Supreme Court Upholds Auction Sale, Dismissing Claim of Bona Fide Purchaser: Siddagangaiah vs. Giriraja Shetty (2018)

Date of the Judgment: 11 May 2018

Citation: 2018 INSC 428

Judges: Arun Mishra, J. and Uday Umesh Lalit, J.

Can a person who purchased a property during the pendency of a suit for maintenance claim to be a bona fide purchaser and challenge a subsequent court auction sale? The Supreme Court of India addressed this question in a recent judgment, examining the interplay between the doctrine of lis pendens, the rights of a bona fide purchaser, and the finality of court auction sales. The core issue revolves around whether a separate suit can be filed to challenge a court auction sale after an application to set aside the sale has been dismissed. The Supreme Court bench, comprising Justices Arun Mishra and Uday Umesh Lalit, delivered the judgment.

Case Background

The case originates from a suit filed in 1968 by Thopamma against her husband, Siddagirigowda, seeking maintenance and a charge on 13 properties. While this suit was pending, Siddagirigowda sold two of the properties to N.K. Giriraja Shetty (father of respondent No. 1) in 1974. In 1976, the court decreed the maintenance suit in favor of Thopamma, creating a charge on the properties, including those sold to Giriraja Shetty. When Siddagirigowda failed to satisfy the decree, Thopamma initiated execution proceedings. She obtained permission to bid on the properties in the court auction and purchased some of them, including the properties sold to Giriraja Shetty. Giriraja Shetty filed an application to set aside the sale, which was dismissed. Subsequently, Giriraja Shetty filed a suit for declaration of title and restoration of possession, claiming to be a bona fide purchaser.

Timeline:

Legal Framework

The judgment primarily revolves around the interpretation of the following legal provisions:

• ✓ Section 52 of the Transfer of Property Act, 1882 (TP Act): This section deals with the doctrine of lis pendens, which states that during the pendency of a suit, any transfer of the property involved in the suit will be subject to the outcome of the suit. The explanation to the section clarifies that the pendency of a suit commences from the date of presentation of the plaint.
• ✓ Order XXI Rule 90 of the Code of Civil Procedure, 1908 (CPC): This rule allows a party to apply to the court to set aside a sale on the ground of material irregularity or fraud in publishing or conducting the sale. Sub-rule (3) states that no application to set aside a sale shall be entertained on any ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up.
• ✓ Order XXI Rule 92(3) of CPC: This rule bars any suit to set aside an order made under Rule 92(1), which confirms a sale, against any person against whom such an order is made.
• ✓ Section 39 of the TP Act: This section provides that where a third person has a right to receive maintenance from the profits of immovable property, and such property is transferred, the right may be enforced against the transferee if the transferee has notice of it or if the transfer is gratuitous.
• ✓ Section 100 of the TP Act: This section defines a charge as a situation where immovable property of one person is made security for the payment of money to another and states that no charge shall be enforced against a transferee for consideration and without notice.
• ✓ Sections 27 and 28 of the Hindu Adoptions and Maintenance Act, 1956: Section 27 states that a dependant’s claim for maintenance shall not be a charge on the estate of the deceased unless created by will, decree, agreement, or otherwise. Section 28 states that a right to receive maintenance may be enforced against a transferee except a bona fide transferee for consideration without notice.

Arguments

Appellants’ (Siddagangaiah’s LRS) Arguments:

• ✓ The suit was barred by res judicata because the application under Order XXI Rule 90 read with Section 47 of CPC to set aside the sale was dismissed.
• ✓ The auction sale held by the court had attained finality and could not be challenged through a separate suit.
• ✓ The plaintiff did not come to the court with clean hands, suppressing the material fact of the dismissal of the application under Order XXI Rule 90 and the court auction sale.
• ✓ The sale in 1974 was hit by lis pendens under Section 52 of the TP Act, as the maintenance suit was filed in 1968.
• ✓ The plaintiff was not a bona fide purchaser without notice, as he was aware of the suit.
• ✓ Possession was not handed over to the plaintiff under the sale deed.

