AHMAD NADEEM ARSHAD, J. Through the instant Execution First Appeal (EFA), Muhammad Rizwan, Sadia Mai and Ruzina (appellants ) have called in question the validity , legality and propriety of an order dated 09.11.2017 (impugned order ) passed by the learned Judge, Banking Court-III, Multan (trial court ) on the basis of which objection petition submitted by appellants with regard to bank' s auction proceedings was dismissed.
2. Facts in brevity are that Zarai Taraqiati Bank/respondent No. 1 (Bank ) instituted a suit for recovery of Rs.4,03,582/-, which was decreed to the extent of Rs.3,59,199/- with costs of suit (Rs.16,157/-) and cost of funds till the date of realization vide a judgment and decree dated 11.12.2006. The decree was converted into execution petition. In order to realize the decree, the Bank sought permission to sell the mortgaged property itself in terms of Section 19(3) of the Financial Institution (Recovery of Finances) Ordinance, 2001, (Ordinance ) which was granted vide an order dated 20.08.2007 in the following manners: - "Learned counsel for the Decree-Holder stated that the financial institution wants to sell the mortgaged property itself under Section 19(3) of the Financial Institution (Recovery of Finances) Ordinance, 2001, therefore, the financial institution is directed to sell or cause the mortgaged property to be sold either by public auction or by sealed tenders and appropriate proceeds towards total or partial satisfaction of the decree. The decree-holder shall follow the procedure provided in Section 19 of the Financial Institution (Recovery of Finances) Ordinance, 2001, and the execution petition is adjourned sine die. However , the Decree-Holder shall be at liberty to get the Execution petition restored, if the decree is not satisfied through sale or auction"
3. The Bank conducted the auction on 27.12.2007 and submitted photocopy of report of auction proceedings before the learned trial court on 26.01.2008, who requisitioned the original record along with all relevant documents. The Bank when could not make compliance, the learned trial court adjourned the matter sine die vide an order dated 23.04.2010 with a direction to Bank to submit the record within one month positively . Later on, Mian Ashfaq Ahmed, Advocate/Purchaser (respondent No.2 ) moved an application to the trial court on 09.10.2013 seeking restoration of execution proceedings and confirmation of auction report . On this application reply was sought from the Bank.
4. In the meanwhile Zafar Iqbal (predecessor of appellants ) died so the appellants came forward and submitted the reply on 27.01.2015. On behalf of Bank Sardar Riaz Karim Advocate/legal adviser got his statement recorded on 21.01.2015 qua submission of original documents of auction proceedings. The crux of his statement was that copies already submitted in the trial court may be considered as original record of auction proceedings and that the Bank had no objection on issuance of sale certificate in favour of respondent No.2. Learned trial court in the light of that statement and in absence of appellants confirmed the auction proceedings vide an order dated 17.02.2015. On coming to know this order , appellants filed EFA (8 of 2015 ), which was dismissed as withdrawn vide an order dated 02.04.2015 as the appellants had desired to avail remedy by filing an objection petition before the learned trial court.
5. Appellant therefore approached the learned trial court who after hearing both the sides dismissed the objection petition and application for condonation of delay vide an order dated 11.11.2015 that was impugned by appellants before this Court through EFA (24/2015 ) and the matter was remitted to learned trial court vide an order dated 17.04.2017 with direction to decide both the applications of appellants afresh.
6. Finally the learned trial court framed as many as twelve issues on 08.06.2017 where after Muhammad Rizwan Raan ( Pw-1 ), Muhammad Amir-Area Patwari ( Pw-2 ) Muhammad Ashfaq ( Pw-3 ) Javed Ahmad (Pw-4), Riaz Hussain (Pw-5 ) Mr. Shafqat Ali Khan Advocate (Pw-6 ) came in witness box on behalf of appellants who also produced following documents: - Ex.P1 Affidavit of Muhammad Rizwan (Pw-1)
Ex.P2 Notice Ex.P3 Average sale price report, prepared by Patwari (Pw-2).
