1. MUSHIR ALAM, J.--- Execution No,55 of 1977 was filed by State Life Insurance Corporation of Pakistan, the decree-holder against Hussain Mumtaz judgment-debtor, in Suit No,111 of 1972, decreed on 24-2-1975.
2. Under orders of the Court, Nazir auctioned the judgment- debtor's property bearing No,23, Moulvi Tamizuddin Khan Road, Karachi in the sum of Rs,1,21,52,000. After almost eleven years of exercise, sale was approved on 16-8-1992 and confirmed on 17-9-1992 in favour of Trade Sea (Pvt.) Ltd. nominee of Rotocast Engineering Company for a total sale consideration of. Rs,1,21,52,000. Sale proceeds are lying with the Nazir of the Court. Order dated 18-3-1998 records satisfaction of the Execution 55 of 1977 seemingly as a result of out of Court settlement between the decree-holder and judgment-debtor. However, numbers of claimants including holder of decrees against the same judgment-debtor, who had lodged their claims are competing for the undisturbed sale proceeds. In the instant case, it appears that though the property was sold pursuant to a mortgage decree in Suit No,111 of 1972 (Ex.55 of 1979) and was subject to charge of K.P.T. but said the decree, as stated above, was satisfied otherwise in an out of Court settlement. However, sale proceeds as realized could not be disbursed amongst various claimants, decree-holders, legal heirs of judgment-debtor on account of disputes and controversies inter se and so also between the auction-purchaser agitated up to Honourable Supreme Court. Same being not relevant for the purpose of present controversy are not dilated upon. Controversy that remains to be resolved now is the order of priority claim amongst (a) Allied Bank of Pakistan (b) Karachi Port Trust (c) United Bank Limited (d) Employees Union of National Tire and Rubber Company and (e) Mrs. Mirret Zaki, one of the legal heirs of the judgment-debtor.
3. Pursuant to direction of Court dated 15-5-2001 Nazir investigated the claims of all the interested parties against the same judgment-debtor and made a report dated 22-9-2001 presented on 25- 9-2001. The Nazir report could be summarized as follows:--
(1) Allied Bank of Pakistan holds a money decree dated 12-3-1985, in Suit No,58 of 1982, in the sum of Rs,38,12,515. Ex.No,50 of 1985 is pending.
(2) Karachi Port Trust holds a money decree (in Suit No,228 of 1983 in the sum of Rs,15,533,200 being rent from January, 1978 to December, 2000 Rs,42,38,626 and interest on the said amount Rs,13,14,336 apart from this, the Karachi Port Trust claims Rs,1.10,000 as Chowkidar charges and; Rs,879,238 claimed as cost of proceeding as per lease agreement, Ex. No,45 of 1985 is pending.
(3) Messrs United Bank Ltd . holds a mortgage decree, dated 17-11-1989 in Suit No,352 of 1998 in the sum of Rs,3,84,44,445 in respect of Plot No,23 Moulvi Tamizuddin Khan Road, Karachi. Execution No,20 of 1991 pending.
(4) Apart from above mortgage Degree U.B.L. also holds a money decree, dated 5th July, 1988 for Rs,24,53,411 in Suit No,874 of 1980.
(5) Employees Union of Messrs National Tyre and Rubber Company has also filed a claim in respect of salary of workers fora sum of Rs,72,92,452 they do not hold any decree or adjudication of their claim by any competent Court of law.
(6) Mrs. Mirret Zaki one of the legal heir of the judgment-debtor, claims the residue.
4. Mr. Kazim Hassan, learned counsel appearing for the claimant at serial No,3 the United Bank (mortgage decree-holder) claimed priority in terms of Order XXXIV, rule 13, C.P.C. In support of his arguments he placed reliance on the case reported as I.D.B.P. v. Maida (Pvt.) Ltd. 1994 SCM R 2248.
5. Mr. Arif Khan, Advocate, appearing for the K.P.T. seriously pitched his rival claim on the strength of section 46 of the K.P.T. Act, read with terms of the lease. He also extracted support from Rule 337 of Sindh Chief Courts Rules read with Order of the Court dated 3-8-1986, whereby claim of K.P.T. was directed to be notified in the auction notice.
