Holding

A stranger auction purchaser who is not a bona‑fide purchaser, i.e., who had knowledge of the pending appeal or colluded with the decree holder, cannot retain the property and must make restitution.

Summary

The appellant, a judgment debtor, obtained a money decree against him which was not stayed and his property was sold at a court auction. The properties were bought by a stranger auction purchaser who was a relative of the decree holder. The High Court later set aside the decree, and the appellant sought to set aside the sale on grounds of irregularities, collusion and the reversal of the decree. The trial court rejected the claim, a single High Court judge set aside the sale, but the Division Bench reversed that decision. The Supreme Court held that a stranger purchaser who is not a bona‑fide purchaser—because he knew of the pending appeal or colluded with the decree holder—cannot retain title and must restitute the property. Consequently, the appeal was allowed, the Division Bench decision was reversed and the sale was set aside.

Issues considered

Whether a court‑auction purchaser who is not a party to the decree but had knowledge of the pending appeal can retain title after the decree is reversed.
Whether the reversal of a decree before confirmation of sale invalidates the sale.
Distinction between a decree‑holder purchaser and a stranger purchaser in execution of a decree.
Effect of collusion or being a name‑lender on the purchaser's protection under Section 144 CPC.

Legislation cited

Code of Civil Procedure, 1908s. 144, s. Order 21 Rules 89-91

Subjects

court auctiondecree reversalrestitutionSection 144 CPCbona fide purchasercollusionexecution of decreecivil procedureproperty law

Judgment

A CHINNAMMAL & 4 ORS.
v.
P. ARUMUGHAM & ANR. ~

JANUARY 17, 1990

B [K. JAGANNATHA SHETTY AND T.K. THOMMEN, JJ.]

Code of Civil Procedure: Section 144 and Order 21 rules 89-91:
Setting aside court auction sale--Decree holder who purchases the
property and auction purchaser who is not party to the decree-Rights
and liabilities of.
c Respondent No. 1 obtained a money decree against the original
appellant, who has been substituted by legal heirs, on the basis of a
promisory note. The appellant app.,aled to the High Court but could not
get the decree stayed because he was unable to furnish security for the
decretal amount. The decree was put into execution notwithstanding
D the peudeucy of the appeal, and two items of appellant's properties
were purchased by respondent No. 2 at the court sale. Later, the High
Court allowed the appellant's appe11l on merits and set aside the decree.

Thereupon, the appellant moved the executing court for setting
aside the court sale inter alia on the ground that (1) the sale was vitiated
E by material irregularities and properties were deliberately sold for
under value; (2) the sale was collusive between decree holder and the
auction purchaser; the latter, being the sambandhi of the former, was
just a name lender; and (3) since the decree had been reversed, the sale
should be nullified and restitution should be ordered. The executing

F
court rejected these contentions and held that subsequent reversal of
the decree collld not be depended upon since the sale had been con-
J..,
firmed in favour of the auction purchaser who was a stranger to the /
litigation. The learned Single Judge of the High Court, however,
allowed the appellant's appeal and held inter alia that (a) the sale was
vitiated by material irregularities r'esulting in fetching a low price; and
(b) the decree holder and auction purchaser were close relatives and the
G sale seemed to be collusive. But on .appeal, the Division Bench reversed
the decision of the learned Single Judge.

Allowing the appeal, this Court, '
HELD: (1) A distinction is maintained between the decree holder
H who purchases the property in execution of his own decree which is

78
CHINNAMMAL v. P. ARUMUGHAM 79

afterwards modified or reversed, and an auction purchaser who is not
party to the decree. [84E] A

(2) Where the purchaser is a decree holder, he is bound to restore
the property to the judgment debtor by way of restitution but not a
stranger auction purchaser. The latter remains unaffected and does not
lose title to the property by subsequent reversal or modification of the B
decree, and could retain the property since he is a bona fide purchaser.
This principle is also based on the premise that he is not bound to
enquire into correctness of the judgment or decree sought to be
executed. He is thus distinguished from an eonomine party to the
litigation. [84E-F]

Janak Raj v. Gurdial Singh, [1967] 2 SCR 77 and Sardar Govin- c
drao Mahadik v. Devi Sahai, [1982] 2 SCR 186, referred to.