Ex.P4 Affidavit of Muhammad Ashfaq (PW -3)
Ex.P5 Affidavit of Javed Ahmad (Pw-4)
Ex.P6 Affidavit of Riaz Hussain (Pw-5)
Ex.P7 Copy of plaint Ex.P8 Attested copy of order dated 19.03.2015 Ex.P9 Original receipt dated 25.03.2015 Ex.P10 Attested copy of order dated 02.04.2015 Ex.P1 1 Order dated 23.04.2010 passed by High Court Ex.P12 Application for restoration of auction proceedings Mark-A Photostat copy of auction proceedings Mark-B Bid Sheet Mark-C Photostat copy of Proclamation of auction
7. Conversely , Mian Ashfaq Ahmad/ respondent No.2 attended the witness box as Rw-1 and produced Syed Amjad Ali Gillani Assistant Vice President/Manager ZTBL Multan Branch (Rw-2 ) and Allah Yar Khan, Vice President/Director Audit ZTBL (Rw-3 ) and tendered following documents: - Ex.R1 Report of bailiff on the summons in recovery suit Ex.R2/1 Signature on plaint of suit for rendition of account Ex.R2/2 Signature on verification of plaint Ex.R2/3 Signature on V akalatnama Ex.R3 Order of dismissal of suit dated 20.10.2010 Ex.R4 Petition for leave to defend the suit Ex.R5 Order dated 09.07.2016, dismissal of suit for non prosecution Ex.R6 Application for restoration of suit Ex.R7 Order dated 29.06.2012, dismissal of application for restoration Ex.R8/1-3 Process server report Ex.R9 Affidavit of Mian Ashfaq Ahmad, purchaser Ex.R10 Order dated 17.02.2017 Ex.R1 1 Attested copy of EF A Ex.R12 Order dated 02.04.2015 Mark-D Copy of Proclamation
8. Learned counsel for appellants, inter-alia contends that notice of auction was not given to the judgment- debtors/appellants; from the auction notice it is not clear that in which newspapers and on what date it was published; no date of auction is mentioned in this notice; agricultural land under mortgage was auctioned on throw away price; auction proceedings were not conducted at the spot rather the same were carried out in the branch of decree-holder/Bank; five properties were mentioned to be auctioned on 27.12.2007 out of which four were shown to be purchased by respondent No.2 and this fact alone is sufficient to establish that whole auction proceedings were conducted in a secret manner just to oblige the respondent No.2/purchaser who was an Advocate by profession; original report of alleged auction proceedings was not submitted within the stipulated period of 30 days; application for confirmation of auction was moved by respondent No.2/purchaser after about six years, which was time barred; the learned trial court while dismissing the objection petition did not consider the material points, hence the impugned order is liable to be set aside.
9. Conversely both learned counsel for respondents have supported the impugned order .
10. W e have heard learned counsel for the parties and perused the record with their able assistance.
11. Section 19(3) of the Ordinance (ibid) empowers the Financial Institution to auction the mortgaged property with or without the intervention of the Banking court either by public auction or by inviting sealed tenders. It is read as under: -
19. Execution of decree and sale with or without intervention of Banking Courts .--- (1).....
(2).....
(3) In case of mortgaged, pledged or hypothecated property , the financial institution may sell or cause the same to be sold with or without the intervention of the Banking Court either by public auction or by inviting sealed tenders and appropriate the proceeds towards total or partial satisfaction of the decree. The decree passed by a Banking Court shall constitute and confer sufficien t power and authority for the financial institution to sell or cause the sale of the mortgaged, pledged or hypothecated property together with transfer of marketable title and no further order of the Banking Court shall be required for this purpose"
12. Section 19(4) of the Ordinance provides a procedure of sealed tenders and it is as under:- "Where a financial institution wishes to sell, mortgaged, pledged or hypotheca ted property by inviting sealed tenders, it shall invite offers through advertisement in one English and one Urdu newspapers which are circulated widely in the city in which the sale is to take place giving not less than thirty days ' time for submitting offers. The sealed tenders shall be opened in the presence of the tenders or their representatives or such of them as attend; Provided that the financial institution shall be entitled in its discretion, to purchase the property at the highest bid received"
13. Likewise Section 19(5) of the Ordinance states as under: - "The provisions of sub-sections (5), (6), (7), (8), (9), (10), (11) and (12) of Section 15 shall, mutatis mutandis, apply to sales of mortgaged, pledged or hypothecated property by a financial institution in exercise of its powers conferred by sub-section (3)"
14. Section 15 of the Ordinance was declared unconstitutional by the Full Bench of this Court which was subsequently endorsed by the Honorable Supreme Court of Pakistan . In the light of dictum of the apex Court, Section 15 of the Ordinance (ibid) was substituted by Financial Institutions (Recovery of Finances) (Amendment)
Act (XXXVIII of 2016).
