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Petitioner: Faysal Bank Limited VS Respondent: Haris Steel Industry (Pvt.) Limited
Court Name: Lahore High Court Judge(s): Jawad Hassan Title: Faysal Bank Limited vs Haris Steel Industry (Pvt.) Limited Case No.: Ex. A. No. 50-B of 2016 and C.M. No. 5 of 2018 Date of Judgment:2022-11-14 Reported As: PLJ 2023 Lahore 416, 2023 PCTLR 19 Result: Petition dismissed
Judgment ORDER C. M. No. 05 of 2018 This objection petition in terms of Section 19 of the Financial Institution (Recovery of Finance) Ordinance, 2001 (the "Ordinance") was filed by the applicants/judgment debtors objecting to auction proceedings dated 14.12.2017 on the ground that the land measuring 180-Kanals (more than 22 acres) situated at Mauza Bauly, Tehsil Muridke, District Sheikhupura worth more than Rs. 400 million has illegally been auctioned @ Rs. 185,000,000 in favour of one Muhammad Fazal Muqeem. I. Context 2. During execution proceedings, the auction of property was held on 14.12.2017 and the applicants/judgment debtors being aggrieved thereof filed this objection application on 13.01.2018 to set aside the same. The nub of the matter in this application is the alleged illegalities and irregularities committed by the Court Auctioneers in auction proceedings in connection with the execution of the decree of banking suit. In order to resolve the issue following banking moot points were framed on 22.11.2019:-- I. Under which provision of the Financial Institution (Recovery of Finance) Ordinance, 2001 (the "Ordinance") and the Code of Civil Procedure, 1908 (CPC), the Banking Court has to approve the auction schedule? II. What should be included in terms and conditions of the auction approved by the Court in the light of the provision of the CPC? III. Whether the objection petition is maintainable in case of non-deposit of 20% pre-auction/post- auction in every case when there is material illegality and irregularity in the auction proceedings?
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IV. What is the time frame of the auction and its objection to be decided? V. What are the vested rights of the bidders and auction purchasers after they have become successful bidder before the sale certificate is issued? VI. Whether the pasting of poster in the Court Premises is mandatory? VII. Whether the signing of attendance sheet and bidding sheet, is mandatory or directory? VIII. The relationship of the Court auctioneer should be transparent with all the stakeholders and what is criteria of the same? IX. What amounts to substantial injury Order XXI Rule 90 of CPC? X. Whether the auction that has been conducted without following the procedure, violates the fundamental rights of the auction purchaser under Articles 23 and 24 of the Constitution? II. Applicant/judgment debtors' submissions 3. Mr. Khalid Ishaq, ASC submits that this Court directed the decree holder/bank to publish the auction schedule in two daily newspapers (one Urdu and one English) with the purpose to inform maximum number of people from general masses regarding auction of the property so that the maximum bidders could participate in the bidding process but the decree holder/bank in sheer violation of order of this Court malafidely published the proclamation only in English language in newspaper daily "The Nation", therefore the auction proclamation does not fulfill the requirements of Order XXI Rule 66 of the Civil Procedure Code, 1908 (the "CPC"). He further submits that the Court Auctioneers were bound to affix the proclamation upon a conspicuous part of the Court and the property to be auctioned as per prescribed law but the same has not been done. He argues that it is mandatory provision of Order XXI Rule 68 of the "CPC" that no auction shall be held until the expiration of at least 15 days calculated from the date on which the copy of proclamation has been affixed in the Court i.e. 01.12.2017 but as per report of the Court Auctioneers the same was held on 14.12.2017, only after 13 days of fixation of proclamation in Court. He next adds that actually no open auction has been conducted and the proceedings shown in the auction report are false, fake, fictitious and are result of collusion between the decree holder/bank, auction purchaser and the Court auctioneers. He highlights that as per auction report, two bidders paid the earnest money amounting to Rs. 1,000,000/- through cheques instead of pay orders to participate in the auction proceedings, which also was not in accordance with law. He maintains that the property to be auctioned is undivided thus the same cannot be auctioned without proper partition and demarcation. He points out that evaluation report submitted by the evaluator i9 also incorrect, false and fictitious because the same does not give the actual value of the property. Lastly, submits that the alleged auction proceedings dated 14.12.2017 are result of fraud, hence the same be declared as illegal, fraudulent, null and be set aside. III. Decree Holder Bank/Respondents Submission 