Supreme Court Sets Aside Auction Sale Due to Non-Compliance with CPC Rules: Gas Point Petroleum India Limited vs. Rajendra Marothi & Ors. (2023)

Date of the Judgment: February 10, 2023
Citation: 2023 INSC 113
Judges: M. R. Shah, J., C.T. Ravikumar, J.

Can an auction sale be invalidated if the purchaser fails to deposit the amount as per the Civil Procedure Code (CPC)? The Supreme Court of India recently addressed this critical question in a case concerning the sale of a property during execution proceedings. The Court examined whether non-compliance with the mandatory deposit rules under Order 21 of the CPC could lead to the setting aside of an auction sale. This judgment clarifies the importance of adhering to procedural requirements in auction sales.

The Supreme Court bench, comprising Justices M.R. Shah and C.T. Ravikumar, delivered the judgment. Justice M.R. Shah authored the opinion for the bench.

Case Background

The case originated from a dispute between National Ginni Enterprises and Smt. Gayatri Agrawal regarding an LPG gas agreement. Smt. Gayatri Agrawal filed a civil suit against National Ginni Enterprises, which resulted in a decree directing National Ginni Enterprises to supply LPG gas as per the agreement. Alternatively, if they could not supply the gas, they were ordered to pay Rs. 2,38,450 plus Rs. 23,500 for the cost of gas cylinders and regulators.

When National Ginni Enterprises failed to comply with the decree, Smt. Gayatri Agrawal initiated execution proceedings. The court decided to sell the judgment debtor’s property to recover the amount. The property was auctioned and sold on November 3, 2011, to Rajendra Marothi. Gas Point Petroleum India Limited, the original respondent, filed an objection, claiming they had purchased the property from the judgment debtor on August 31, 1999, and were in possession of the land.

The Executing Court rejected Gas Point Petroleum India Limited’s objections. However, the lower Appellate Court set aside the Executing Court’s order and directed a rehearing. The High Court of Madhya Pradesh, however, reversed the lower Appellate Court’s decision, stating that Gas Point Petroleum India Limited failed to prove any irregularity or fraud in the sale.

Timeline:

Course of Proceedings

The Executing Court initially rejected the objections raised by Gas Point Petroleum India Limited, leading to an appeal before the Additional District Judge, Damoh. The lower Appellate Court allowed the appeal, setting aside the Executing Court’s order, and remitted the matter for a fresh hearing. The High Court of Madhya Pradesh then overturned the lower Appellate Court’s decision, stating that the appellant had failed to establish any irregularities in the sale, thus restoring the Executing Court’s original order.

Legal Framework

The Supreme Court referred to the following provisions of the Civil Procedure Code, 1908 (CPC):

• Order 21 Rule 64, CPC: This rule empowers the court executing a decree to order the sale of attached property to satisfy the decree. The court can sell as much of the property as necessary to satisfy the decree.
  
  “Any Court executing a decree may order that any property attached by it and liable to sale, or such portion thereof as may seem necessary to satisfy the decree, shall be sold, and that the proceeds of such sale, or a sufficient portion thereof, shall be paid to the party entitled under the decree to receive the same.”
• Order 21 Rule 84, CPC: This rule mandates that the purchaser must deposit 25% of the purchase money immediately after being declared the purchaser. Failure to do so results in an immediate resale of the property.
  
  “(1) On every sale of immovable property the person declared to be the purchaser shall pay immediately after such declaration a deposit of twenty-five per cent on the amount of his purchase-money to the officer or other person conducting the sale, and in default of such deposit, the property shall forthwith be re-sold.”
• Order 21 Rule 85, CPC: This rule requires the purchaser to pay the full amount of the purchase money within fifteen days from the date of the sale.
  
  “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”
• Order 21 Rule 86, CPC: This rule specifies the procedure in case of default of payment. It states that if the full payment is not made within the stipulated time, the deposit may be forfeited, and the property shall be resold.
  
  “In default of payment within the period mentioned in the last preceding rule, the deposit may, if the Court thinks fit, after defraying the expenses of the sale, be forfeited to the Government, and the property shall be re-sold, and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may subsequently be sold.”