15. The Bank conducted the auction before the repeal of Section 15 which was applicable. Section 15 of the Ordinance (pre repeal ) was as under:- "Sale of mortgaged property . (1) In this section, unless there is anything repugnant in the subject or context--1 2
(a) "mortgage " means the transfer of an interest in specific immovable property for the purpose of securing the payment of the mortgage money or the performance of an obligation which may give rise to a pecuniary liability;
(b) "mortgage money " means any finance or other amounts relating to a finance, penalties, damages, charges or pecuniary liabilities, payment of which is secured for the time being by the docu ment by which the mortgage is effected or evidenced, including any mortgage deed or memorandum of deposit of title deeds; and (c) "mortgage property " means immovable property mortgaged to a financial institution.
(2) In case of default in payment by a customer , the financial institution may send a notice on the mortgagor demanding payment of the mortgage money outstanding within fourteen days from service of the notice, and failing payment of the amount within due date, it shall send a second notice of demand for payment of the amount within fourteen days. In case the customer on the due date given in the second notice sent continues to default in payment, financial institution shall serve a final notice on the mortgager demanding the payment of the mortgage money outstanding within thirty days from service of the final notice on the customer .
(3) When a financial institution serves a notice of demand, all the powers of the mortg agor in regard to recovery of rents and profits from the final mortgaged property shall stand transferred to the financial institution until such notice is withdrawn and it shall be the duty of the mortgagor to pay all rents and profits from the mortgaged property to the financial institution. Provided that where the mortgaged property is in the possession of any tenant or occupier other than the mortgagor , it shall be the duty of such tenant or occu pier, on receipt of notice in this behalf from the financial institution, to pay the rent or lease money or other consideration agreed with the mortgagor to the financial institution.
(4) Where a mortgagor fails to pay the amount as demanded within the period prescribed under sub-section (2), and after the due date given in the final notice has expired, the financial institution may, without intervention of any Court, sell the mortgaged property or any part thereof by public auction and appropriate the proceeds thereof towards total or partial satisfaction of the outstanding mortgage money; Provided that before exercise of its powers under this subsection, the financial institution shall cause to be published a notice in one reputable English daily newspaper with wide circulation and one Urdu daily newspaper in the Province in which the mortgaged property is situated, specifying particulars of the mortgaged property , including name and address of the mortgagor , details of the mortgaged property , amount of outstanding mortgage money , and indicating the intention of the financial institution to sell the mortgaged property . The financial institution shall also send such notices to all persons who, to the knowledge of the financial institution, have an interest in the mortgaged property as mortgagees.
(5) The financial institution shall be entitled, in its discretion, to participate in the public auction, and to purchase the mortgaged property at the highest bid obtained in the public auction.
(6) Where the mortgagor or his agent or servant or any person put in possession by the mortgagor or on account of the mortgagor does not voluntarily give possession of the mortgaged property sought to be sold or sought to be purchased or purchased by the financial institution, a Banking Court on application of the financial institution or purchaser shall put the financial institution or purchaser , as the case may be, in possession of the mortgaged property in any manner deemed fit by it.
Provided that the Banking Court may not order eviction of a person who is in occupation of the mortgaged property or any part thereof under a bona fide lease, except on expiry of the period of the lease, or on payment of such compensation as may be agreed between the parties or as may be determined to be reasonable by the Banking Court.
Explanation. (1) Where the lease is created after the date of the mortgage and it appears to the Banking Court that the lease was created so as to adversely affect the value of the mortgaged property or to prejudice the rights and remedies of the financial institution, it shall be presumed that the lease is not bona fide, unless proved otherwise.
(7) For the purpose of execution and registration of the sale-deed in respect of the mortgaged property , the financial institution shall be deemed to be the duly authorized attorney of the mortgagor and a sale-deed executed and presented for registration by duly authorized attorneys of the financial institution shall be accepted for such purposes by the Registrar and Sub-Registrar under the Registration Act, 1908 (XVI of 1908).
(8) Upon execution and registration of the sale-deed of the mortgaged property in favour of the purchaser all rights in such mortgaged property shall vest in the purchaser free from all encumbrances and the mortgagor shall be divested of any right, title and interest in the mortgaged property .
(9) Net sale proceeds of the mortgaged property , after the deducting all expenses of sale or expenses incurred in any attempted sale, shall be distributed ratably amongst all mortgagees in accordance with their respective rights and priorities in the mortgaged property . Any surplus left, after paying in full all the dues of mortgagees, shall be paid to the mortgagor .
(10) A financial institution which has sold mortgaged property in exercise of powers conferred herein shall file proper accounts of the sale proceeds in a Banking Court within thirty days of the sale.
