Judgment Sheet
IN THE HIGH COURT OF SINDH AT KARACHI
First Appeal No.100 of 2015
Before:
Mr. Justice Nadeem Akhtar
Justice Mrs. Kausar Sultana Hussain
Appellant : Mst. Farhat Fareed Sheikh,
through Mr. M. S. Bukhari Advocate.
Respondent No. 1 : NIB Bank Limited,
through Mr. Abid Hussain Advocate.
Respondent No. 2 : Manzoor Hussain, called absent.
Respondent No. 3 : Rehmatullah, called absent.
Respondent No. 4 : Banking Court No.V Karachi.
Respondent No. 5 : DIG Karachi East.
Respondent No. 6 : SHO P.S. Model Colony Karachi.
Auction Purchaser : Muhammad Ali,
through Mr. Jamshed Qazi Advocate.
Date of hearing : 27.11.2018, 28.02.2019 and 07.03.2019.
JUDGMENT
NADEEM AKHTAR J. – Through this appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 (‘the Ordinance’), the appellant has impugned order dated 06.11.2015 passed by learned Banking Court No.V at Karachi in Execution Application No.20/2015 arising out of Suit No.291/2012, whereby the application filed by her for postponement / stoppage of auction of the mortgaged property was dismissed in limine.
2. The main questions involved in this appeal are whether the application / claim filed by the appellant before the Banking Court for postponement of sale of the property in execution could be rejected in limine without investigating and determining her claim when she had claimed to have purchased the said property from the judgment debtor and had also offered to satisfy the decree ; and, whether the Banking Court was justified in dismissing the said application in limine on the grounds that she was not the customer of the respondent No.1-financial institution / decree holder and she cannot be made a party in the execution proceedings.
3. Relevant facts of the case are that Suit No.291/2012 was filed by respondent No.1 against respondent No.2 under Section 9 of the Ordinance for recovery of Rs.11,770,173.00, which was decreed with costs in the sum of Rs.4,415,603.00 with cost of funds thereon from the date of default i.e. 30.12.2010 vide judgment and decree dated 01.06.2015. Thereafter respondent No.1 sought execution of the decree by attachment and sale of the immovable property viz. E-9, Street No.26, Model Colony, Karachi, (‘mortgaged property’) mortgaged by respondent No.2 / judgment debtor with respondent No.1 as security for repayment of the finance facility availed by him from the latter. After attachment of the mortgaged property and publication of notice in newspapers for its auction, the appellant filed a handwritten application dated 02.10.2015 for postponement / stoppage of the auction. It was stated by her in the said application that she had purchased the mortgaged property from respondent No.2 / judgment debtor through a sale agreement, and it was prayed by her that auction of the mortgaged property be postponed / stopped as she was a widow and was residing therein with her five children. The above application filed by her was dismissed by the Banking Court in limine vide impugned order dated 06.11.2015.
4. After filing of the present appeal on 10.11.2015, auction of the mortgaged property was held by the Banking Court on 08.02.2016 when one Muhammad Ali was declared as the highest bidder and his bid of Rs.4,400,000.00 was accepted. Consequently, the said Muhammad Ali (‘auction purchaser’) deposited the entire auction money by initially depositing 25% of the bid amount and then by depositing the remaining 75%. On the date of the auction, the appellant filed another application praying that the auction be postponed and she may be allowed sufficient time to arrange funds for purchasing the mortgaged property. In view of this application, sale of the mortgaged property was not confirmed by the Banking Court till 09.04.2016. Vide order dated 09.04.2016, by observing that the appellant could not arrange the payment despite passage of sixty (60) days, sale of the mortgaged property was confirmed by the Banking Court in favour of the auction purchaser and sale certificate in respect thereof was ordered to be issued in his name. In view of this development, it was ordered in the present appeal on 25.03.2016 that the appellant shall not be dispossessed from the mortgaged property till the next date of hearing, which order was extended on subsequent dates of hearing and is still in the field ; and vide order dated 13.04.2018 passed in the present appeal, the appellant was allowed by this Court to deposit the entire decretal amount of Rs.4,415,603.00, which was deposited by her with the Nazir of this Court vide pay order dated 29.05.2018. The above permission was granted to her in view of the request made by her before this Court on 13.04.2018 that she may be allowed to deposit the entire decretal amount in Court as she is a widow and she is willing to deposit the decretal amount in Court.
