Date of Judgment . 0 1. 2 0 0 6 .
Petitioner : Industrial Development Bank of Pakistan, through Mr. Salman Hamid, Advocate
(Pvt) Ltd and others, through Mr. Masood Sheharyar, Advocate
O R D E R
MUNIB AHMED KHAN, J. By CMA 1207 of 2005, under Section 73 read with Section 151 CPC, the respondent No.6 has prayed that out of the sale proceeds, Rs.28.50 lac, the Applicant / respondents No.6 may be paid rateably with the petitioner. According to the Applicant it is also one of the mortgagee besides the petitioner IDBP, of the mortgaged properties Nos. E-104, E-105 Hub Industrial Trade Estate (HITE) Balochistan and since both are mortgagees, therefore, the sale proceeds of the Mortgaged Properties may be distributed rateably to both the mortgages. According to the Applicant the above properties were firstly mortgaged with the IDBP and with their permission the same has been mortgaged with the Applicant by way of second charge. The Applicant obtained a decree from Banking Court No.3 in the sum of Rs.24,23,265.88 against the respondents M/s French Food Products (Pvt) Ltd and since the said property has been sold out in the instant JM, filed by IDBP, therefore, the decree of the Applicant may also be satisfied rateably from the auction money.
On the other hand, the petitioner has filed counter affidavit and has submitted that the said Application is not maintainable as Section 73 has no applicability in presence of order 34 rule 13 and charge of the Applicant was not pari passu but is a subsequent second charge with the permission of IDBP therefore, they are not entitled to ratable distribution and their entitlement will only come in the field after decree of the petitioner is satisfied in all respect. The Applicant has filed rejoinder and besides reiterating earlier contentions has insisted that Section 73 is application in the instant matter and MCB, a charge holder, is entitled to receive from the sale proceeds. The learned counsel for the Applicant has further stressed that IDBP was well aware that MCB has granted loan by way of second charge and with its consent suit of MCB was decreed by Banking Court, therefore, if the property against which loan was given is sold out then MCB has right to recover. The Applicant counsel has relied upon PLD 1973 Lah 682, PLD 1970 Karachi 481 and 2005 NLR (UC) 724.
On the other hand, Mr. Salman Hamid has submitted that Section 73 speaks of simple money decree without any reference to mortgage. He has pointed out that relevant law in this respect is order 34 rule 12 and 13. He has submitted that IDBP has never given consent as required under rule 12 of order 34. Since, admittedly, IDBP having first charge, therefore, money be distributed in terms of rule 13 of order 34 and until the decree of first mortgagee is satisfied no one is entitled. He has referred to 1994 SCMR 2248 at page 2251(IDBP v. Maida Limited.
I have gone through the contention of the learned counsel and have examined Section 73 CPC which is for the convenience is reproduced:
“71. Proceeds of execution sale to be rateably distributed among decree holders: (1) Where assets are held by a Court and more persons than one have, before the receipt of such assets, made application to the court for the execution of decrees for the payment of money passed against the same Judgment Debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realization, shall be rateably distributed among all such persons;
(a) where any property is sold subject to a mortgage or charge, the mortgagee or incumbrancer shall not be entitled to share in any surplus arising from such sale;
(b) where any property liable to be sold in execution of a decree is subject to a mortgage or charge, the Court may, with the consent of the mortgagee or incumbrancer, order that the property be sold free from mortgage or charge, giving to the mortgagee or incumbrancer the same interest in the proceeds of the sale as he had in the property sold;
(c) where any immovable property is sold in execution of a decree ordering its sale for the discharge of an incumbrance thereon, the proceeds of sale shall be applied;
first, in defraying the expenses of the sale;
secondly, in discharging the amount due under the decree;
thirdly, in discharging the interest and principle money due on subsequent incumbrances (if any) and
fourthly, rateable among the holders of decrees for the payment of money against the Judgment Debtor, who have, prior to the sale of the property, applied to the Court which passed the decree ordering such sale for execution of such decrees, and have not obtained satisfaction thereof.
(2) Where all or any of the assets liable to be rateably distributed under this section are paid to a person not entitled to receive the same, any person so entitled may sue such person to compel him to refund the assets;
(3) Nothing in this section affects any right of the Government”.
It is apparent from this Section that it relates to decree holder or claimant having equal footings / charge with, no reference to the mortgagee rights.
Relevant provision of law in this respect is order 34 rule 12 and 13, which are reproduced below:
“12. Sale of property subject to prior mortgage: Where any property the sale of which is directed under the Order is subject to a prior mortgage, the Court may, with the consent of prior mortgage, direct that the property be sold free from the same, giving to such prior mortgagee the same interest in the proceeds of the sale as he had in the property sold.
13. Application of proceeds: (1) such proceeds shall be brought into Court and applied as follows:
first, in payment of all expenses incidental to the sale of property incurred in any attempted sale;
secondly, in payment of whatever is due to the prior mortgagee, on account of the prior mortgage, and of costs property incurred in connection therewith;
thirdly, in payment of all interest due on account of the mortgage in consequence whereof the said was directed, and of the cost of the suit in which the decree directing the sale was made;
fourthly, in payment of the principal money due on account of that mortgage; and
Lastly, the residue (if any) shall be paid to the person proving himself to be interested in the property sold, or if there are more such persons than one, then to such persons according to their respective interests therein or upon their joint receipt.
(2) Nothing in this rule or in rule 12 shall be deemed to affect the powers conferred by section 57 of the Transfer of Property Act 1882”.
The language of rule 13 clearly shows that prior mortgagee have precedence over subsequent mortgagee, right of mortgagee for distribution of the proceeds have clearly given in rule 13. Rule 12 of order 34 is also clear which says about the consent for sale of the Mortgaged Property free of first charge which was never given to the MCB, the second charge holder, by the petitioner IDBP.
In all three authorities, it can be observed that none of the authority relates to preferential charge, nor there is determination of entitlement of first and second mortgagee. This authority only relates to distribution of the sale amount between person who have same footings without any preference over each other. On the other hand the citation quoted by the counsel for the petitioner is helpful to his contention and relevant para is reproduced below:
According to this provision the first priority has been given to all expenses incurred on sale or any attempt sale. Then comes the claim of the prior mortgagee and cost incurred by him. Thereafter interest due on account of mortgage in pursuance of which decree was passed and sale was effected and cost of the suit in which such decree was passed, have to be satisfied. The principal amount of such mortgage has fourth priority. If any residue is left after satisfaction of the aforestated claims it is to be appropriated amongst the persons who prove to be interested in the property sold according to their respective interests. The claimants do not fit in any category of creditors as provided by Order XXXIV, Rule 13 C.P.C. except in the last one where only residue is to be distributed amongst them”.
The ruling cited by the learned counsel for the petitioner is correctly on the point and supports his version.
In the circumstances, I am of the view that there is contrast distinction between section 73 CPC and Order XXXIV Rule 12 and 13 CPC which can be noted very easily, hence I find that the application is misconceived and is dismissed with cost of Rs.5,000/-.
J U D G E
Samie