(11) All disputes relating to the sale of the mortgaged property under this section including disputes amongst mortgagees in respect of distribution of the sale proceeds, shall be decided by the Banking Court.
(12) Neither the Banking Court nor the High Court shall grant an injunction restraining the sale or proposed sale of mortgaged property unless---
(a) it is satisfied that no mortgage in respect of the immovable property has been created; or
(b) all moneys secured by mortgage of the mortgaged property have been paid; or
(c) the mortgagor or objector deposits in the Banking Court in cash the outstanding mortgage money .
(13) The rights and remedies provided under this section are in addition to, and not in lieu of, any other rights or remedies a financial institution may have under this Ordinance.
(14) The provisions contained in this section shall have effect notwithstanding anything contained in this Ordinance."
16. As discussed above Section 19(5) of the Ordinance by reference has incorporated certain provisions of sub- sections 5 to 12 of Section 15 and made those applicable to the sale of mortgage, pledge, hypothecated properties by the financial institution. In case of any possible conflict and repugnancy i.e. Section 19(3) and Section 15 as adopted by Section 19(5), the latter in sequential will prevail.
17. We have observed that the decree-holder/Bank failed to comply with the procedure as provided by the Ordinance while conducting the auction proceedin gs itself without intervention of the Banking Court. From the perusal of proclamation (Mark-D ) that is a notice to the public for auction , it is abundantly clear that it does not contain any date of auction. However , in copy of proclamation of auction (Mark-C ) there is the date of auction as 27.12.2007. It is also not clear in which Newspapers this auction notice was publish ed and what was the date of its publication. These were the mandatory requirements which were completely ignored by the decree-holder/Bank while conducting the auction proceedings. The object and purpose of proclamation is nothing but to have a fair and transparent auction so as to eliminate all chances of any fraud, maneuver at the costs of rights and interest of the judgment-debtor . The mortgage property was valuable agricultural land and could have attracted many buyers, in case of proper advertisement. Undeniably , the notice of auction was not published in any newspapers. Examination of notice of auction also shows that the same did not take place at the location of property under auction. On the contrary these proceedings were conducted in the premises of the decree-holder/Bank which alone has raised multiple questions on fair process and made it highly doubtful.
18. The proclamation and auction proceedings were conducted by the Bank in contravention of Section 19 of the Ordinance . No notice was ever issued to the judgment-debtors/appellants with regard auction. The appellants, right from day one of auction raised the voice that proceedings were not conducted in a fair and transparent manner but just to oblige respondent No.2/purchaser and that too on throw away price causing substantial injury and loss to them.
19. Law defines that how proclamation is to be drawn up and what measures are to be by taken so as to satisfy the decree without prejudicing rights and interest of the judgment-debtor or any other person, having interest in such property . The procedure adopted by the Bank in conducting the auction therefore was alien to the Rules, as framed in this regard.
20. Furthermore, in this case the original report and relevant documents of auction proceedings were not made part of the court proceedings for issuance of 'Confirmation Certificate' in favour of respondent No.2/purchaser with regard to sale of property of the judgment-debtors. Record further reveals that learned trial court in exercise of its powers merely on the statement made on oath by Manager (Rw-2 ) confirmed the entire auction proceedings. The aforesaid act was seriously objected by the judgment-debtors but learned trial court turned down their objection without taking into consideration the lapses done by the Bank. During arguments when confronted with these factual aspects, learned counsel for decree-holder/Bank was unable to satisfy us.
21. In the given facts and circumstances of the case, we hold that the auction was not conducted in accordance with law, the property under sale was sold at a throwaway price which was not fair, transparent and above board, which has caused serious miscarriage of justice.
22. The learned trial court while passing the impugned order admitted that many irregularities were committed by the Bank while conducting the auction proceedings; despite passing of directions by the court for furnishing original documents of auction proceedings, the Bank failed to produce the same; the Bank failed to place on record any notice issued to the judgment debtors prior to auction proceedings; even in the proceedings of auction nowhere it was mentioned that notice was given to the judgment debtors. Despite all this the learned trial court wrongly concluded that the Bank had filed the statement of proper accounts ( R3) hence findings are against the record.