4. Conversely, Mr. Muhammad Naeem Sehgal, ASC for the decree holder/bank submitted detailed reply to this application and defended the auction proceedings dated 14.12.2017 by denying the story narrated by the applicants/judgment debtors. Mr. Muhammad Naeem Sehgal, ASC also objected to maintainability of this application on the ground that the applicants/judgment debtors have neither deposited 20% of amount realized at the sale nor furnished security in term of Order XXI Rule 90 of the "CPC" and thus it has just been filed to frustrate auction proceedings and to deprive the decree holder/bank from its lawful rights. He added that whole auction proceedings were conducted strictly in accordance with law and the property was auctioned against sum of Rs. 185,000,000/-as per law therefore, the applicants/judgment debtors have not approached this Court with clean hands and are not entitled to any relief. IV. Court Auctioneer's submissions 5. The Court Auctioneers have also submitted their written arguments in response to this application and argued that allegations levelled and pleaded by the applicants/judgment debtors
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are totally False, flimsy, frivolous, baseless and have no force or value in the eyes of law. They urged that all the auction proceedings have been conducted in accordance with law and no illegality or irregularity has been committed on their behalf. V. Amicus Curiae's submission 6. Mr. Majid Ali Wajid, ASC submitted that where property/security before the Court for realization of the decretal amount is a mortgaged property, there is no requirement of its attachment before its sale in execution of decree passed by the Court and the Court may directly order the said property to be sold through public auction in terms of Order XXI Rule 64 of the "CPC". He adds that once such order is made, the Court causes a proclamation of intended sale, after notice to the decree holder and the judgment debtor under order XXI Rule 66 of the "CPC", containing material details such as description of the property, its reserve price, the terms and conditions of the auction, and its time, date and venue, to be published in terms of Order XXI Rule 66 and Rule 67 of the "CPC". He added that in terms of the Lahore High Court Amendment in Order XXI Rule 66, sub-rule (2), which has come into effect from 1-11-2020, such proclamation shall be drawn by the Court Auctioneer from now onwards, and contain all the aforesaid material details which shall be submitted before the Court for its approval which shall add to it the reserve price of the property under sale, based upon the evaluation report submitted by any evaluator appointed by the Court from amongst the evaluators approved by the Pakistan Bankers Association. Hence, once the Court has satisfied itself from the perusal of the record of case that requirements under the afore-mentioned rules have been complied with, the Court has to approve the auction schedule and to proceed with the auction of the property in terms of Order XXI Rule 66 of the "CPC". He pointed out that the term `auction schedule' is merely used in practice, and is not a term that can be found in the procedure provided in the "CPC". It is in fact the term "proclamation" which is used in Order XXI of the "CPC" for this purpose. Therefore, it may not be correct to use the term 'auction schedule', as the said term only gives an indication of the schedule/timing/date of auction, rather than the terms and conditions mentioned therein. The term "proclamation" is a comprehensive term as the approved proclamation includes both the schedule of auction sale, as well the terms and conditions of auction. VI. Determination by the Court 7. Before discussing the aforementioned points of determination, it would not be out of place to mention here that in a similar case "Faysal Bank Limited versus Sajjad Aslam and others" (2022 CLD 123), where auction proceedings were challenged, this Court besides elaborating the term "substantial injury" has held that in order to get an auction sale set-aside, it was mandatory for the judgment-debtor to fulfill two basic conditions. Firstly, he has to satisfy the Court on the merits, the existence of a material irregularity, or fraud in publishing or conducting an auction. Secondly, he has to establish that he had sustained a substantial injury by reason of such irregularity or fraud. Keeping the said yardstick in view, the aforementioned points of determination are discussed and decided respectively as under: POINT Nos. 1 & 2 (Provisions regarding approval and terms and conditions of auction) 8. There is no cavil to the proposition that Section 19 of the "Ordinance", Section 151 read with Order XXI of the "CPC" deals with execution proceedings before the Banking Court and gives discretion to it to execute a decree of Banking Court as per the provisions of the "CPC", or in any manner the Court deems fit. Section 51 of the "CPC" generally provides the modes which can be adopted by a Court for execution of a decree while Order XXI provides detailed procedure regulating the powers of the Court in respect of execution. Order XXI Rule 64 envisages power of executing Court to order sale of property already attached but in case of a mortgaged property, an executing Court can order the sale through public auction and attachment would not be necessary. Reliance is placed on Messrs Hanif Metal Store through