5. In the impugned order, it was observed by the Banking Court that according to the sale agreement dated 29.12.2012 filed and relied upon by the appellant, she had paid an amount of Rs.2,000,000.00 to one Rehmatullah and remaining sale consideration of Rs.1,200,000.00 was to be paid by her at the time of registration of the sale deed. Perusal of the impugned order shows that the appellant’s application for postponement / stoppage of the auction of mortgaged property was dismissed by the Banking Court by holding that there was no supporting evidence showing payment to Rehmatullah for the alleged transaction ; Rehmatullah was not the owner of the mortgaged property which was owned by Manzoor Hussain / judgment debtor ; if such sale transaction had taken place in the past, the same had no value as mortgaged property was already under the charge of respondent No.1 / decree holder ; postponement of sale shall be fatal to execution proceedings which were already in progress ; and, the appellant does not fall within the definition of customer, hence she cannot be made a party to execution proceedings.
6. We have noticed with grave concern that the above observations and findings in the impugned order are contrary to law and the material that was available on record before the Banking Court. From the above, it appears that the Banking Court was under the impression that the sale agreement dated 29.12.2012 filed and relied upon by the appellant was between herself and Rehmatullah who was not the owner of mortgaged property, and there was no agreement between the appellant and the owner / mortgagor / judgment debtor Manzoor Hussain. Whereas, in her application it was clearly and specifically mentioned by the appellant that mortgaged property was purchased by her from judgment debtor Manzoor Hussain, and it was never stated by her that she had purchased the same from Rehmatullah. Therefore, there was no question of providing evidence by her to show payment of sale consideration to Rehmatullah. Regarding the observation of the Banking Court that Rehmatullah was not the owner of mortgaged property and it was owned by judgment debtor Manzoor Hussain, record shows that judgment debtor Manzoor Hussain was a party to the said sale agreement along with Rehmatullah wherein both of them were not only described as vendors, but they had also executed the same as vendors. The above misconceived observations and findings are sufficient to show that that the agreement filed by the appellant along with her application / claim was completely misunderstood and misread by the Banking Court.
7. The finding in the impugned order that postponement of auction of the mortgaged property shall be fatal to execution proceedings is against the principles embodied in Section 47 CPC and Rules 58, 59, 60 and 62 of Order XXI CPC as well as Sub-Section (7) of Section 19 of the Ordinance, which, inter alia, allow a claimant / objector to file a claim or objections objecting to the attachment and/or sale of the mortgaged property. Under the above provisions, only the executing court has the power to investigate such claim or objections ; to postpone the sale during pendency of investigation of the claim or objections ; to record evidence of the claimant / objector to the effect that at the time of attachment of the property, he had a right or interest in or title to the property attached ; to release such property from attachment if it is found after investigation of claim or objections that the claimant / objector had a right or interest in or title to the property ; and, to adjudicate upon and determine all questions relating to the right, title or interest of the claimant / objector in such property as no separate Suit shall lie to establish such right, title or interest.
8. Likewise, the finding of the Banking Court that appellant does not fall within the definition of customer hence she cannot be made party to execution proceedings, is also contrary to law. Rule 58 of Order XXI CPC specifically provides that if any claim or objections are filed by any claimant or objector, the executing court shall proceed to investigate the same with the like power as regards the examination of the claimant or objector, and in all other respects, as if he was a party to the Suit. Needless to say by virtue of Section 7 and Sub-Sections (2) and (7) of Section 19 of the Ordinance, provisions of the Code of Civil Procedure, 1908, are applicable to proceedings of civil nature before the Banking Court. In addition to the above, it may be observed that it is not necessary that the claimant or objector in execution proceedings arising out of banking matters must fall within the definition of a “customer” defined in the Ordinance, as any person who has a legitimate and subsisting right, title or interest in the pledged, hypothecated or mortgaged property may file an application before the Banking Court under Sub-Section (7) of Section 19 of the Ordinance for investigation of his claim or objections in respect thereof, and may also seek its release from attachment or postponement of its sale under Rules 58, 59, 60 and 62 of Order XXI CPC. In view of the right, title and interest claimed by the appellant in respect of the mortgaged property and the prayer made by her for postponement of its auction, we have no doubt that her application was under the above mentioned provisions of law, but the same was not treated as such by the Banking Court perhaps due to the reason that the said provisions were not mentioned by her in the title of the application ; and, from the tenor of the impugned order, it appears that the application filed by her was treated by the Banking Court as an application by an intervener under Order I Rule 10 CPC in ordinary civil proceedings as it was held in the impugned order that she cannot be made a party to the execution proceedings. The Banking Court erred in law by not applying the principles contained in the above mentioned provisions of law while deciding the application / claim filed by the appellant.