23. Allah Yar Khan/ Bank Manager who appeared as Rw-3 admitted that auction proceedings were conducted in the branch of Bank. He deposed that auction proceedings were addressed to the court on 27.12.2007 and submitted on 26.01.2008, meaning thereby that only auction report was produced whereas, requirement of law is to furnish the proper accounts of the sale proceeds in the Banking Court within 30 days of the sale. He further stated that auction proceedings of all properties were conducted collectively and details of deposit of bid amount was not mentioned in the report (R-13 ); notice of auction was not available with the report; he did not remember the date when notice of auction was sent to the judgment debtors; he did not remember also the name of newspapers and its date of publication; he did not know when copies of proclamation of auction were pasted on different places and spots; he did not pass any order of confirmation of auction inspite of the fact that auction was conducted by the Bank itself without intervention of the court.
24. The learned trial court failed to consider while passing the impugned order that the judgment debtors in compliance of the order dated 19.03.2015 (P8) passed by this court in EFA (8 of 2015 ) deposited the amount under decree that is Rs.3,94,124/- and 5% of auction price on 25.03.2015 before the said court.
25. The august Supreme Court of Pakistan while taking notice of serious legal as well as procedural errors committed during the execution proceedings and conducting the auction was pleased to observe as under: - "The learned counsel for the respondents have not been able to specifically deny either the evaluation report or DC rates or the fact that the property was sold for an amount much less than its real value. They have laid much stress on technicalities and asserted that the application under Order XXI, Rule 89, C.P.C was barred by time. However , we have come to the conclusion that the auction was not properly conducted. The property was sold at a throwaway price in an auction which does not prima facie appear to be fair, transp arent and above board. We are convicted that serious legal and procedural errors were committed at all stages of the execution proceedings which has caused serious miscarriage of justice. We cannot close our eyes to the same. We are not inclined to agree with the assertions of learned counsel for the respondents, who has relied on mere technicalities to support his case. In this context, we may refer to Imtiaz Ahmed v . Ghulam Ali (PLD 1963 SC 382 ) wherein it was held as follows: - "The proper place of procedure in any system of administration of justice is to help and not to thwart the grant to the people of their rights. All technicalities have to be avoided unless it be essential to comply with them on grounds of public policy . Any system, which by giving effect to the form and not to the substance defeats substantive rights is defective to that extent "
For reasons recorded above, while setting aside the impugned judgment of the High Court dated 28.04.2016; we convert this petition into an appeal and allow the same. The matter is remanded to the executing Court i.e. Judge, Banking Court, Bahawalpur with the direction to conduct a fresh auction in accordance with law. The auction purchaser/respondent No.2 shall have the right to participate in the fresh auction (if he so desires). He shall also be given the right of first refusal if he matches the highest bid. In the event he does not wish to participate in the fresh auction or exercise his right of first refusa l, the respondent-Bank shall refund to him the entire amount paid by him3 together with mark up at the rate fixed by the State Bank of Pakistan from the date of the auction till the amount is refunded to him. Likewise, the respondent-Bank shall also have the right to claim cost of funds in accordance with the judgment and decree passed by the Banking Court"
26. Concluding the discussion made above, this appeal is allowed . Impugned order dated 09.11.2017 is set aside.
Resultantly , auction proceedings held on 27.12.2007 are also set aside. Matter is remanded to the learned trial court with direction to calculate the remaining amount under decree in the light of judgment and decree dated 11.12.2006 by excluding the amount stated to have been deposited by the appellants/judgment debtors in compliance with order dated 19.03.2015 of this Court passed in EFA No.08 of 2015. The amount, if already deposited by the appellants/judgment debtors, shall be disbursed to the decree-holder/the Bank. If the judgment debtors fail to deposit the remaining amount, then learned trial court shall adopt proper procedure for realization of the amount in accordance with law applicable thereto. If the mortgaged properties are put to auction again in realization of remaining amount, the purchaser/respondent No.2 shall have a right to participate therein. He shall also be given the right of first refusal if he matches the highest bid. If the mortgage properties are not put to auction or put to auction and he does not wish to participate or exercises his right of first refusal, the decree-holder/Bank shall refund to him the entire amount paid by him together with mark up at the rate fixed by the State Bank of Pakistan from the date of deposit till the amount is refunded to him. Likewise, the Bank shall also have the right to claim costs of funds in accordance with the judgment and decree passed by the learned trial court after deducting and considering the amount deposited by the appellants on 25.03.2015. No order as to cost. Muhammad Umer Rathore vs. Federation of Pakistan 2009 CLD 257 National Bank of Pakistan & 1 17 others vs. SAF T extile Mills Ltd. and another PLD 2014 SC 283 Siraj Ahmed through L.Rs. vs. Faysal Bank Limited & others PLD 2018 SC 91