Supreme Court Upholds Auction Sale After 30-Year Land Acquisition Dispute: Jagan Singh & Co. vs. Ludhiana Improvement Trust (2022)

Date of the Judgment: 02 September 2022

Citation: (2022) INSC 794

Judges: Sanjay Kishan Kaul, J., S. Ravindra Bhat, J., M.M. Sundresh, J.

Can a public body, like an Improvement Trust, repeatedly delay payments for acquired land and then seek to overturn a legitimate auction sale? The Supreme Court of India recently addressed this question in a case involving a decades-long dispute over land acquisition. The core issue revolved around whether the Ludhiana Improvement Trust could challenge an auction sale of its property, which was conducted to recover unpaid compensation to landowners, after failing to raise objections at multiple stages of the execution proceedings. The three-judge bench of Justices Sanjay Kishan Kaul, S. Ravindra Bhat, and M.M. Sundresh delivered the judgment.

Case Background

The case involves a protracted dispute over land acquired by the Ludhiana Improvement Trust (Respondent Trust) from Respondents no. 2 to 5. The land, measuring 8 Kanals and 11 ½ Marlas, was acquired under the Land Acquisition Act, 1984 (LA Act). The original landowners were not satisfied with the compensation offered by the Respondent Trust and sought a reference under Section 18 of the LA Act.

The Land Acquisition Tribunal enhanced the compensation to Rs. 4,27,068, along with 9% annual interest from the date of application. Despite this, the Respondent Trust did not pay the amount. The landowners were compelled to file an execution petition in 1991, which was dismissed without a clear reason. A second execution application was filed, seeking to recover the amount through attachment of the Respondent Trust’s property, specifically a triangular piece of land with a godown and chowkidar room, described in a site plan.

Timeline

Course of Proceedings

The Executing Court initially dismissed the Respondent Trust’s objections and upheld the sale on 05.06.1993, noting the Trust’s failure to present evidence or deposit the required amounts. The Additional District Judge and the High Court also dismissed the appeals. However, the Supreme Court, in an earlier round of litigation, remanded the matter back to the Executing Court, emphasizing that the negligence of counsels should not be blamed on the parties. The Executing Court again rejected the objections on 10.11.2012, a decision upheld by the First Appellate Court on 14.09.2015. The High Court, however, reversed these decisions, leading to the current appeal before the Supreme Court.

Legal Framework

The judgment primarily deals with the interpretation and application of Order XXI of the Code of Civil Procedure, 1908, which governs the execution of decrees. Key provisions include:

• Section 18 of the Land Acquisition Act, 1984: Deals with reference to the court when landowners are dissatisfied with the compensation awarded.
• Order XXI Rule 54 of the Code of Civil Procedure, 1908: This rule pertains to the attachment of immovable property.
• Order XXI Rule 66 of the Code of Civil Procedure, 1908: “Proclamation of sales by public auction. – (1) Where any property is ordered to be sold by public auction in execution of a decree, the court shall cause a proclamation of the intended sale to be made in the language of such court. (2) Such proclamation shall be drawn up after notice to the decree holder and the judgment debtor and shall state the time and place of sale, and specify as fairly and accurately as possible—(a) the property to be sold, [or, where a part of the property would be sufficient to satisfy the decree, such part]; (b) the revenue assessed upon the estate or part of the estate, where the property to be sold is an interest in an estate or in part of an estate paying revenue to the government; (c) any incumbrance to which the property is liable; (d) the amount for the recovery of which the sale is ordered; and (e) every other thing which the court considers material for a purchaser to know in order to judge of the nature and value of the property: [Provided that where notice of the date for settling the terms of the proclamation has been given to the judgment debtor by means of an Order under rule 54, it shall not be necessary to give notice under this rule to the judgment debtor unless the court otherwise directs: Provided further that nothing in this rule shall be construed as requiring the court to enter in the proclamation of sale its own estimate of the value of the property, but the proclamation shall include the estimate, if any, given, by either or both of the parties.] (3) Every application for an Order for sale under this rule shall be accompanied by a statement signed and verified in the manner hereinbefore prescribed for the signing and verification of pleadings and containing, so far as they are known to or can be ascertained by the person making the verification, the matters required by sub-rule (2) to be specified in the proclamation. (4) For the purpose of ascertaining the matters to be specified in the proclamation, the court may summon any person whom it thinks necessary to summon and may examine him in respect to any such matters and require him to produce any document in his possession or power relating thereto.” This rule mandates a proclamation of sale, specifying details of the property and the amount to be recovered.
• Order XXI Rule 89 of the Code of Civil Procedure, 1908: This rule allows the judgment debtor to have the sale set aside by depositing the decretal amount and 5% of the purchase amount.
• Order XXI Rule 90 of the Code of Civil Procedure, 1908: “Application to set aside sale on ground of irregularity or fraud: (1) Where any immovable property has been sold in execution of a decree, the decree-holder, or the purchaser, or any other person entitled to share in a rateable distribution of assets or 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. (2) No sale shall be set aside on the ground of irregularity or fraud in publishing or conducting it unless, upon the facts proved, the court is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud. (3) No application to set aside a sale under this rule shall be entertained upon any ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up. Explanation.- The mere absence of, or defect in, attachment of the property sold shall not, by itself, be a ground for setting aside a sale under this rule.” This rule allows for setting aside a sale due to material irregularity or fraud, but requires proof of substantial injury and prevents the raising of objections that could have been raised earlier.
• Order XXI Rule 94 of the Code of Civil Procedure, 1908: This rule deals with the issuance of a sale certificate by the Court confirming the sale.
• Article 300A of the Constitution of India: Guarantees that no person shall be deprived of their property save by authority of law.

