Supreme Court Upholds Inheritance of Successful Bid in Inventory Proceedings: Ethel Lourdes D’Souza Lobo vs. Lucio Neville Jude De Souza (2022)

Introduction

Date of the Judgment: 19 September 2022
Citation: (2022) INSC 777
Judges: S. Ravindra Bhat, J., and Sudhanshu Dhulia, J.

Can a successful bid in an auction during inventory proceedings be considered a heritable right, passing to the heirs of the bidder upon their death? The Supreme Court of India recently addressed this question in a case concerning the Portuguese Civil Code, which governs inheritance and succession in Goa. The core issue revolved around whether the right to claim a specific property, after a successful bid in a licitation (auction among heirs), is a personal right that extinguishes upon the bidder’s death, or a heritable right that can be passed on to their legal heirs. This judgment clarifies the scope of inheritance under the Code and the rights of heirs in such proceedings. The majority opinion was authored by Justice S. Ravindra Bhat, with Justice Sudhanshu Dhulia concurring.

Case Background

The case originated from inventory proceedings initiated in 1985 following the deaths of Lt. Guilherme Caetano Souza and his wife, Maria Guilhermina Augusta Lourdes Aguiar Souza. These proceedings aimed to partition their estate among their six heirs: Pedro, Hermano, Maria Emila Pulqueria Natividade, Maria Patricia Lucia, Maria Emilia Julieta, and Edwin. The estate included three immovable properties. During the proceedings, Edwin acquired two properties through a licitation (auction among heirs) held on 28 February 2001. The dispute in this case concerns the remaining property, Item No. 1.

On 28 February 2001, Item No. 1 was also part of a licitation where Maria Emilia Souza was the highest bidder, but she defaulted on payment. A second licitation was conducted, and on 03 January 2005, Hermano emerged as the highest bidder for ₹34,15,100. Hermano, who was also the Cabeca de Casal (administrator), passed away on 11 July 2008, without depositing the bid amount. Following this, the appellant, Ethel Lourdes D’Souza Lobo, sought a re-auction of Item No. 1, while Hermano’s heirs claimed the right to the property. The inventory court ordered a re-auction, but the District Judge reversed this decision, stating that the right to the property devolved to Hermano’s heirs. The High Court upheld the District Judge’s decision, leading to the present appeal before the Supreme Court.

Timeline

Course of Proceedings

The Inventory Court initially allowed the appellant’s application for a re-auction, citing Article 1417(c) of the Portuguese Civil Procedure Code, stating that since Hermano had not deposited the sale proceeds, his heirs could not claim ownership. The District Judge, however, reversed this, holding that a successful bid gave the bidder a right to the property, which devolved to his heirs upon his death. The High Court upheld the District Judge’s decision, stating that the inheritance under Section 1737 of the Code included the rights flowing from a successful bid in a licitation, including the right to pay owelty (equalization money). The High Court also held that the right of a successful bidder was not a personal right that extinguished upon death, citing Article 1439 of the Code, which confers a right in presenti (present right) upon a successful bidder.

Legal Framework

The case is primarily governed by the Portuguese Civil Procedure Code, specifically Chapter XVII, Articles 1369 to 1447, which deal with inventory proceedings. Key provisions include:

• Article 1369: Requires the initial valuation of property to be settled by the parties.
• Article 1387: Allows the court to order appraisal of properties by an appraiser.
• Article 1391: States that if interested parties do not apply for licitation within 48 hours, the right is waived.
• Article 1412: Defines licitation as an auction only for heirs and the spouse. It states, “The licitation is an auction to which only the heirs and moiety holder spouse are admitted, except the cases where, in terms of preceding articles, the donee or legatee should also be admitted. It may fall over the properties of the inheritance which are not necessarily to be allotted in any particular party.”
• Article 1417(c): States that those who have not taken properties in licitation and are to be allotted owelty money must be notified to demand payment within three days; if a demand is made, the successful bidder must deposit the amount, failing which the licitation will be of no effect. It states, “Those who have not taken the properties in licitation and who are to be allotted the owelty money due by those who were successful in the licitation, shall be notified to demand within three days the payment, if they so desire. If the demand is made the successful bidder shall be notified to deposit the amount failing which the licitation will be of no effect.”
• Article 1736: Defines an heir as a person who succeeds to the totality of the inheritance or a part thereof without specifying the sum of money or object.
• Article 1737: States that inheritance covers all properties, rights, and obligations of the deceased, which are not merely personal or excepted by law. It states, “The inheritance covers all the properties, rights and obligations of the author, which are not merely personal or which are otherwise excepted by the disposition of the author himself or by law.”
• Article 2126: States that after the description and appraisal is done, the parties shall be heard as to the form of partition, and if any of them is willing to bid for any property, he shall so declare in his reply.
• Article 2127: States that the licitation shall precede the act of partition, after all the parties are summoned, and it shall take place amongst them only, as if it is a case of an auction.
• Article 1416: States that after the file is received with the order referred to in Article 1414, the office shall draw the chart of partition, within eight days, in accordance with the same order and in accordance with the provision of the preceding Article.