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Proprietor and others v. Bank of Punjab through Manager and others (2017 CLD 447), wherein it was held that: "Mortgaged property being already secured, the Court was not required to adopt protective measures through attachment in respect of mortgaged properties. There is no cavil with the settled proposition that once Executing Court opted and invoked provisions of C.P.C., then it cannot avoid its express provisions. However, as already discussed above, provision of Order XXI, Rule 54 or Section 60, C.P.C. does not specifically required attachment of mortgaged property, therefore, Court was not bound to attach the mortgage property before its sale in execution". 9. Order XXI Rule 66 deals with proclamation of sales by public auction while Rule 67 deals with mode of making proclamation. Once an order for sale under Rule 64 is made, the Court causes a proclamation of intended sale, after notice to the decree holder and the judgment debtor under order XXI Rule 66, CPC. Under the amended Rule 66 sub-rule (2) of Order XXI, any proclamation of sale of any such., property by public auction, shall be drawn by the Court, Auctioneer which shall be submitted before the Court for its approval which shall add to it the reserve price of the property under sale, based upon the evaluation report submitted by any evaluator appointed by the Court from amongst the evaluators approved by the Pakistan Bankers' Association. Hence, once the Court has satisfied itself from the perusal of the record of case that requirements under the afore- mentioned rules have been complied with, the Court has to approve the auction schedule and to proceed with the auction of the property in terms of Order XXI Rule 66. It is pertinent to mention here that the term "auction schedule', only gives an indication of the schedule/timing/date of auction, rather than the terms and conditions mentioned therein while the term "proclamation" is a comprehensive term as the approved proclamation includes both the schedule of auction sale, as well the terms and conditions of auction. In the light of Order XXI Rule 66 the "CPC", following elements should be included in the terms and conditions of the auction schedule/proclamation approved by the Court:- i. Time and place of sale of auction property. ii. Description of the property to be sold at auction. iii. The revenue assessed upon the estate or part of the estate, where the property to be sold is an interest in an estate or in part of an estate paying revenue to the Government. iv. Any encumbrance to which the property is liable. v. The amount for the recovery of which the sale is ordered. vi. Every other thing which the Court considers material for a purchaser to know in order to judge of the nature and value of the property. vii. The reserve price of the property. 10. Order XXI Rule 67 sub-rule (2) further provided that such proclamation shall be published in the official gazette or in a local newspaper, or in both however the said sub-rule is substituted by Lahore High Court in 2018 and now the sub-rule (2) (i) requires that where the reserve price determined by the Court exceeds rupees two million, the proclamation shall be published in at least one widely circulated national daily newspaper while under sub-rule (2)(ii) video recording of the auction proceedings is also required to be made by the Court auctioneer. POINT NO. 3 (Maintainability in case of non-deposit of 20% amount) 11. The objection regarding the maintainability of the instant petition due to non-deposit of 20% of amount in terms of Order XXI Rule 90 of the "CPC" as raised by learned counsel for the Respondents is not without substance. This is because as per the second proviso of Rule 90, Order XXI of the "CPC", until and unless, the judgment debtors deposit an amount equal to 20% of the sum realized at the sale or furnish such security as the Court may direct, in every case, any objection would not be maintainable even when there is material illegality and irregularity in the auction proceedings. The requirement to deposit 20% of the auction price, or such other security as directed by the