(3) The true question in each case is wheth~r the stranger auction
purchaser had knowledge of the pending litigation about the decree
under execution. If it is shown by evidence that he was aware of the o
pending appeal against the decree when he purchased the property, it
would be ina11propriate to term him as a bona fide purchaser. Indeed,
he is evidently a speculative purchaser and in that respect be is in no better
position than the decree holder purchaser. [85B-C]

Chhota Nagpur Banking Association v. C. T.M. Smith, [1943] E
Patna 325 and Jamnomal Gurdinomal v. Qopaldas, AIR 1924 Sind
IO l, referred to.

R. Raghavachari v. M.A. Pekkiri Mohomed Rowther, AIR 1917

'
Mad 250, overruied.

.. '
(4) Similarly, the auction purchaser who was a name lender to
F

the decree holder or who has colluded with. the decree holder to pur-
chase the property could not also be protected to retain the property if
the decree is subsequently reversed. [86B]

(5) The Code of Civil Procedure is a body of procedural law G
designed to facilitate justice and it should not be treated as an enact-
ment providing for punishment and penalties. The laws of procedure
', ·· should be so construed as to render justice wherever reasonably
possible. [87 A-BJ

Rodger v. The Comptoir De Paris, [1869-71] LR 3 PC. 465 at 475 H
80 SUPREME COURT REPORTS [1990) 1 S.C.R.

and A.R. Antulay v. R.S. Nayak, [1988] 2 SCC 602, referred to.
A
(6) The evidence on record is sufficient to hold that the auction
purchaser was not a bona fide purchaser. The auction sale in his favour
must, therefore, fall for restitution. The Court cannot lend assistance
for him to retain the property of' the judgment-debtor who has since
B succeeded in getting rid of the unjuist decree. [87D-E]

CIVIL APPELLATE JUR:ISDICTION: Civil Appeal No. 140
~Im. i
From the Judgment and Order dated 8.2.89 of the Madras High
Court in L.P .A. No. 131of1987.
c
A.K. Sen, N.D.B. Raju, K. Rajeshwaran and N. Ganapathy for
the Appellants.

K.R. Choudhary and V. Balachandran for the Respondents.
D
The Judgment of the Court was delivered by

K. JAGANNATHA SHETTY, J. Special Leave is granted.

This appeal is from a decision of the Madras High Court which
E denied the appellants claim for setting aside a judicial sale.

The facts giving rise to the appeal, as found by the Courts, may
be summarised as follows.

F
Arumugham-respondent-1 obtained money decree on the basis
of a promissory note from the Subordinate Judge, Salem, in O.S. No.
388/ 1968. Sethuramalingam the judgment debtor appealed to the High
Court but could not get the decree stayed. He could not furnish secu-
J
)
rity for the decretal amount which was a condition for stay. The decree
was put into execution notwithstanding the pendency of the appeal. In
February 1973, his two items of properties; (i) three houses and (ii)
G 10. 93 acres of land were brought to court sale. They were purchased by
Koppa Goundar, respondent No. 2 for Rs.7550 and Rs.15,050 respec-
tively. In October 1975, the High Court allowed the appeal on merits.
The promissory note which was the basis of the suit was disbelieved ·. f'
and rejected. The trial court judgment was set aside and the plaintiff
was non-suited. Thereupon the judgment debtor moved the executing
H court for setting aside the sale. He has alleged inter alia, that the sale
CHINNAMMAL v. P. ARUMUGHAM [SHETIY, J.] 81

was vitiated by material irregularities and properties were deliberately A
sold for under value. The sale was collusive between decree holder and
the auction purchaser. The latter was sambandhi of the former and just
1 a name lender. It was also his contention that since the decree has been
reversed, the sale should be nullified and restitution should be
ordered. The Court rejected all the contentions relating to material
irregularities for want of satisfactory evidence. The Court also held B
that subsequent reversal of the decree could not be depended upon
/ since the sale has been confirmed in favour of the auction purchaser
who was a stranger to the litigation. The judgment debtor appeaied to
the High Court and succeeded at first instance, before learned single
Judge. The learned Judge found in effect that (a) the sale was vitiated
by material irregularities resulting in fetching a low price to properties;
(b) the decree holder and auction purchaser are close relatives and the
c
sale seems to be collusive; and (c) after the Court sale they seemed to
have entered into an agreement for selling the second item of proper-
ties for Rs.96,000. With these conclusions the sale was set aside. But
on appeal, the Division Bench of the High Court has expressed corl-
trary views on all those points and reversed the decision of learned D
single Judge.

The judgment debtor died during the pendency of the appeal
before the High Court. His legal representatives have now appealed.

