrance Certificate was clean at the time of purchase. They alleged the auction was fraudulent and the decree was merely a money decree, not a mortgage decree.

Procedural History: The Trial Court and High Court ruled in favor of the Plaintiffs, holding the separate suit maintainable on grounds of fraud and declaring the auction void. The Auction Purchasers appealed to the Hon’ble Supreme Court.

Questions Framed:

The Hon’ble Supreme Court framed the following five key questions for determination:

1. Lis Pendens: Whether the transfer of the suit property to Respondent Nos. 1 and 2 is hit by Section 52 of the Transfer of Property Act, 1882?
2. Remedies under Rules 89/90: Whether Respondent Nos. 1 and 2 could have sought relief under Order XXI Rules 89 (setting aside sale on deposit) or 90 (setting aside for irregularity/fraud) of the CPC?
3. Third Party Suit (Rule 92(4)): Whether Respondent Nos. 1 and 2 were “third parties” entitled to institute a separate suit under Order XXI Rule 92(4) of the CPC?
4. Representative Status (Section 47): Whether Respondent Nos. 1 and 2 were “representatives” of the Judgment Debtor, thereby barring a separate suit under Section 47 of the CPC?
5. Remedy under Rule 99: Whether Respondent Nos. 1 and 2 should have sought the remedy under Order XXI Rule 99 (dispossession) instead of a separate suit, and if failure to do so affects maintainability?

Analysis:

The Court provided a comprehensive analysis of the interplay between the Transfer of Property Act and CPC:

• Applicability of Lis Pendens (Section 52 TPA)

The Court rejected the argument that the doctrine did not apply because the original suit was merely for money recovery. It held that since the plaint specifically prayed for the sale of mortgaged property and the decree recognized the mortgage, the “right to immovable property” was “directly and specifically in question.” Consequently, the sale to Respondent Nos. 1 and 2, executed during the pendency of the execution proceedings (which deemed to commence from the plaint), was hit by lis pendens. As pendente lite transferees, they are bound by the decree and the auction sale, irrespective of whether they had notice of the litigation.

• Bar on Separate Suit (Section 47 CPC)

Section 47 of the CPC mandates that all questions arising between the parties to the suit (or their representatives) relating to the execution, discharge, or satisfaction of the decree must be determined by the Executing Court, not by a separate suit. The Court held that Respondent Nos. 1 and 2, having purchased the property from the Judgment Debtor, stepped into his shoes and became his “representatives.” Therefore, they were barred from filing a separate suit to challenge the auction.

• Availability of Remedies under Order XXI

The Court clarified the specific remedies available under Order XXI, which the Respondents failed to utilize correctly:

• • Rule 89 (Setting aside on deposit): As persons claiming an interest in the property, they could have saved the property by depositing the decretal amount plus 5% penalty. However, this remedy is time-bound (60 days) and was not availed.
  • Rule 90 (Irregularity/Fraud): Allegations regarding the conduct of the sale (e.g., undervalued price, lack of notice) fall strictly under Rule 90. A separate suit based on “fraud” in the auction process is not maintainable if the grounds could have been raised under Rule 90.

• • Rule 99 (Dispossession): If they were dispossessed, their remedy was to file an application under Rule 99 complaining of dispossession. The law treats such an application as a suit. They cannot bypass this mechanism by filing a separate civil suit.

Interpretation of “Third Party” under Rule 92(4)

The Court distinguished between a true “third party” (stranger to the decree) and a pendente lite transferee. Rule 92(4) allows a third party to file a suit to establish title only if they are not claiming through the judgment debtor in a manner that binds them to the decree. Since Respondent Nos. 1 and 2 derived their title from the Judgment Debtor during the litigation, they do not qualify as independent “third parties” protected by this rule.

Based on the analysis, the Supreme Court concluded:

• Suit Not Maintainable: The separate suit filed by Respondent Nos. 1 and 2 is barred by Section 47 of the CPC and the specific remedies provided under Order XXI (Rules 89, 90, and 99).
• Transfers Voidable: The sale deeds in favor of Respondent Nos. 1 and 2 are hit by the doctrine of lis pendens (Section 52 TPA) and are subservient to the rights of the Decree Holder and the Auction Purchaser.
• Representatives Bound: As pendente lite transferees, Respondent Nos. 1 and 2 are representatives of the Judgment Debtor and are bound by the execution proceedings. They cannot claim the status of independent third parties to file a separate suit.
• Error of Lower Courts: The High Court and Trial Court erred in entertaining the suit based on general allegations of fraud, ignoring the specific statutory bars and the finality of the execution process.
• The appeal was allowed, and the separate suit instituted by Respondent Nos. 1 and 2 was dismissed.

Implications:

Execution sales under Order XXI CPC gain enhanced finality following this judgment, limiting challenges to procedural irregularities while channeling title disputes to specific remedies. Pendente lite transferees and judgment-debtor representatives face narrowed recourse, reinforcing decree-holder protections.

Implications for Auction Purchasers

Purchasers receive fortified title post-confirmation, immune from Rule 90 re-litigation of saleable interest or attachment defects. Rule 91 exclusivity for their title challenges underscores sanctity; refunds under Rule 92(5) occur only upon third-party decree success, with execution revival safeguards.

Implications for Transferees and Third Parties

Pendente lite buyers (post-suit/attachment) cannot repackage title loss as Rule 90 fraud/irregularity, remaining bound as judgment-debtor "representatives" under Section 47; Rule 89 deposits offer time-bound escape, but post-60 days, Rule 92(3) bars suits.

True third parties-unconnected to decree, discovering sales post-confirmation-retain Rule 92(4) suits for nullity (no judgment-debtor title), impleading all parties. Rule 58/99 provide earlier/pre-dispossession avenues, but self-proclaimed status demands strict proof beyond no-encumbrance certificates.

Author:

P. Ravi Charan, Partner

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Reference:

1. Danesh Singh & Ors. v. Har Pyari (Dead) through LRs & Ors., 2025 INSC 1434.