The Supreme Court has held that once execution proceedings are transferred from a civil court to the Debts Recovery Tribunal under Section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Recovery Officer is clothed with the power to recover the amount in accordance with the procedure prescribed under Section 29 of the 1993 Act read with the Second Schedule to the Income Tax Act, 1961, in supersession of the procedure under the CPC. Consequently, Order XXI Rule 22 of the CPC ceases to apply, and only the notice requirement under Rule 2 of the Second Schedule governs the execution.
The Court further held that the exemption under Section 60(1)(ccc) of the CPC is a personal protection available only to the judgment-debtor and does not extend to his legal representatives, who are distinct juridical entities whose liability is limited to the estate in their hands. Since the widow neither pleaded the exemption at any earlier stage nor produced evidence of exclusive ownership and possession, and since she had constructive knowledge of the execution proceedings, the High Court erred in remanding the matter for a fresh inquiry. Accordingly, the auction sale in favour of the Auction-Purchaser was accordingly upheld, and the appeal filed by the son of the judgment-debtor was dismissed.
A Two-Judge Bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe observed that the requirement contained in Order XXI Rule 22 is mandatory and the use of the word “shall” admits of no ambiguity, and the executing court is under an obligation to issue notice to the person against whom a decree is sought to be executed in the circumstances enumerated therein. However, the Court noted that the Morena court for a long period of two years and three months i.e. from Sep 19, 1995 to Dec 16, 1997 tried to serve notices on respondent no.1 and her children and would have been justified in proceeding with the execution of the decree without notice as issuance of such notice would have caused unreasonable delay. In view of Order XXI Rule 22(1) of the Code as applicable to Delhi, even if the execution proceeding had continued before the Morena court, the non-issuance of notice under Order XXI Rule 22(1) of the Code would merely have been an irregularity and not a defect in jurisdiction.
The Court further observed that the Delhi property was neither attached nor brought to sale in execution of the decree as a proceeding before the Morena court. It was attached and sold in exercise of powers under the 1993 Act, which is a special enactment for expeditious recovery of debts due to banks and financial institutions. The transfer of execution proceeding from Morena court to the DRT, effected under Section 31 of the 1993 Act, did not merely change the forum of execution, it clothed the Recovery Officer with the power to recover the amount in accordance with the procedure prescribed under Section 29 of the 1993 Act read with Second Schedule to the 1961 Act, in supersession of procedure under the Code before the Morena Court. The procedure governing the execution before the Recovery Officer only required the notice under Rule 2 of Second Schedule to 1961 Act.
The Court also observed that admittedly, no notice under Rule 2 of the Second Schedule was served either on respondent no. 1 or on her children. However, respondent no. 1 and her children were already parties to the execution proceedings, and respondent no. 1 had notice about the auction of Delhi property as she had filed miscellaneous application before DRT, Delhi seeking release of original title deeds of the Delhi property. The respondent no.1 had also filed an application seeking recall of the order dated Sep 20, 2004 directing an auction. Therefore, the question of substantial injury being caused to respondent no. 1 and her children on account of non-service of notice under Rule 2 of the Second Schedule to the 1961 Act did not arise. It was also pertinent to note that even after the sale, the legal representative did not take recourse to the remedy provided under Rule 61 of the Second Schedule of the 1961 Act.
On the issue of Section 60(1)(ccc) of the Code, the Court observed that the protection afforded by this provision is by its own text personal to the judgment debtor as it is confined to a house belonging to and occupied by the judgment debtor, and this protection does not extend to legal representatives of judgment debtor. The Delhi High Court and Punjab & Haryana High Court have consistently held that a legal representative is a distinct juridical concept from judgment debtor and liability devolving upon legal representative is limited to the estate in his hands, and he cannot, merely by virtue of residing in a house which belonged to the deceased judgment debtor, claim personal exemption that Section 60(1)(ccc) of the Code affords to a judgment-debtor alone. The Court further observed that the plea came to light for the first time in a writ petition filed against the order dated Feb 27, 2007 rejecting the application for stay. Therefore, the High Court erred in entertaining and in remitting the matter to the Recovery Officer, DRT to decide the same after giving an opportunity to the parties to lead evidence.
Briefly, the case revolves around a loan default by M/s. Sterling Malt & Foods Pvt Ltd., which had availed credit facilities from Punjab & Sind Bank through its branches at Connaught Place, New Delhi and Jayendraganj, Gwalior. A charge was created over the factory land, building, plant and machinery, and the two Directors of the Company, namely the judgment-debtor (Mr. Hardayal Singh) and Mr. N.S.S. Rao, furnished personal guarantees. The house at Panchsheel Park, New Delhi (the Delhi Property) was not mortgaged for the loan but was furnished as a collateral security. The malt manufacturing unit ceased to function in 1983, leading to irregularity in repayment of loans. The Bank instituted a suit under Section 34 of the Code for enforcement of the security of equitable mortgage before the High Court of Delhi, which was transferred to DRT, Delhi in 1996.
After the suit was filed, the Company searched for investors, and L.K. Trust and its trustees acquired majority shareholding and proposed a revival scheme, which was accepted by the Bank. A compromise decree was passed on Oct 15, 1991 by the Morena court, requiring the Trust to pay Rs. 1.80 crores in half-yearly instalments over seven years. Clause 2(e) of the compromise recorded that the title deeds of the Delhi property furnished as collateral security would stand released, but it was expressly clarified that the same would not affect the judgment-debtor’s personal liability to pay the decretal amount.
The judgment-debtor passed away on Nov 17, 1994, and the Trust and its trustees paid an aggregate amount of about Rs. 82 lakhs, between September 1992 and September 1998, and thereafter defaulted, attributing the default to the Bank’s failure to hand over possession of the factory as contemplated by the compromise. The Bank filed an execution petition before the Morena court in 1995 in which respondent no. 1 (Smt. Mohini Hardayal Singh, the widow) and her children were arrayed as judgment-debtors. Between 1995 to 1997, several attempts were made by the Morena court to serve notice of execution upon respondent no. 1 and her children but notices could not be served. On Aug 12, 1998, the Bank made a prayer for attachment of the Delhi Property, which was rejected for want of territorial jurisdiction. The Debts Recovery Tribunal was established in Jabalpur on April 07, 1998, and in view of Section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the 1993 Act), the execution case was transferred to the DRT.
On Sep 20, 2004, the Recovery Officer, DRT, ordered the auction of the Delhi property. On Oct 24, 2004, respondent no. 1 filed an application seeking recall of the order dated Sep 20, 2004 on the grounds that no notice of the execution case was issued to her, that an amount of Rs. 82.85 lakhs worth of instalments was paid to the Bank by the Trust, and that the compromise deed was signed by all parties including the Bank. The factory premises at Banmore, together with 14 acres of land, plant and machinery were auctioned on July 13, 2006 for Rs. 40.51 lakhs. The Recovery Officer, DRT rejected the application preferred by respondent no.1 and directed that the Delhi property be put to an auction sale for a reserve price of 928.85 lakhs. An auction was held on Nov 27, 2006 in which the bid of the Auction-Purchaser (Ms. Sheela Gehlot) was accepted, and the sale certificate was issued on March 01, 2007 by the Recovery Officer.