Mr. A.K. Sen, learned counsel for the appellants raised a E
number of questions. The important and central issue, however,
relates to the underlying jurisdiction of the Court to set aside the
confirmed sale upon subsequent reversal or modification of the
decree. The question is whether the auction purchaser's interest
-{ should be protected as against the judgment debtor who has since
succeeded in getting rid off the decree against him. There are two F
\, authorities of this Court bearing on the question: (1) Janak Raj v.
Gurdial Singh and Anr., (1967] 2 SCR 77 and (ii) Sardar Gnvindrao
Mahadik and Anr. v. Devi Sahai & Ors., (1982] 2 SCR 186. In Janak
Raj case, the appellant was a stranger to the suit in which there was an
ex-parte money decree. In the execution of the decree, the immovable
property of the judgment debtor was brought to sale in which the G
appellant became the highest bidder. The judgment-debtor filed an
application for setting aside the ex-parte decree and the court allowed
it before confirming the sale. Thereupon the judgment-debtor
objected to the confirmation of sale on the ground that the auction-
purchaser was in conspiracy and collusion with tJie decree-holder and
as such not entitled to have the sale confirmed. The execution court, H
82 SUPREME COURT REPORTS [1990] 1 S.C.R.

A. howevder,_ ohverruled the objection and confirmed the sale., Mitter, J.,
agree wit that view and observed (at 79):

"The result is that the purchaser's title relates back to the
date of sale and not the confirmation of sale. There is no
provision in the Code of Civil Procedure of 1908 either
under 0. XXI or elsewhere which provides that the sale is
not to be confirmed if it be found that the decree under
which the sale was ordered has been reversed before the
confirmation of sale. lt does not seem ever to have been
doubted that once the sale is confirmed the judgment-
debtor is not entitled to get back the property even if he
succeeds thereafter in having the decree against him
c reversed. The question is, whether the same result ought to
follow when the reversal of the decree takes place before
the confirmation of sale.

There does not seems to be any valid reason for making a
D distinction between the two cases. It is certainly hard on
the defendant-judgment-debtor to have to lose his property
on the basis of a sale he:ld in execution of a decree which is
"not ultimately upheld. Once however, it is held that he can-
not complain after cconfirmation of sale, there seems to be
no reason why he should be allowed to do so because the
R decree was reversed before such confirmation. The Code of
Civil Procedure of 1908 contains elaborate provisions which
have to be followed in cases of sales of property in execu-
tion of a decree. It also lays down how and in what manner
such sales may be set aside. Ordinarily, if no application for

F
setting aside .a sale is made under any of the provisions of
rr. 89 to 91 of 0. XXI, or when any application under any
~
of these rules is made and disallowed, the court has no J
choice in the matter of confirming the sale and the sale
must be made absolute. If it was the intention of the Legis-
lature that the sale was not to be made absolute because the
decree had ceased to ex:ist, we should have expected a pro-
a vision to that effect either in 0. XXI or in Part II of the
Code of Civil Procedure of 1908 which contains ss. 36 to 74
(inclusive) ..... "

Finally, the learned judge rounded off the judgment thus (at 86):
,
" . . . . . The policy of the Legislature seems to be that
CHINNAMMAL v. P. ARUMUGHAM [SHETTY, J.] 83

unless a stranger auction-purchaser is protected against the
A
viccissitudes of the fortunes of the suit, sales in execution
would not attract customers and it would be to the detri-
ment of the interest of the borrower and the creditor alike
if sales were allowed to be impugned merely because the
decree was ultimately set aside or modified. The Code of
Civil Procedure of 1908 makes ample provision for the pro- B
tection of the interest of the judgment-debtor who feels
that the decree ought not to have been passed against
him."

In Sardar Govindrao Mahadik, D.A. Desai, J., while referring-
to the principle in Janak Raj case said (at 224):

",Ordinarily, if the auction purchaser is an outsider or a
stranger and if the execution of the decree was not stayed
of which he may have assured himself by appropriate
enquiry, the court auction held and sale confirmed and
resultant sale certificate having been issued would protect D
him even if the decree in execution of which the auction
sale has been held is set aside. This proceeds on the footing
that the equity in favour of the stranger should be pro-
tected and the situation is occasionally reached on account
of default on the part of the judgment debtor not obtaining
stay of the execution of the decree during the pendency of E
the appeal."