Arguments

Appellant’s (Gas Point Petroleum India Limited) Arguments:

• The High Court erred in setting aside the well-reasoned order of the lower Appellate Court.
• There was a breach of Order 21 Rule 64 and Order 21 Rule 84/85 of the CPC, which vitiated the sale.
• The auction purchaser did not deposit 25% of the sale amount immediately after the auction on 18.10.2011, but on 03.11.2011, violating Order 21 Rule 84 of the CPC.
• The balance 75% of the sale consideration was deposited on 04.11.2011, which is beyond the fifteen-day period stipulated under Order 21 Rule 85 of the CPC.
• The property was purchased by the appellant on 31.08.1999, much before the auction, and the civil suit was for specific performance of the LPG gas agreement, not the property.
• The injunction dated 18.05.1999 was not related to the property in question but to the transfer of the firm Ginni Enterprises.
• At the time of the auction, the judgment debtor was not the owner of the property, as it had been purchased by the appellant through a registered sale deed on 31.08.1999.

Respondent’s (Rajendra Marothi) Arguments:

• The High Court correctly restored the order of the Executing Court, overruling the appellant’s objections.
• The High Court rightly refused to set aside the sale based on the alleged violation of Order 21 Rule 64 and Order 21 Rule 84/85.
• The appellant purchased the property during the pendency of the suit and while the injunction dated 18.05.1999 was in operation, and therefore, cannot raise objections.
• The alleged non-compliance of Order 21 Rule 64, Order 21 Rule 84, and 85 were not raised before the Executing Court and should not be permitted to be raised subsequently.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether there was a breach of Order 21 Rule 64 and Order 21 Rule 84/85 of the CPC?
2. Whether the High Court was right in setting aside the order of the lower Appellate Court?

Treatment of the Issue by the Court:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Supreme Court relied on Manilal Mohanlal Shah [CITATION], emphasizing that the deposit of 25% of the amount by the purchaser and the payment of the full amount within fifteen days are mandatory. The Court reiterated that non-compliance with these provisions renders the sale void.
• The Court also followed Rosali V. [CITATION], which interpreted the term “immediately” in Order 21 Rule 84, reinforcing the strict adherence required for the deposit.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the procedural lapses in the auction sale and the fact that the appellant had purchased the property before the auction. The Court emphasized the mandatory nature of the provisions of Order 21 Rule 84 and 85 of the CPC, highlighting that any deviation from these rules would vitiate the sale. The Court also considered the fact that the injunction was not related to the property in question and that the appellant had purchased the property before the auction.

The Court emphasized the mandatory nature of the rules, stating that “the provision regarding the deposit of 25 per cent by the purchaser other than the decree-holder is mandatory as the language of the Rule suggests.” The Court further noted that “the full amount of the purchase money must be paid within fifteen days from the date of the sale.” It also highlighted that “if the payment is not made within the period of fifteen days, the court has the discretion to forfeit the deposit, and there the discretion ends but the obligation of the court to resell the property is imperative.”

The Court also considered the fact that the appellant had purchased the property much before the auction and that the injunction was not related to the property. The Court observed that “at the time when the property in question was put to auction on 18.10.2011 the appellant had already purchased the said property as far as back on 31.08.1999 as there was no injunction with respect to the said property.”

Key Takeaways

• Adherence to the timelines and procedures laid down in Order 21 Rule 84 and 85 of the CPC is mandatory for auction sales.
• Non-compliance with the mandatory deposit rules can lead to the setting aside of an auction sale.
• The court must ensure that all procedures are followed meticulously during the execution of decrees.
• Prior purchasers of the property have a right to raise objections against auction sales if the sale is not in accordance with the law.

Directions

The Supreme Court quashed and set aside the judgment of the High Court and the order of the Executing Court. The order of the lower Appellate Court was restored. The Court directed that it will be open for the auction purchaser (respondent No. 1) to get back the amount deposited by him, lying with the Executing Court.

Development of Law

The ratio decidendi of this case is that the mandatory provisions of Order 21 Rule 84 and 85 of the CPC must be strictly followed in auction sales. Non-compliance with these provisions will render the sale void. This judgment reinforces the principles laid down in previous Supreme Court decisions and clarifies the legal position regarding the mandatory nature of deposit rules in auction sales. There is no change in the previous position of law, but rather a reaffirmation of the same.

Conclusion

The Supreme Court’s judgment in Gas Point Petroleum India Limited vs. Rajendra Marothi & Ors. underscores the critical importance of adhering to the procedural requirements outlined in the Civil Procedure Code, particularly in auction sales. The Court’s decision to set aside the auction sale due to non-compliance with Order 21 Rule 84 and 85 serves as a reminder that strict adherence to these rules is not merely procedural but essential for the validity of the sale. This judgment protects the rights of prior purchasers and ensures that auction sales are conducted fairly and transparently.