These provisions are crucial in determining the rights and obligations of the parties involved in the inventory proceedings and the heritability of those rights.

Arguments

Appellant’s Arguments (Ethel Lourdes D’Souza Lobo):

• The appellant argued that the rights conferred upon a successful bidder under Article 1737 of the Code do not devolve upon their heirs.
• A bid in an auction does not create any right or interest in the property, nor is there a concluded contract.
• No heritable or legally enforceable right passes to the heirs of a deceased participant in a licitation.
• Since there was no chart of partition determining the share of owelty amounts, no party could claim their share of the price.
• The right to claim an asset through auction is not heritable and is extinguished upon the bidder’s death.
• Relying on Article 1417(c), the appellant contended that since no amount was deposited after the successful bid, no rights vested in Hermano’s heirs.
• A previous auction for the same property was deemed abortive due to the failure of the successful bidder to deposit the owelty amount, and the same logic should apply here.
• The appellant argued that Hermano’s heirs were resisting re-auction, which would fetch a higher amount and be fair to all heirs.

Respondents’ Arguments (Lucio Neville Jude De Souza & Ors.):

• The respondents argued that the Court should not interfere with the concurrent findings of the appellate court and the High Court.
• Inventory proceedings are meant to describe and apportion the estate of a deceased person, not partition suits.
• When licitation is held, properties are earmarked after valuation, and the court prepares a chart of partition indicating inter se amounts to be paid.
• The highest bid of ₹34,15,100 was not the owelty amount payable by Hermano because the final partition had not been reached.
• Hermano’s estate included his rights and obligations as a shareholder, including his right as a successful bidder for Item No. 1.
• Reliance was placed on Article 1737 to support the argument that the right to the property was heritable.

[TABLE] of Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the right of a successful bidder in inventory proceedings under the Portuguese Civil Code is heritable, and devolves to his legal heirs upon his death, even if the owelty amount was not paid.

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:

The Court also considered the following legal provisions:

• Articles 1369 to 1447 of the Portuguese Civil Procedure Code, dealing with inventory proceedings.
• Article 1417(c) of the Portuguese Civil Procedure Code, concerning the payment of owelty.
• Article 1737 of the Portuguese Civil Procedure Code, defining the scope of inheritance.
• Article 2126 & 2127 of the Portuguese Civil Procedure Code, concerning the licitation process.
• Article 1416 of the Portuguese Civil Procedure Code, concerning the chart of partition.

Judgment

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

How each authority was viewed by the Court?