9. It may be noted that in view of the word “shall” used in Section 19(7)(a) of the Ordinance, it is mandatory for the Banking Court to investigate every claim or objection in respect of attachment or sale of any property, whether or not mortgaged / pledged / hypothecated, in a summary manner and to complete the investigation within 30 days of filing of such claim or objection. Likewise, the provisions of Rule 62 of Order XXI CPC are also mandatory as under the said Rule all questions relating to the right, title and interest of the claimant or objector in the attached property shall be adjudicated upon and determined only by the executing Court as separate Suit shall not lie to establish such right, title and interest. It is our considered view that once such investigation and determination is made by the Banking Court strictly in the above terms through a speaking order and as a result thereof if the claim or objections are rejected, only then sale of the property under attachment can be made by the Banking Court, otherwise the sale, without investigation and determination of any pending claim or objections in accordance with law, will be defective and will be open to challenge by the claimant / objector. We are also of the view that the object of the above mandatory provisions is to set all claims and objections at rest before the auction sale and to pass on a clear, valid and marketable title of the property to the auction purchaser. In the present case, the application / claim of the appellant was dismissed by the Banking Court in limine in view of the above mentioned misconceived observations and findings without any investigation and/or determination and without giving any findings in relation thereto. In our humble opinion, her application / claim could not be rejected by the Banking Court in the above manner without first complying with the above mentioned mandatory requirements of law i.e. without first investigating her claim and making a proper determination in respect thereof through a speaking order. Therefore, her application / claim was not decided by the Banking Court in accordance with law.
10. As noted above, another application was filed by the appellant on the date of the auction praying that the auction be postponed and she may be allowed sufficient time to arrange funds for purchasing the mortgaged property, and in view of this application, sale of the mortgaged property was not confirmed by the Banking Court till 09.04.2016. Sale of the mortgaged property in favour of the auction purchaser was confirmed by the Banking Court finally vide order dated 09.04.2016 on the ground that the appellant could not arrange the payment despite passage of sixty (60) days. This shows that on the one hand the application / claim of the appellant and her request for postponement of sale was dismissed in limine by the Banking Court through the impugned order passed on 06.11.2015 by holding that she had failed in showing any right, title or interest in the mortgaged property, and on the other hand she was allowed 60 days to purchase the mortgaged property, despite the fact that auction had been concluded and the auction purchaser had already deposited the entire auction money in Court. This aspect alone is sufficient to show that there was a serious contradiction in the understanding of the Banking Court with regard to the claim made by the appellant, and also that the sale was actually postponed by the Banking Court for 60 days at her request to enable her to purchase the mortgaged property. It also shows that at the time of making the bid and depositing the auction money in Court, the auction purchaser had due notice of the claim asserted by the appellant in respect of the mortgaged property. It may be observed that the law viz. The Transfer of Property Act, 1882, does not prohibit the mortgagor from selling his equity of redemption and in such an event the purchaser becomes entitled to redeem the property from the mortgagee. As per this rule also the appellant’s claim ought to have been investigated and determined by the Banking Court by treating her sale agreement with the mortgagor as an agreement to purchase an equity of redemption.
11. We have briefly discussed the locus standi of a genuine claimant / objector having valid and subsisting right, title or interest in the property under attachment and sale to seek postponement of sale. It may be observed that if the sale is not postponed and is held or concluded, even then the law recognizes the right of such claimant / objector to file an application under Rules 89 and 90 of Order XXI CPC for setting aside the sale, inter alia, on the grounds enumerated in the said Rules. In this context, we may refer to the case of Al-Haj Chaudhry Muhammad Bashir V/S Citibank N.A. and 2 others, 2002 CLD 962, decided by a learned Division Bench of Lahore High Court cited and relied upon by learned counsel for the appellant. In the above-cited case, an immovable property mortgaged with the decree holder-bank was auctioned whereafter objections were filed by an objector claiming that he had entered into an agreement with the judgment debtor / mortgagor whereby he was put in possession of the property and he constructed a commercial building thereon, and after constructing the building, several shops therein were sold to third parties through registered sale deeds. His objections were rejected by the Banking Court by holding that a mere agreement to sell did not create any title in his favour ; the agreement was entered into long after the mortgage in favour of the decree holder ; and as such he had no right to resist execution of the decree or to challenge the auction made in favour of auction purchaser. The vendees also filed applications / objections which were dismissed on the ground that the Banking Court had become functus officio as auction sale had already been confirmed and sale certificate had been issued in favour of the auction purchaser. It may be noted that the agreement in favour of the objector was entered into after passing of the decree for sale of the mortgaged property, and sale deeds in favour of the vendees were executed and registered after filing of execution proceedings.