6. Mr. Shawaun Nabi, Advocate, appearing for the Labour Union of the judgment-debtor Company also claimed the priority on the strength of section 405 of the Companies Ordinance, 1984, the Provident Fund Act, 1925 and Fatawa of Darul Uloom, Banori Town, Karachi.
7. Mr. Asim Mansoor, Advocate, appearing for the Allied Bank of Pakistan, holding a money decree against the judgment-debtor in Execution No,50 of 1985, fairly concedes that money decrees ranks after the mortgage decree. He however, claims reimbursement of salary of Chowkidar, employed for the protection of mortgaged property, paid under directions of the Court. All the learned counsel were heard and their respective contentions examined. Admittedly, the mortgaged property was sold at the motion of State Life Insurance Corporation in Ex.No,55 of 1977 and the sale was confirmed on 17-11-1989.
8. The manner in which sale proceeds are to be appropriated or distributed in case of mortgaged decree is catered for in terms of Order XXXIV, rule 13, C.P.C. However, where more than one decree- holder vying for the sale proceed of an execution sale, the situation is catered for under section 73, C.P.C. It sets out the manner in which proceeds of execution sale are to be ratably distributed amongst decree-holders who applied to the Court before the sale. It would be beneficial to browse through section 73, C.P.C. to appreciate rival contentions of the claimants.
9. "Section 73. Proceeds of execution sale to be ratably distributed among decree-holders.--- (1)
10. 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 ratably distributed among all such persons: Provided as follows:
(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 the 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 encumbrance 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 principal monies due on subsequent encumbrances (if any); and Fourthly, ratably 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 ratably distributed under this section are paid to a person not entitled to recei1J 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 Government. An inter se priority amongst various categories of claimants in appropriation of the decretal amount is determined on the basis of law and contract.
11. On examination of the section 73, C.P.C., it appears that, on sale of mortgaged or charged property, foremost amount that could be appropriated before settling any other claim is towards payment of all expenses incidental to the sale or properly incurred in any attempted sale, It includes Nazir's fee expenses incurred in inviting bids or sealed tender, publication of sale proclamation; or handbills, expenses incurred in protecting and preserving the property including the Chowkidar Salary, or charges for the Security Guards, if any, payment of rental or lease money if any.
12. Second head of account is towards payment of all interest due on account of the mortgage in consequence whereof the sale was directed and of the cost of the suit in which the decree directing the sale was made. Followed by payment towards the principal due on account of the mortgage in consequence 'whereof the sale was directed is third in the order of priority.
13. Fourthly in discharge of the interest and principal amount due on subsequent mortgage or encumbrance if any, in case there are more than one such person than to such persons according to their respective interests therein in sequence of priority of mortgage or encumbrances.
14. In a leading case on the subject cited as I.D.B.P. v. Maida (Pvt.) Limited 1994 SCM R 2248, apex Court ruled that, in case amount claimed is a charge on the property sold, then it will have precedence over other claimants including mortgagee. In this view of the matter claim of K.D.A., KW&SB and WAPDA were rejected being not a charge on the property tinder relevant laws as against the claim of Property Tax, being charge on the property under the Urban Immovable Property Tax Act, 1958.
15. In the light of the above discussion, contentions of learned counsel were examined.
16. Mr. Kazim Hassan learned counsel appearing for U.B.L. placed heavy reliance on case reported as I.D.B.P. v. Maida (Pvt.) Limited 1994 SCM R 2248. He contends that, U.B.L. holds a mortgage decree is entitled for priority in settlement of its claim as against K.P.T., A.B.L., and all other claimants.
17. According to him, K.P.T. and A.B.L. holding money decrees will only be entitled to residue, if any left.
18. As regard employees union of the liquidated company, it was contended that, they do not rank anywhere in the list of priority over mortgagee and money decree-holders.