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Court, along with an application under Order XXI Rule 90 of the "CPC" is mandatory, and any application that fails to fulfil this requirement cannot be entertained and is liable to be dismissed by the Court. Reliance is placed on "Zakaria Ghani versus Muhammad Ikhlaq Memon" (PLD 2016 SC 229), wherein it was held (Para. 4 on Pg. 238) that: "Yet another condition is prescribed by the second proviso which states that no application shall be entertained in terms of this provision of law unless and until the judgment deposits an amount equal to 20% of the sum realized at the sale or furnish such security as the Court may direct. These are stringent conditions which make the policy of the law crystal clear. A mere allegation is not sufficient. It has to be established that not merely an irregularity, but a material irregularity has taken place or, in the alternative, that fraud has been perpetrated in the process of carrying out the sale. Then is super added the requirement that even if these conditions are complied with the judgment debtor must satisfy the Court that he has sustained a substantial injury by reason thereof. Finally, in order to discourage frivolous applications intended to delay the execution of the decree it is mandatory on the judgment debtor to deposit 20% of the sale amount. or furnish such security as the Court may direct." 12. The plain reading of the second proviso to Order XXI Rule 90 of the "CPC" mandates every application under the provision to be accompanied by 20% of the auction price in order to be entertained. Reliance is also placed on "Messrs HABIB AND COMPANY and others versus MUSLIM COMMERCIAL BANK LIMITED & others" (PLD 2020 SC 227), wherein it was held (Pg. 231) that: "A bare reading of the second proviso to Order XXI Rule 90 clearly shows that the deposit of a sum of 20% of the auction price is mandatory for the application to be entertained in the first place, i.e. an application will not be maintained unless such a sum is deposited. A closer reading of the provision also shows that the discretion provided to the Court is not with respect to furnishing of the security at all, but rather the amount of the security to be deposited." 13. It is not out of place to mention here that in order to evade the requirement of depositing 20% of the sum realized at the sale, the objectors often seek to circumvent the application of provisions under Order XXI Rule 90 the "CPC" by filing the objection petitions under Section 19(7) of the "Ordinance". However, the said objection petitions would be deemed to be the applications under Order XXI Rule 90 of the "CPC". Reliance is placed on "Messrs NICE 'N' Easy Fashion (PVT.) LTD. and others versus Allied Bank of Pakistan and another" (2014 SCMR 1662), wherein it was held (Pg. 1666) that: "The appellants themselves moved the Banking Court under Section 19(7) of the Ordinance and have not made an application under Order XXI Rule 89 or 90, C.P.C. Even if the objection petition of the appellants is treated as an Application under Order XXI Rule 89 or 90, C.P.C., then the said Rules mandate that the objector should deposit the amounts mentioned therein along with the application. In absence of the deposit, as mandated by the Rules, the application and or objections cannot be entertained by a Banking Court. In the case in hand, the appellants have not deposited any of the amounts required under the aforesaid Rules, therefore, the objections were rightly rejected by the Banking Court." 14. In another judgment reported as "Messrs Habib and Company and others versus Muslim Commercial Bank Limited and others" (2019 SCMR 1453) it was held (Pg. 1455) that: "The provisions of Order XXI Rule 90, C.P.C. have come under discussion in various judgments pronounced by this Court in which it has conclusively been held that the statutory deposit of 20% by this judgment debtor is mandatory and that without such a deposit the objection application under Order XXI Rule 90, C.P.C. is not maintainable." POINT NO. 4 (Time frame of the auction and decision of objections) 15. Order XXI Rule 68 deals with the time frame of sale through auction. Under this Rule an interval of 15 days must elapse between the date of proclamation and the date of sale an immovable
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property. Although non-compliance of this provision may amount to material irregularity but any such sale would not be liable to be set-aside until and unless it is proved that it caused substantial injury to a party. Reliance is placed upon "Zakaria Ghani and 4 others versus Muhammad Ikhlaq Memon and 8 others" (PLD 2016 Supreme Court 229). This Court has also held in "Faysal Bank Limited versus Sajjad Aslam and others" (2022 CLD 123) that: It has to be established that no merely an irregularity but a material irregularity had taken place, or, in the alternative that fraud had been perpetrated in the process of carrying out the sale. Even if these conditions were complied with the judgment debtor must satisfy the Court that he had sustained a substantial injury by reason thereof It has further held that mere an irregularity, even if material, should not suffice unless it could be shown that material loss had been caused. 