Arguments

Appellant’s (Auction Purchaser) Arguments:

• The Appellant was a bona fide auction purchaser who paid Rs. 22.65 lakhs for the property in 1992 and has been unable to enjoy it due to the protracted litigation.
• The Respondent Trust failed to raise objections at the time of the execution petition, attachment order, or proclamation under Order XXI Rule 66 of the Code of Civil Procedure, 1908.
• Under Order XXI Rule 90(3) of the Code of Civil Procedure, 1908, the Respondent Trust cannot challenge the sale on grounds that could have been raised before the proclamation of sale.
• A bona fide purchaser in an auction sale is treated differently from a decree holder purchasing the property and their interest is protected even if the decree is set aside.

Respondents’ (Ludhiana Improvement Trust) Arguments:

• The High Court correctly found material irregularities and illegalities that caused substantial injury to the Respondent Trust.
• The non-disclosure of Khasra No. 271 at the time of filing the application under Order XXI Rule 66 of the Code of Civil Procedure, 1908 was a material irregularity. Only Khasra No. 272 should have been sold.
• The delay in the case should not prevent the court from doing justice, and public property should not be auctioned due to errors by officers.
• The Executing Court failed to apply its mind as the attached property’s price must correspond to the decretal amount, and the court must determine if the entire property or only part of it should be sold.
• A balance was required to be maintained between the rights of the Judgment Debtor and the auction purchaser under Order XXI Rule 90 of the Code of Civil Procedure, 1908 as the land projected was not a barren stand-alone land, but had a constructed building on it.

Issues Framed by the Supreme Court

1. Whether the auction sale of the property was valid, considering the alleged irregularities in the execution proceedings.
2. Whether the Respondent Trust could raise objections at a belated stage, given their failure to object at earlier stages of the execution proceedings.
3. Whether the High Court was correct in setting aside the concurrent findings of the Executing Court and the First Appellate Court.
4. Whether the dual test of material irregularity or fraud and substantial injury under Order XXI Rule 90 of the Code of Civil Procedure, 1908 was satisfied.

Treatment of the Issue by the Court

Authorities

Judgment

How each authority was viewed by the Court?