The learned Judge further said:
j "But what happens if the auction-purchaser is the decree
holder himself? In our opinion, the situation would mate- F
\ rially alter and this decree holder-auction purchaser should
not be entitled to any protection. At any rate, when he
proceeds with the execution he is aware of the fact that an
appeal against the original decree is pending. He is aware
of the fact that the resultant situation may emerge where
the appeal may be allowed and the decree which he seeks G
to execute may be set aside. He cannot force the pace by
executing the decree taking advantage of the economic dis-
ability of a judgment debtor in a money decree and made
the situation irreversible to the utter disadvantage of the
judgment debtor who wins the battle and loses the war.
Therefore, where the auction purchaser is none other than H
84 SUPREME COURT REPORTS [1990] 1 S.C.R.

A the decree holder who by pointing out that there is no
bidder at the auction, for a nominal sum purchases the
property, to wit, in this case for a final decree for Rs.500, !-
Motilal purchased the property for Rs.300, atrocious situa-
tion, and yet by a technicality he wants to protect himself.
To such an auction purchaser who is not a stranger and who
B is none other than the decree holder, the court should not
lend its assistance."
··i--
In Janak Raj case, a stranger auction purchaser was protected
against vicissitudes of fortunes of the litigation. In S.G. Mahadik case
such protection was not afforded to auction purchaser who happens to
c be the decree holder himself. The reason seems to be that the decree·
holder is not a stranger to the suit. Indeed, he is not since he is
;.

eonomine party to the appeal against the decree which he seeks to
execute. He is aware of the fact that due to economic hardship the
judgment debtor was unable to have the decree stayed. He however, A_
does not wait for final outcome of the litigation which he has initiated.
D He exploits the helpless situation of the judgment debtor and hastens
the execution of the decree. The Court, therefore, should not lend its
assistance to him to retain the property purchased if the decree is
subsequently reversed.

There is thus a distinction maintained between the decree holder
E who purchases the property in execution of his own decree which is

F
afterwards modified or reversed, and an auction purchaser who is not
party to the decree. Where the purchaser is the decree holder, he is
bound to restore the property to the judgment debtor by way of
restitution but not a stranger auction purchaser. The latter remains
unaffected and does not lose title to the property by subsequent rever-
sal or modification of the decree. The Courts have held that he could
~'
-
retain the property since he is a bona fide purchaser. This principle is
also based on the premise that he is not bound to enquire into correct- '
ness of the judgment or decree sought to be executed. He is thus
distinguished from an eonomine party to the litigatio.n.

G There cannot be any dispute on this proposition and it is indeed
based on a fair and proper classification. The innocent purchaser
whether in voluntary transfer or judicial sale by or in execution of a ..... f"
decree or order would not be penalised. The property bona fide
purchased ignorant of the litigation should be protected. The judicial
sales in particular would not be robbed off all their sanctity. It is a
H sound rule based on legal and equitable considerations. But it is
CHINNAMMAL v. P. ARUMUGHAM [SHETIY, J.l 85

difficult to appreciate why such protection should be extended to a
A
purchaser who knows about the pending litigation relating to the
-..J' decree. If a person ventures to purchase the property being fully aware
of the controversy between the decree holder and judgment debtor, it
is difficult to regard him as a bona fide purchaser. The true question in
each case, therefore, is whether the stranger auction purchaser had
knowledge of the pending litigation about the decree under execution. B
If the evidence indicates that he had no such knowledge he would be

r entitled to retain the property purchased being a bona fide purchaser
and his title to the property remains unaffected by subsequent reversal
of the decree. The Court by all means should protect his purchase. But
if it is "shown by evidence that he was aware of the pending appeal
against the decree when he purchased the property, it would be inap-
propriate to term him as a bona fide purchaser. In such a case the c
Court also cannot assume that he was a bona fide or innocent pur-
_) chaser for giving him protection against restitution. No assumption
could be made contrary to the facts and circumstances of the case and
any such assumption would be wrong and uncalled for.
D
The Patna High Court in Chhota Nagpur Banking Association v.
C. T.M. Smith & Anr., [1943] Patna 325 expressed a similar view. Faz!
Ali, CJ., as he then was, said (at 327) that where there is clear and
}- cogent evidence that a stranger purchaser was fully aware of the merits
of the controversy in regard to the property purchased by him and was
also aware that the validity of the decree was under challenge, there is E
no room for presumption that he was a bona fide purchaser. Re-
ference may also be made to the decision of the Sind Judicial Commis-
sioner's Court in Jamnomal Gurdinomal v. Gopaldas and Anr., AIR
1924 Sind 101 where similar comment was made.