Respondents’ (N.K. Giriraja Shetty’s LRS) Arguments:

• ✓ The charge was created only on the date of the decree in 1976, and there was no charge on the date of the sale deed in 1974.
• ✓ The plaintiff was a bona fide purchaser, and the charge could not be enforced against him under Sections 39 and 100 of the TP Act.
• ✓ The decree holder was bound to disclose the sale deed to the executing court.
• ✓ The husband and wife acted in collusion and fraudulently to defeat the right of the bona fide purchaser.
• ✓ The court auction was confirmed in a mechanical manner without a speaking order.
• ✓ The dismissal of the application under Order XXI Rule 90 was for default and not on merits, thus not barring the suit.
• ✓ The decree holder failed to prove that she got a valid title under the court auction.
• ✓ The court sale was void due to non-compliance with mandatory procedures and the judgment debtor had no saleable interest.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether the present suit is maintainable in view of the dismissal of the application filed under Order XXI Rule 90 by the plaintiff?
2. Whether the sale deed executed in 1974 is subject to the doctrine of lis pendens?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

• ✓ Rajender Singh v. Ramdhar Singh & Ors., AIR 2001 SC 2220 (Supreme Court of India): Held that mere inadequacy of price is not a ground for setting aside a court sale.
• ✓ Brahayya v. Appayya, (1921) 44 Mad. 351 (High Court of Judicature at Madras): Held that when an application to set aside a sale is made on the ground of material irregularity and the sale is confirmed, the objector is precluded from bringing a suit to set aside the sale on the same grounds.
• ✓ Ma Saw v. Maung Kyaw, AIR 28 Rang 18 (High Court of Rangoon): Held that when an application to set aside a sale is made on the ground of material irregularity and the sale is confirmed, the objector is precluded from bringing a suit to set aside the sale on the same grounds.
• ✓ Nand Kishore v. Sultan, AIR 1926 Lah 165 (High Court of Lahore): Held that when an application to set aside a sale is made on the ground of material irregularity and the sale is confirmed, the objector is precluded from bringing a suit to set aside the sale on the same grounds.
• ✓ Superior Bank Ltd. v. Budh Singh, (1924) 22 All LJ 413 (High Court of Judicature at Allahabad): Held that when the auction purchaser is the decree-holder and an application is made to set aside the sale on a ground other than that covered by Rule 90, the case would fall under section 47.
• ✓ Akshia v. Govindarajulu, (1924) 47 MLJ 549 (High Court of Judicature at Madras): Held that when the auction purchaser is the decree-holder and an application is made to set aside the sale on a ground other than that covered by Rule 90, the case would fall under section 47.
• ✓ Nagubai Ammal & Ors. v. B. Shama Rao & Ors., AIR 1956 SC 593 (Supreme Court of India): Held that when a suit is filed for maintenance and there is a prayer that it be charged on specified properties, the lis commences on the date of the plaint and not on the date of the decree.
• ✓ Sadhu Singh v. Gurdwara Sahib Narike & Ors., (2006) 8 SCC 75 (Supreme Court of India): Held that the provision of section 39 of the TP Act is akin to the provisions contained in section 28 of the Act.
• ✓ Nani Gopal Paul v. T. Prasad Singh & Ors., (1995) 3 SCC 579 (Supreme Court of India): Held that the court can suo moto take notice of the illegalities committed while conducting the court sale.
• ✓ Lal Chand v. VIIIth Addl. District Judge & Ors., (1997) 4 SCC 356 (Supreme Court of India): Held that the provisions of Order XXI Rule 72 are mandatory, and no decree-holder has any right to bid in the auction without permission of the court.
• ✓ V. Swarajyalaxmi & Ors. v. Authorised Officer, Land Reforms, AIR 2003 SC 2347 (Supreme Court of India): Discussed the concept of saleable interest in the context of land reforms.

Statutes and Sections:

• ✓ Section 52 of the Transfer of Property Act, 1882: Doctrine of lis pendens.
• ✓ Order XXI Rule 90 of the Code of Civil Procedure, 1908: Application to set aside sale on the ground of irregularity or fraud.
• ✓ Order XXI Rule 92(3) of the Code of Civil Procedure, 1908: Bar on suit to set aside order confirming sale.
• ✓ Section 39 of the Transfer of Property Act, 1882: Transfer where third person is entitled to maintenance.
• ✓ Section 100 of the Transfer of Property Act, 1882: Definition of a charge.
• ✓ Sections 27 and 28 of the Hindu Adoptions and Maintenance Act, 1956: Maintenance as a charge and enforcement against transferees.
• ✓ Section 18 of the Indian Evidence Act, 1872: Admissions by parties to proceedings.

