Failure To Serve CPC Notice On Legal Representatives Does Not Invalidate DRT Auction Sale: Supreme Court

The Supreme Court on Friday upheld an auction sale of a Delhi property in debt recovery proceedings.

It held that the CPC notice requiring the legal representatives of a deceased judgment debtor to show cause why the decree should be executed against them did not govern the auction after the proceedings were transferred to the DRT.

A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe noted that the execution proceedings were initially before the Morena court, where the issue of notice under Order XXI Rule 22 of the CPC arose.

After the proceedings were transferred to the DRT, recovery was governed by the Recovery of Debts and Bankruptcy Act, 1993 read with the Second Schedule to the Income Tax Act, 1961.

“The procedure governing the execution before the Recovery Officer only required the notice under Rule 2 of Second Schedule to 1961 Act. Therefore, Order XXI Rule 22 of the Code has no impact on the validity of the auction sale,” the bench observed.

The dispute concerned the auction of a Delhi property belonging to late Hardayal Singh. His widow and children were arrayed as judgment-debtors in the execution proceedings after his death.

Order XXI Rule 22 of the CPC requires an executing court to issue a notice to a person against whom execution is sought. The notice requires the person to show cause why the decree should not be executed against them in specified circumstances, including execution against a legal representative of a judgment debtor.

The Morena court made several attempts between 1995 and 1997 to serve Hardayal Singh's widow and children with notices in the execution proceedings. It also directed issuance of a notice under Order XXI Rule 22 on April 7, 1997. The proceedings were subsequently transferred to the DRT in 1998.

The Supreme Court held that the transfer changed more than the forum. Once the proceedings reached the DRT, the Recovery Officer was required to follow Section 29 of the 1993 Act read with the Second Schedule to the Income Tax Act, rather than the execution procedure under the CPC that had applied before the Morena court.

The court acknowledged that the requirement under Order XXI Rule 22 is mandatory in cases covered by the provision. But that requirement did not govern the execution after its transfer to the DRT.

The relevant notice at that stage was the one required under Rule 2 of the Second Schedule.

No Rule 2 notice was served on the widow or her children. The bench, however, found that the widow was already aware of the execution proceedings and the auction. She had approached the DRT seeking release of the title deeds and had also sought recall of the Recovery Officer's order directing the auction.

The court further noted that she did not invoke the remedy under Rule 61 after the sale. It therefore held that the absence of a Rule 2 notice did not render either the execution proceedings or the sale void.

The bench then considered the claim that the Delhi property was protected from attachment as a main residential house.

It held that the exemption under Section 60(1)(ccc) of the CPC is personal to the judgment-debtor. The protection does not extend to legal representatives merely because they reside in the property.

The court also found that the exemption claim had not been raised before the Recovery Officer or in the earlier proceedings before the DRT. It surfaced for the first time at a later writ stage, without a factual foundation or evidence. The High Court therefore erred in sending the matter back for a fresh inquiry into the exemption claim.

The Supreme Court accordingly set aside the High Court's May 15, 2009 judgment. It allowed the appeals filed by the auction purchaser and Punjab & Sind Bank, while dismissing the appeal filed by Hardayal Singh's son.

For Appellants: Abhishek Manu Singhvi, Shyam Divan, D.N. Goburdhun, Sr. Advocates, Advocates P. K. Agrawal, Arun K. Sinha, AOR, Akshay Chitkara, Rakesh Singh, Sanjoli Gupta, Darpan Jain, Rongon Choudury, Amit Bhandari, Rohan Kochhar, Saurabh Agrawal, AOR, Gouri Goburdhun, Komal Mundhra, Ashutosh Rana

For Respondents: Shekhar Naphde, Rajiv Shakdher, Senthil Jagadeesan, Sr. Advocates, Rahul Srivastav, Shubham Seth, Surbhi Gupta, Sunidhi Singh, Bhairavi, Aditya Krishnan, Nikilesh Ramachandran, AOR, Shridevi, Poonam, Lovekesh, Karanjawala & Co., AOR, Arjun Harkauli, Tina Garg, AOR, Pk Agrawal, A. Venayagam Balan, AOR,  Akshay Chitkara, Sanjoli Gupta, Sanjoli Gupta, Darpan Jain, Santhanalakshmi, Rishab Tomar, Sonam Anand, Ashwin Joseph, Santosh Krishnan, AOR, Vedant Singh, AOR, Aarthi Rajan, AOR, S. Santanam Swaminadhan, Abhilasha Shrawat, Kartik Malhotra, Aman Rawat, Naveen Nagarjuna, AOR