19. As against above, Mr. Arif Khan, learned counsel appearing for K.P.T. relying on the same judgment of I.D.B.P. v. Maida (Pvt.) Limited (supra) contends that a person not party in a proceeding may always seek to join such proceedings in terms of Rule 323 of SCCR (0.S.). He further contends that, such principle was approved in the cited case of I.D.B.P. v. Maida (Pvt.) Limited (supra). According to him, even before the property was put to auction, K.P.T. intervened in the matter and in fact at their motion Court directed to mention the claim of K.P,T. in the sale proclamation and declared its priority over other claimants. Mr. Arif Khan, learned counsel for K.P.T. relying on the same judgment of I.DB.P. v. Maida Ltd. urged that, in terms of the above quoted Sindh Chief Courts Rule K.P.T. entered into in appearance and lodged its claim, therefore, they have every right to claim priority over any other claim. To appreciate his contention, Rule 323, Sindh Chief Court Rules (0.S.) is reproduced as follows:-- "An incumbrancer, not party to the suit, may at any time before sale apply to the Court to be made a party or for leave to join in the sale; and such order shall be made thereon and in protection of his rights and as to the costs to the Judge shall deem fit."
20. Mr. Arif, therefore, contends that unlike in the referred 'case, K.P.T. had intercepted in the instant proceedings before the property was put to sale. He has drawn my attention to order, dated 3-8- 1986 passed in Ex.No,55 of 1977, which reads as follows:-- "I accordingly direct that, in next auction notice of the properties the charges and amount of lease money due to the K.P.T. be shown and it should be clarified in the public notice that these charges will be first charge on the property to be paid in priority to all the other claims. The application filed by the intervenor (Yousuf Haji Ismail) is accordingly disposed off. The sale proclamation be issued in line of above observation."
21. In addition to above, he has drawn my attention to clause 21(g) of the lease, to urge that in terms thereof "The Board shall have the first charge upon all buildings, erection, structure and/or properties on the premises and the proceeds thereof for the payment of all money due and/or in accordance with these presents or otherwise from the tenants and for due performance of the covenant herein contained". (Underlined to add emphasis).
22. He further points out that in terms of clause 16, of the lease no mortgage/charges could have been(?) made without written permission from the Board first obtained, it was, therefore, urged that the mortgagee was aware of the charge of K.P.T. He also extracts support from section 46 of the K.P.T. Act, 1886.
23. He, therefore, urged that dues of K.P.T. are charge over the property both under the K.P.T. Act as well in terms of restrictive covenant in the lease. Clause 16 provides that, "there can be no mortgage without permission of the Board, and in case any mortgage is created, it is subject to lien or charge of K.P.T. It was argued that, the Court recognized the dues of the K.P.T. as priority charge and encumbrance over any other claim as per Rule 323 of SCCR (U.S.).
24. In the case of I.D.B.P. the apex Court did not approve claims of K.E.S.C., KW&SB and K.D.A., for the reason that, none under the respective statute had a lien or charge over the property in respect of utility services provided nor they held any money decree.
25. As against the mentioned "Authorities" apex Court found that, dues as regard tax on property, under the Urban Immovable Tax Property Act, 1958 have a first charge over the property in supersession of anything contained in any law or contract.
26. At page 2252 of the cited judgment, it was held "inter se priority amongst the claimants in appropriation of decretal amount can be claimed either on the basis of law or on contract. At presently no claim is based on contract we ignore this aspect of the case. The claimants can succeed over a mortgagee decree-holder provided such right has been conferred on them in suppression of the right of such mortgagee, which he enjoys under law."
27. Apex Court after examining section 16 of the Urban Immovable Property Tax Act, 1958, held that, "Subsection (4) in clear terms provides that, any tax surcharge due under this Act shall have a first charge upon the building in suppression of anything contained in law or contract. Therefore, any right conferred by any law or contract, which is in conflict with the priority conferred by this provision cannot be enforced against a claim for recovery of tax, surcharge or penalty due under this Act."
28. Upshot of above discussion, makes it clear that, a statutory claim for the recovery of tax, surcharge penalty or dues have precedence over the priorities amongst the secured creditors like mortgagee as set out under section 73, C.P.C. This is also clear from the language of subsection (2) of section 73, C.P.C., which concedes right of the Government dues over all other claims. Government as used in section 73(2), C.P.C., in the context appears to include local or other authorities as are by law empowered to impose or levy any tax, cess, charge or dues.
29. On examining the scheme of the K.P.T. Act, it appears that section 46 of the K.P.T. Act, 1886, in context of the case is relevant, which runs as follows:-- "46. Board's lien for tolls and charges.--- For the amount of all tolls, dues, rates and charges leviable under this Act in respect of any goods; the Board shall have a lien on such goods, and shall be entitled to seize and detain the same until such tolls, dues, rates and charges are fully paid and for the amount of rent lawfully due on buildings, plinth, stockings areas and other premises, the property of the Board, and not paid after bills therefor have been duly preferred, the Board shall have a lien on all goods, therein or thereon, and shall be entitled to seize and detain the same.