12. It was held, inter alia, in the above case that any person, who acquires title in a property auctioned in execution of a decree prior to the auction sale, can make an application under Rule 89 of Order XXI CPC to have such sale set aside ; the law visualizes acquisition of rights in a property even during the pendency of a lis ; the fact that the property in dispute was mortgaged in favour of the bank and a decree for the sale of the same had been passed in favour of the said bank, does not affect the above legal principle and the conclusion that title in such property could have been conveyed by the mortgagor / judgment debtor during the pendency of the present proceedings ; and, the conveyance of mortgaged property, subject to the mortgage, is not prohibited by the general law. In view of the above findings, it was held by the learned Division Bench that the vendees were vested with locus standi to file objections to challenge the auction sale confirmed by Banking Court in favour of the auction purchaser, and as such Banking Court, far from being functus officio, was the competent forum having jurisdiction to decide their objection petitions. Regarding the objector, finding of Banking Court that the agreement in his favour did not create any title or interest in the mortgaged property was maintained, but it was held that he had sufficient interest in the mortgaged property to vest him with locus standi under Order XXI Rule 90 CPC.
13. We have already held that the application / claim filed by the appellant was not decided by the Banking Court in accordance with law. Therefore, the impugned order cannot be allowed to remain in the field. Her application / claim shall have to be decided afresh by the Banking Court by investigating her claim and by making a proper determination in respect thereof in accordance with law. Due to this reason, sale of the mortgaged property, which was defective as it was conducted without investigating and determining the appellant’s claim, is liable to be set aside because if the appellant succeeds in her claim in relation to the mortgaged property, the Banking Court may order its release from attachment and in such an event there will be no occasion for selling the same.
14. It is a matter of record that the appellant had filed an application before the Banking Court seeking time to arrange funds to purchase the mortgaged property, and Banking Court had granted 60 days to her for this purpose ; in the present appeal also she had shown her willingness to satisfy the decree ; and, the entire decretal amount of Rs.4,415,603.00 was deposited by her with the Nazir of this Court on 29.05.2018 in pursuance of order passed by this Court in the instant appeal.
15. In view of the above discussion, it is hereby ordered as under :
A. The impugned order as well as the sale of mortgaged property are hereby set aside ;
B. The application / claim filed by the appellant is remanded to Banking Court with direction to decide the same afresh by investigating her claim in respect of mortgaged property and by making a proper determination in respect thereof strictly in accordance with law through a speaking order within thirty (30) days from the first date of hearing to be fixed in pursuance of this judgment after notice to parties and the present appellant ;
C. The entire auction money received by respondent No.1 from the auction purchaser shall be returned to him by respondent No.1 within thirty (30) days from the date of this judgment along with profit thereon at the same rate at which cost of funds have been granted in the decree to respondent No.1 ;
D. Since the appellant was and is still willing to purchase the mortgaged property and has also deposited the entire decretal amount of Rs.4,415,603.00, Banking Court shall be at liberty to record satisfaction of the decree for the said amount or for such amount as may be agreed by respondent No.1 and the appellant, or ordered by the Banking Court, as the case may be. In such an event, mortgaged property shall be released from attachment and sale certificate in respect thereof shall be issued in favour of the appellant ;
E. If for any reason satisfaction of the decree is not recorded in the above manner and claim of the appellant is rejected after investigation and determination, mortgaged property shall be re-auctioned by the Banking Court strictly in accordance with law. In such an event, the entire amount deposited by the appellant shall be returned to her forthwith ; and,
F. The entire decretal amount of Rs.4,415,603.00 deposited by the appellant with the Nazir of this Court shall be transferred by him forthwith to the relevant account of Banking Court, which shall be appropriated / recorded for satisfaction of the decree or shall be returned to the appellant, as the case may be.
Foregoing are the reasons of the short order announced by us on 07.03.2019 whereby this appeal was allowed with no order as to costs.
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JUDGE
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JUDGE