• Saheb Khan v. Mohd. Yousufuddin and Others [CITATION]: The Court used this case to distinguish between irregularities and nullities in auction sales, stating that objections that can be waived are irregularities, not nullities.
• Sadashiv Prasad Singh v. Harendar Singh [CITATION]: The Court relied heavily on this case to emphasize the protection afforded to bona fide auction purchasers, highlighting that their rights are protected even if the underlying decree is set aside.
• Ashwin S. Mehta & Anr. vs. Custodian & Ors. [CITATION]: The Court reaffirmed the principle that a bona fide purchaser in an auction sale is treated differently from a decree-holder purchaser.
• Gurjoginder Singh v. Jaswant Kaur [CITATION]: This case was used to support the view that the interest of a bona fide purchaser in an auction sale is saved even if the decree is set aside.
• Janatha Textiles & Ors. vs. Tax Recovery Officer & Anr. [CITATION]: The Court cited this to reiterate the protection afforded to third-party auction purchasers.
• Nawab Zain-ul-Abdin Khan v. Mohd. Asghar Ali Khan [CITATION]: The Court referred to this Privy Council decision to support the principle that the interest of a bona fide purchaser in an auction-sale is saved.
• Janak Raj vs. Gurdial Singh [CITATION]: The Court cited this to support the principle that the interest of a bona fide purchaser in an auction-sale is saved.
• Padanathil Ruqmini Amma vs. P.K. Abdulla [CITATION]: The Court cited this to support the principle that the interest of a bona fide purchaser in an auction-sale is saved.
• Velji Khimji and Company vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited & Ors. [CITATION]: The Court used this case to highlight that once an auction is confirmed, it cannot be set aside except in cases of fraud or collusion.
• Chilamkurti Bala Subrahmanyam v. Samanthapudi Vijaya Lakshmi & Anr. [CITATION]: The Court referred to this case to emphasize that allegations of fraud or material irregularity must be specific and not bald.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the prolonged delay and the injustice suffered by the Appellant, who had paid for the property 30 years ago. The Court was critical of the Respondent Trust’s repeated failures to act and raise objections at the appropriate stages. The Court also emphasized the importance of protecting the rights of bona fide auction purchasers and ensuring that execution proceedings are not used to further delay justice. The Court also noted that the Respondent Trust did not even comply with the requirement of Order XXI Rule 89 by depositing the decretal amount along with 5 per cent of the auction amount. The Respondent Trust behaved as if it had some superior right to appropriate the property of the owners without paying for it contrary to the mandate of the LA Act.

Logical Reasoning:

The Court considered alternative interpretations but rejected them due to the Respondent Trust’s consistent failure to act and the need to protect the rights of the auction purchaser. The final decision was reached by applying the relevant provisions of the Code of Civil Procedure, 1908 and by relying on established legal precedents.

The Court’s reasoning was based on the following points:

• The Respondent Trust had multiple opportunities to raise objections but failed to do so.
• The dual test of material irregularity or fraud and substantial injury under Order XXI Rule 90 of the Code of Civil Procedure, 1908 was not satisfied.
• The Appellant, as a bona fide purchaser, was entitled to protection.
• The execution proceedings should not be used to prolong litigation and deny justice.

“The dragging of the proceedings for three decades have been a grave injustice to the Appellant, who have been deprived of the enjoyment of the property despite having paid the full auction price 30 years back.”

“Merely because the Respondent No. 1 is an Improvement Trust does not give it a licence to take a citizen’s right for a ride.”

“The Respondent Trust behaved as if it had some superior right to appropriate the property of the owners without paying for it contrary to the mandate of the LA Act.”

Key Takeaways

• Bona fide purchasers in auction sales are protected, and their rights are not easily extinguished.
• Judgment debtors must raise objections to execution proceedings at the appropriate stages; they cannot raise them belatedly.
• Public bodies are not exempt from following legal procedures and cannot delay payments indefinitely.
• Execution proceedings should be conducted efficiently and not be used to prolong litigation.

Directions

The Supreme Court set aside the judgment of the High Court dated 06.03.2018 and sustained the view taken by the Executing Court in the order dated 10.11.2012, as sustained by the Appellate Court in its order dated 14.09.2015. The Court also granted costs of Rs. 1 lakh to the Appellant against Respondent No.1.

Development of Law

The ratio decidendi of the case is that a bona fide auction purchaser’s rights are protected, and judgment debtors cannot raise objections at a belated stage if they had opportunities to do so earlier. This case reinforces the principle that execution proceedings should be conducted efficiently and not be used to prolong litigation. There is no change in the previous position of law, but the judgment emphasizes the importance of protecting the rights of bona fide purchasers and ensuring that execution proceedings are not used to further delay justice.

Conclusion

The Supreme Court’s judgment in M/S. JAGAN SINGH & CO. vs. LUDHIANA IMPROVEMENT TRUST & ORS. upholds the auction sale of the property, emphasizing the importance of protecting the rights of bona fide purchasers and ensuring that execution proceedings are not used to further delay justice. The Court criticized the Respondent Trust’s repeated failures to act and raise objections at the appropriate stages, highlighting that public bodies are not exempt from following legal procedures.