30. Tolls, dues, rates and charges in respect of goods to be landed shall become payable immediately on the landing of the goods and, in respect of goods to be removed from the premises of the Board or to be shipped for export, shall be payable before the goods are removed or shipped.
31. The lien for such tolls, dues, rates and charges shall have priority over all other liens and claims, except a lien for freight primage and general average, where such lien has been preserved in the manner hereinafter provided, and a lien for money payable to the Federal Government under any law for the time being in force."
32. Examining the instant case, it appears that the K.P.T. dues were determined and decreed in their favour in Suits (i) No,94 of 1985 decreed on 1-6-1986 (Ex.86 of 1987), (ii) Suit No,768 of 1981 decreed on 22-2-1984 Ex.65 of 1986, (iii) Suit No .228 of 1983 decreed on 4-6-1984 Ex. No,45 of 1985, and (iv)
33. Suit No,1021 of 1989 decreed on 12-11-1990, Ex. No,93 of 1991. In the instant case, in terms of section 46 of the K.P.T. Act, the amount of rent lawfully due on the building plinth, stacking area and other premises of the Board and not paid have lien and shall have priority over all other liens and claims.
34. Except for freight primage and general average or money payable to the Federal Government under any law for the time being in force. Therefore, in light of the principle laid down in the case of I.D.B.P. (supra), K.P.T. has established that, it has a statutory lien for the amount due and established through Court, holding money decrees. The K.P.T. before the sale of mortgage property had also brought to the notice of the Court its encumbrance/charge over the subject property for the amount due on application of K.P.T. in Ex.No,55 of 1977, on 3-8-1986, the Court directed that "in next auction notice of the properties the charges and amount of lease money due to the K.P.T. be shown and it should be clarified in the public notice that, these charges will be first charge on the property to be paid in priority to all the other claims, to which it appears that neither U.B.L. nor any other claimants took any exception. On the contrary, it appears that this Court vide order, dated 12- 4-2002 directed the payment of the sale proceeds pro rata amongst (i) U.B.L. (ii) K.P.T. (iii), A.B.L. and (iv) Worker Wages. However, said order by consent was set aside in H.C.A. No,120 of 2002 on 28-2-2003.
35. Under circumstances K.P.T. succeeded to establish its priority over the mortgage decree-holder, as such right has been conferred on them in supersession of the right of such mortgagee under K.P.T.
36. Act as well as under the covenant contained in the registered lease, to which the mortgagee had notice.
37. Now examining the claim of Employees Union of National Tyre and Rubber Company. Mr. Shawan- un-Nabi learned counsel appearing for Intervenor was required to show the entitlement of the employees union over the property of the judgment-debtor. Mr. Shawan-un-Nabi learned counsel has drawn my attention to the order, dated 16-9-1990 in Suit No,487 of 1970. It appears that vide the referred order, the property of the judgment-debtor was attached, and it was ordered to be dealt with in accordance with law. He, therefore, contends that the union is also entitled to claim their share. He has further drawn my attention to section 405 of the Companies Ordinance, 1984 which lays down the order of priority in disbursing the realized amount. It was urged that the salary and wages of the employees and workers rank second on the priority list after the revenue and taxes due from the company to Federal and Provincial Governments and Local Bodies.
38. It may be observed that order of priorities as set down in section 405 of the Companies Ordinance, 1984 would only apply in cases where the amount realized is a result of winding up of the company.
39. Where the assets and property of a company are sold in a mortgage suit or against a money claim then priority is determined in accordance with Order XXXIV, rule 13, C.P.C. section 73, C.P.C. and section 57 of the Transfer of Property Act, as the case may be. Admittedly in the instant case, the property of the judgment-debtor was sold in a mortgage suit filed by the State Life Insurance Corporation and not as a result of winding up proceedings. Therefore, the priority as claimed by the employees union under section 405 of the Ordinance, 1984 would not be attracted in the instant case.