• The Court relied on Jose Paulo Coutinho v. Maria Luiza Valentina Pereira & Ors. (2019) 20 SCC 85* to establish the comprehensive nature of the Portuguese Civil Code.
• The Court used T.S. Swaminatha Odayar v. Official Receiver of West Tanjore [1957] 1 SCR 775* to define owelty as a charge on land for equalization of shares.
• The Court referred to Shri Damodar Ramnath Alve v. Shri Gokuldas Ramnath Alve & Anr. 1997 (4) Bom CR 653* to explain that payment of owelty is dependent on demand by other heirs.
• The Court cited Motibai Sarvotham Pai Cano & Ors. v. Maria Elsa Do Perpetuo Socorro Mota & Ors. 1994(2) Bom. C.R. 628* to clarify that failure to pay owelty does not automatically revert the property.
• The Court considered Ranjit Satardekar v. Clotildes Fernandes Civil Application No. 294 of 2007 in First Appeal No. 289 of 2006* to hold that Article 2137 of the Civil Code is impliedly repealed and substituted by Article 1417(c) of the Code of Civil Procedure.
• The Court endorsed the view of Bombay High Court in Baburao Karekar v. Vilas Atmaram Bandodkar (2015) 12 SCC 659* on the interpretation of Article 1417(c).
• The Court used Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar 1975 (1) SCR 534* to support the view that rights to get shares registered are considered property.
• The Court relied on Umabai & Anr. v. Nilkanth Dhondiba Chavan (Dead) by L.Rs. & Anr. (2005) 6 SCC 243*, Bhimrao Ramchandra Khalate (Deceased) through L.Rs. v. Nana Dinkar Yadav Tanpura & Ors 2021 (9) SCC 45*, Ashok Kumar Gupta and Anr. v. Sitalaxmi Sahuwala Medical Trust and Ors. 2020 (4) SCC 321* and Amirtham Kudumbah v. Sarnam Kudumban 1991 (2) SCR 389* to distinguish between personal rights and heritable rights.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of Article 1737 of the Portuguese Civil Procedure Code, which defines the scope of inheritance. The Court emphasized that the term “inheritance” is broad and includes all properties, rights, and obligations of the deceased that are not personal or explicitly excepted. The Court reasoned that Hermano’s right to participate in the licitation and claim the property was not a mere personal right, but a right vested in him as an heir. The Court also highlighted that the obligation to pay owelty arises only upon demand by other heirs, which had not occurred in this case. The Court was also influenced by the fact that all other items are heritable by his heirs and legal representatives, and an entirely different conclusion is unsupportable in regard to the item of property for which he bid successfully.

Sentiment Analysis of Reasons given by the Supreme Court

Fact:Law Ratio

Logical Reasoning:

The Court considered the argument that Hermano’s right was contingent on depositing the bid amount, but rejected it, emphasizing that the obligation to pay arises only upon demand. The Court also noted that the final chart of partition had not been prepared, and no demand for payment or deposit of owelty had been made. The Court also considered the argument that the right to claim specific performance is a personal right, but distinguished it from the right to participate in licitation as an heir.

The Court’s decision was based on a broad interpretation of the term “inheritance” under Article 1737, holding that it includes the right to claim a specific property after a successful bid. The Court reasoned that this right is not a mere personal right, but a heritable right that can be passed on to the legal heirs. The Court also emphasized that the obligation to pay owelty is triggered by a demand from other heirs, and since no such demand was made, Hermano’s heirs could not be denied the right to the property. The Court’s reasoning is clear and logically consistent, and the decision was unanimous.

The court quoted from the judgment as follows: “The entitlement to bid in the licitation, and to claim the property, is a right, which is heritable. The obligation to pay owelty, arises only upon demand by the other heirs. In the present case, the final chart of partition had not been prepared, and no demand for payment or deposit of owelty had been made. The High Court was, therefore, correct in holding that the right to claim the property devolved upon the legal heirs of Hermano.”

Conclusion

The Supreme Court dismissed the appeal, upholding the decisions of the District Judge and the High Court. The Court held that the right of a successful bidder in inventory proceedings under the Portuguese Civil Code is heritable and devolves to his legal heirs upon his death, even if the owelty amount was not paid. The Court clarified that the obligation to pay owelty is triggered by a demand from other heirs, and since no such demand was made in this case, Hermano’s heirs were entitled to the property. The judgment clarifies the scope of inheritance under the Portuguese Civil Code and the rights of heirs in inventory proceedings.

Implications of the Judgment:

• The judgment clarifies that the right of a successful bidder in inventory proceedings is a heritable right under the Portuguese Civil Code.
• It establishes that the obligation to pay owelty arises only upon demand by other heirs.
• It provides clarity on the scope of inheritance under Article 1737 of the Portuguese Civil Code, which includes not only tangible property but also rights and obligations.
• It emphasizes that rights acquired during inventory proceedings are not merely personal and can be passed on to legal heirs.
• The judgment reinforces the importance of specific procedures in inventory proceedings, such as the preparation of the chart of partition and the demand for owelty payment.