[TABLE] of Authorities and their Treatment:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• ✓ The court followed Rajender Singh v. Ramdhar Singh & Ors. [CITATION] to hold that mere inadequacy of price is not a ground to set aside a court sale.
• ✓ The court relied on Brahayya v. Appayya [CITATION], Ma Saw v. Maung Kyaw [CITATION], and Nand Kishore v. Sultan [CITATION] to conclude that when an application to set aside a sale is made on the ground of material irregularity and the sale is confirmed, the objector is precluded from bringing a suit to set aside the sale on the same grounds.
• ✓ The court cited Superior Bank Ltd. v. Budh Singh [CITATION] and Akshia v. Govindarajulu [CITATION] to state that when the auction purchaser is the decree-holder and an application is made to set aside the sale on a ground other than that covered by Rule 90, the case would fall under section 47.
• ✓ The court relied on Nagubai Ammal & Ors. v. B. Shama Rao & Ors. [CITATION] to hold that the lis commences on the date of the plaint when a suit is filed for maintenance with a prayer to charge specified properties.
• ✓ The court mentioned Sadhu Singh v. Gurdwara Sahib Narike & Ors. [CITATION] to state that the provision of section 39 of the TP Act is akin to the provisions contained in section 28 of the Act.
• ✓ The court mentioned Nani Gopal Paul v. T. Prasad Singh & Ors. [CITATION] to state that the court can suo moto take notice of the illegalities committed while conducting the court sale, but in this case, no such illegality was found.
• ✓ The court distinguished Lal Chand v. VIIIth Addl. District Judge & Ors. [CITATION] on facts, as in this case, permission was granted to bid in the auction and set off was made against the decretal amount.
• ✓ The court distinguished V. Swarajyalaxmi & Ors. v. Authorised Officer, Land Reforms [CITATION] on facts, as there was a charge on the property and the purchase was made during lis pendens.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• ✓ The dismissal of the application under Order XXI Rule 90, which created a bar for a fresh suit.
• ✓ The doctrine of lis pendens, which made the sale in 1974 subject to the outcome of the maintenance suit.
• ✓ The lack of a bona fide purchase by Giriraja Shetty, as he was aware of the pending suit.
• ✓ The absence of any challenge to the court auction sale and its confirmation.
• ✓ The suppression of material facts by the plaintiff regarding the court auction and dismissal of the application under Order XXI Rule 90.

Sentiment Analysis of Reasons:

Fact:Law Ratio Analysis:

Logical Reasoning Flowchart:

The court rejected the argument that the charge was created only on the date of the decree, stating that the doctrine of lis pendens applies from the date of the presentation of the plaint. The court also rejected the argument that the plaintiff was a bona fide purchaser, as he was aware of the pending suit. The court emphasized that the plaintiff had suppressed the material fact of the dismissal of the application under Order XXI Rule 90 and the court auction sale. The court also noted that the plaintiff had not questioned the court auction sale or its confirmation.

“Where an application has been filed under Rule 90 Order XXI CPC to set aside a sale on the ground of material irregularity, and the sale is confirmed under Rule 92(1) of Order XXI, the objector is precluded by virtue of the provisions under Order XXI Rule 92(3) from bringing a suit to set aside the sale on the same grounds…”

“Explanation to Section 52 of the Transfer of Property Act makes it clear that the pendency of a suit commences from the date of presentation of the plaint. The sale in favour of the plaintiff was during the pendency of the suit, and as such, was hit by the doctrine of lis pendens.”

Conclusion

The Supreme Court allowed the appeal, setting aside the judgment and decree passed by the High Court and the first appellate court. The court held that the suit filed by Giriraja Shetty was not maintainable due to the dismissal of the application under Order XXI Rule 90 and that the sale in 1974 was subject to the doctrine of lis pendens. The Supreme Court restored the order of the trial court, which had dismissed Giriraja Shetty’s suit.

Implications

This judgment has significant implications for future cases involving court auction sales and the rights of bona fide purchasers:

• ✓ It reinforces the principle that once an application to set aside a court auction sale on the grounds of material irregularity is dismissed, a separate suit challenging the same sale is not maintainable.
• ✓ It clarifies that the doctrine of lis pendens applies from the date of the presentation of the plaint, and any transfer made during the pendency of the suit is subject to the outcome of the suit.
• ✓ It emphasizes that a purchaser who is aware of a pending suit cannot claim the status of a bona fide purchaser.
• ✓ It underscores the importance of challenging court auction sales through appropriate legal channels and not by filing a separate suit.
• ✓ It highlights the need for parties to disclose all material facts in court proceedings, as suppression of facts can be detrimental to their case.