40. In view of the discussion made above, sequential order of priority amongst various claimants in a nutshell could give set down as (a) all expenses incidental to the sale and preservation of mortgage property, (b) payment of all interest due on account of the mortgage and of the cost of the suit in which the decree directing the sale was made (c) principal due on account of the mortgage in consequence whereof the sale was directed (d) interest on subsequent mortgage (e) principal amount due on subsequent mortgage or encumbrance according to respective interests therein in sequence of priority of mortgage or encumbrances. (f) Residue, if any, amongst holder of money decree followed by (g) Unsecured creditors and left over, if any to the (h) judgment- debtor.
41. It may, however, be observed that, Government and Statutory liability creating charge or lien over the property has precedence over the liability of secured or the contractual creditors. However, such priority would not be available if it is created and raised subsequent to a charge on the property. In the instant case, the terms of registered lease, which was subject to mortgage, contained restrictive covenants and the mortgagee was bound by the terms of lease that, included liability to pay the rent due. See Abu Miyan v. Abdul Ghani PLD 1974 Kar. 39, Habib Bank Ltd. v. Rudolf Donhi (1999) 80 Tax 99, Shanti v. K.T.C. 2000 CLC 595. Only those decree-holders are entitled to claim share in the proceed of the execution sale, who have prior to the sale of the property applied to the Court, which passed decree ordering such sale for execution of such decrees, and have not obtained satisfaction thereof. However, an incumbrancer, not party to the suit may at any time before the sale, apply to the Court, seized of the property to be sold, to be made a party or for the leave to join the sale. The Court, on such application, shall pass an order as may be appropriate in protection of his rights and as to costs. See Rule 323, of Sindh Chief Courts Rules (0.S.). Condition to approach the Court prior to sale may also be not attracted in case of statutory or governmental liability that is charge on the property. In the instant case all the claimants have approached the Court before the subject property was put to sale, therefore, their priorities, in the light of discussion would be as follows.
42. First claim in the order of priority is reimbursement of expenses incurred in sale and proper conduct thereof. Nazir, to calculate the amount contributed by each of the decree-holder/claimants including State Life Insurance Corporation, K.P.T., U.B.L. and A.B.L. towards the sale of property and towards the preservation and protection of property, including Nazir fees, publication of sale proclamations, Chowkidar/Security charges etc. The amount contributed by all the parties under such head of account to be paid first.
43. Next priority is towards Government dues followed by statutory liability that is charge or lien over the property sold coupled with contractual liability as contained in the lease. As discussed above in terms of section 45 of the K.P.T. Act, dues of K.P.T. as determined and decreed in various suits, execution whereof are pending are to be reimbursed and would rank top on the list of decree- holders.
44. Further more beside statutory priority, dues of K.P.T. ranks top on the ladder of priority, in view of the order, dated 3-8-1986 passed in Ex.No,55 of 1977 as reproduced above.
45. Next priority is towards payment of all interest due on account of the mortgage and of the cost of the suit in which the decree directing the sale was made and the principal amount due on account of the mortgage in consequence whereof the sale was directed. Since the property was sold at the motion of the State Life Corporation, in the instant execution filed by it, and whose judgment and decree was satisfied out of Court as noted above. No amount is claimed by the decree-holder, in the instant proceeding, therefore, no amount is due and payable against such head of account.
46. After appropriation of cost and expenses, and payment of K.P.T. dues as decreed, any amount left, be paid to the U.B.L. towards interest and principal amount under the mortgage decree, dated 17- 11-1989 in Suit No,352 of 1998 (Execution No,20 of 1991 pending).
47. Balance if any to be apportioned prorate, amongst the holder of money decree namely U.B.L. (in Suit No,874 of 19,80 and A.B.L. (in Suit No,58 of 1882). Residue if any, be disbursed prorate to the unsecured creditors i,e, employees/workers and left over, if any to the judgment-debtor.
48. All the parties are directed to assist the Nazir with settlement and calculation of the amount due and payable in order to priority as determined above. After calculation of the amount due to each party Nazir may encash the invested amount of sale proceed and pay to the claimants respectively in accordance and in order to priority determined above.
49. Order accordingly. All the Execution applications being numbers 55 of 1977, 86 of 1987, 65 of 1986, 45 of 1985, 93 of 1991, 50 of 1985 and Ex.No,20 of 1991 respectively stand disposed of, in terms above, along with all pending applications.