~ \
The Madras High Court in R. Raghavachari v. M.A.Pakkiri
Mahomed Rowther and Ors., AIR 1917 Mad 250 has however, taken a
F

contrary view. It was held that restitution under Section 144 CPC
cannot be demanded as against a bona fide purchaser who was not a
party to the decree. The High Court also remarked that the reversal of
the decree by the appellate Court or the knowledge of the purchaser
about the pendency of the appeal makes no material difference to the G
operation of that rule.
·r· This proposition, we are, however, unable to accept. In our
opinion, the person who purchases the property in court auction with
the knowledge of the pending appeal against the decree cannot resist
restitution. His knowledge about the pending litigation would make all H
86 SUPREME COURT REPORTS [ 1990] 1 S.C.R.

A the difference in the case. He may be a stranger to the suit, but he must
be held to have taken calculated risk in purchasing the property.
Indeed, he is evidently a speculative purchaser and in that respect he is
in no better position than the decree holder purchaser. The need to
protect him against restitution therefore, seems to be unjustified.
Similarly the auction purchaser who was a name lender to the decree
B holder or who has colluded with the decree holder to purchase the
property could not also protected to retain the property if the decree is
subsequently reversed.

There is one other aspect which is more important than what we
have discussed hitherto. It was emphasized by Lord Cairns in ·Rodger
v. The Compto.ir D' Escompte De Paris, [1869-71] LR 3 P.C. 465 at
c 475:

" ... that one of the first and highest duties of all Courts is to
take care that the act of the Court does no injury to any of
the suitors, and when the expression "the act of the Court", i;
D used, it does not mean merely the act of the Primary Court,
or of any intermediate Court of Appeal, but the act of the
Court as a whole, from the lowest court which entertains
jurisdiction over the matter up to the highest Court which
finally disposes of the case. It is the duty of the aggregate of
those Tribunals, if I may use the expression, to take care
E that no act of the Court in the course of the whole of the
proceedings does an injury to the suitors in the Court."

This is also the principle underlying Section 144 of the Code of
Civil Procedure. It is the duty of all the Courts as observed by the
Privy Council "as aggregate of those tribunals" to take care that no act
p of the court in the course of the whole of the proceedings does an in jury
to the suitors in the Court. The above passage was quoted in the
majority judgment of this Court in A.R. Anculay v. R.S. Nayak and
Ors., [1988] 2 SCC 602 at 672. Mukherjee, J., as he then was, after
referring to the said observation of Lord Cairns, said (at 672):

o "No man should suffer because of the mistake of the
Court. No man should suffer a wrong by technical proce-
dure of irregularities. Rules or procedures are the hand-
maids of. justice and not the mistress of the justice.
Ex debito.justitiae, we must do justice to him. If a man has
been wronged so long as it lies within the human machinery
H of administration of justice that wrong must be remedied."
CHINNAMMAL ••. P. ARUMUGHAM [SHETTY, J.I 87

It is well to remember that the Code of Civil Procedure is a bot!y A
of procedural law designed to facilitate justice and it should not he
treated as an enactment providing for punishments and penalties. The
laws of procedure should be so construed as to render justice wherever
reasonably possible. It is in our opinion, not unreasonable to demand
restitution from a person who has purchased the property in court
auction being aware of the pending appeal against the decree. B

We have carefully considered the evidence in the case. The judg-.
ment debtor who has been examined in the case has stated that the
auction purchaser is a sambandhi of the decree holder. The decree
holder's daughter has been given in marriage to the son of auction
purchaser. That evidence remains unchallenged. The evidence further c
indicates that after the purchase both of them have ent~red into an
agreement with a third party for sale of the second item of properties
for Rs-.96,000 and a case seems to be pending on the basis of that
agreement. The evidence also discloses that the auction purchaser haJ
no monh of his own to purchase the property. These circumstances
are sufficient to hold that the auction purchaser was not a bona fide D
purchaser.The auction sale in his favour must, therefore, fall for
restitution. The Court cannot lend assistance for him to retain the
propetj.,y of the judgment-debtor who has since succeeded in getting
rid of the unjust decree.

In the result the appeal is allowed, the judgment of the Division E
Bench of the High Court is reversed and that of learned single Judge is
restored. The appellants, however, must pay the costs of this appeal to
the auction purchaser which we quantify at Rs.5,000.
/·, .
R.S.S': Appeal allowed.
F