16. As far as the time frame for decision of the objection petition against auction is concerned, Section 19(7) the "Ordinance" envisages that, notwithstanding anything contained in the "CPC", or any other law for the time being in force, the Banking Court is required to follow the summary procedure for purpose of investigation of claims and objections in respect of attachment or sale of any property, whether or not mortgaged, pledged or hypothecated, and shall complete such investigation within 30 days of filing of the claims or objections. POINT NO, 5 (Vested rights of bidders and auction purchasers) 17. After a successful completion of an auction proceedings, the highest bidder is under an obligation to deposit the sale price in terms of the proclamation of sale and then the Court Auctioneer sends a report to the Court describing various particulars of the proceedings including the detail of participants, the bids offered by them, the information about the highest bidder, and the notification of earnest money as deposited by the latter under Order XXI Rule 84 of the "CPC". The Court then applies its judicial mind on the report in order to choose the most appropriate bid, preferably the highest, for the realization of the decree and costs. The Hon'ble Supreme Court of Pakistan has repeatedly held that the nature of a bid made in the auctions, whether it is the highest or the lowest, is that of an offer which does not by itself give rise to any rights to the bidders or auction purchasers, as the same is always subject to acceptance by the Court after proper application of its judicial mind and deposit of full purchase-money under Order XXI Rule 85, CPC. Reliance is placed on "Muhammad Attique versus Jami Limited" (PLD 2010 SC 993), wherein it was held that: ..... It is well settled that a bid made at an auction is in the nature of an offer which does not mature into a contract till its acceptance. The auctioneer acts as an agent of the seller to accept the bid, a concluded contract comes into being the moment the bid is accepted by a word of mouth or in any other customary method like fall..........hammer at public auction. If however the auctioneer is not vested with the power to accept the bid and said power is with another authority (i.e. the Court in a matter), the contract/sale comes into being when the bid is accepted by that authority......" .......................In an auction proceedings, title in the property not transferred in favour of the highest bidder, at the time when was held and offer was forwarded to the acceptance, the Court sale for immovable property under Order XXI Rule 84 is subject to proceedings under Order XXI Rules 89, 90 and 91, as result of which sale may either be set aside or confirmed. Once sale is confirmed, Section 65 C.P.C. provides that ownership right in the immovable property will be deemed to have vested in the succeeding bidder retrospectively from the date when auction was held." 18. In another pronouncement, the Hon'ble Supreme Court of Pakistan in "Afzal Maqsood Butt versus Banking Court No. 2, Lahore" (PLD 2005 SC 470), has held that "..........The bid in an auction is only an offer and without the confirmation of sale, it does not create any right in the property in favour of the successful bidder, therefore, the confirmation of sale cannot be claimed as of right."
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19. As far as the infringement of legal right of the highest bidder in the auction proceedings is concerned, reliance is placed on "Captain-PQ Chemical. Industries (Pvt.) Ltd versus Messrs A.W. Brothers and others" (2004 SCMR 1956), wherein it was held that: "We have examined the entire record also perused the judgment impugned. We may mention here at the outset that mere floating of the bid in respect of the fact whether it is the highest or the lowest, does not create a legal right in favour of the bidder, hence the question of its infringement does not arise." 20. The declaration of the highest bidder at the end of an auction is merely to let the participated bidders know who has to deposit the earnest money in terms of Order XXI Rule 84 of the "CPC". As to the creation of legitimate expectation in favour of the highest bidder to the sale of subject property, such expectation is of course created in favour of the highest bidder but against the other bidders, making him expect that his offer shall be accepted by the Court and the property in question against other bidders will he transferred in his name after all the legal requirements have been met. However, such expectation does not give rise to any right much less vested right in the property, for such rights to be created, only when a bid is accepted by the Court after proper application of its judicial mind. 21. While discussing the accrual of valuable rights in favour of the bidders, the Supreme Court of Pakistan in case titled "Muhammad Khalil versus Faisal M.B. Corporation" (2019 SCMR 321) held that: "We are not impressed by the argument of the learned Counsel for the Petitioner that by virtue of being declared the highest bidder and depositing the entire sale price in Court, valuable rights had accrued in favour of the Petitioner. It needs no reiteration that an auction is always…
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