' JAWWAD S. KHAWAJA, J.---This judgment shall dispose of the following appeals:---
(1) FAO No,208/2001 titled Ch. Muhammad Bashir v. Citibank etc.
(2) FAO No,361/2001 titled Muhammad Idrees-ul-Haq v. Citibank etc.
2. In order to dispose of the aforesaid matters a brief narration of facts leading up to the filing of the same is necessary. The dispute in these matters relates to property known as Arain Plaza, 109- A, Ferozepur Road, Lahore. The said property comprises of 1 Kanal of land on Main Ferozepur Road, Lahore, together with a covered area of approximately 10,000 sq. Ft., constructed thereon. It was owned by Ch. Muhammad Saleem Akhtar (the "judgment-debtor") and was mortgaged by him in favour of Citibank (the "Bank") to secure a finance facility availed by the judgment-debtor. Upon the failure of the judgment-debtor to repay the finance facility, the Bank instituted a suit for the recovery of Rs,13,54,835 against the judgment-debtor, inter alia, through sale of the aforesaid mortgaged property. The Banking Court No,IV at Lahore passed a decree for a sum of Rs,13,54,835 in favour of the Bank. Thereafter on 2-6-1998 the Bank filed an execution petition in which it prayed, inter alia, for the sale of the mortgaged property to satisfy the aforesaid decree. Under orders of the Court the property was purportedly auctioned on 16-6-2001, though this fact is disputed by the appellants who contend that no auction in fact, took place. Ch. Ahmed Nadeem, who is the brother of the judgment-debtor, statedly made a bid of Rs,12,30,000 at the auction and was declared to be the highest bidder.
3. Ch. Muhammad Bashir, who is the appellant in FAO No,208/2001, filed an objection petition against the aforesaid sale. He claimed he had entered into an agreement with the judgment- debtor on 28-3-1998 and pursuant to such agreement had made an investment of Rs,55,00,000 in raising a commercial building at the site. He further claimed he had been put in possession of the property by the judgment-debtor for the purpose of construction and for arranging sales of shops after the construction of a commercial building at the site.
4. It was also asserted by Ch. Muhammad Bashir objector that after construction had been completed, the sale mentioned below in respect of portions of the disputed property had taken place prior to the filing of his objection petition:--
(a) Sale, dated 19-10-1999 through registered Sale Deed, in favour of Tallat Iftikhar in respect of one shop measuring 200 sq. Ft., for a total consideration of Rs,1,82,000.
(b) Sale, dated 7-10-1999 through registered Sale Deed, in favour of Tallat Iftikhar in respect of one ship measuring 182 sq. Ft. For a total consideration of Rs,1,00,000.
(c) Sale, dated 2-12-1999 through registered Sale Deed, in favour of Muhammad Idrees-ul-Haq in respect of one shop measuring 2.5 Marlas for a total consideration of Rs,5,00,000.
' Mst. Nusrat Bibi, who is applicant in C.M. No,6-C/ 2001 in FAO No,208/2001, also purchased one shop measuring 1 Marla 102 sq. Ft., for a total consideration of Rs,1,75,000 vide sale deed registered on 24-8-1999.
5. The objection petition filed by Ch. Muhammad Bashir was dismissed by the learned Banking Court on 13-7-2001. The reason for the dismissal, which prevailed with the learned Banking Court was that a mere agreement to sell did not create any title in favour of the objector. It was, therefore, held that the said objector had no right to resist the execution of the decree or to challenge the auction made in favour of the auction-purchaser. It was also noted in the aforesaid order that the agreement, dated 28-3-1998 relied upon by the objector, Ch. Muhammad Bashir had been entered into long after the property had been mortgaged by the judgment-debtor with the Bank.
6. Muhammad Idress-ul-Haq, who is appellant in FAO No,361/2001 also filed an objection petition before the learned Banking Court on the footing of the title acquired by him as noted in paragraph 4(b) above. The said petition, however, was dismissed vide order, dated 15-10-2001 on the short ground that the auction sale had already been confirmed and a sale certificate issued in favour of the auction-purchaser. It was, therefore, observed that the Court had become functus officio. It appears that Tallat Iftikhar, the purchaser of shops mentioned in paragraphs 4(a) and (b) above had also filed a separate objection petition which was also dismissed for the same reason on 15- 10-2001.
7. During the course of preliminary arguments before us it was asserted by learned counsel representing the Bank and learned counsel for the auction-purchaser that the learned Banking Court was fully justified in holding that Ch. Muhammad Bashir objector had no locus standi to maintain an objection petition merely on the basis of an agreement to sell. The locus standi of the other objectors named above, was also objected to on the ground that a decree, inter alia, for sale of the mortgaged property, had been passed prior to the sale deeds on the basis of which these objects asserted title in the disputed property.
8. It was also contended on behalf of the auction-purchaser, the fact that the sale deeds mentioned in paragraph 4 above, had been executed by the judgment-debtor prior to the auction sale, could at best furnish a cause of action to the purchasers against the judgment-debtor.
According to him, the auction-purchaser had acquired absolute and unencumbered title in the property notwithstanding any dispute or contention between the judgment-debtor and the aforesaid purchasers.
9. Since the learned Banking Court has dismissed the objections filed before it, on the ground that Ch. Muhammad Bashir and the aforesaid purchasers could not maintain objection petitions, we are confining this judgment to the question of locus standi of Ch. Muhammad Bashir and of the purchasers mentioned in paragraph 4 above to raise objections to the auction sale in the circumstances which have been narrated above.
10. The fact is that the agreement, dated 28-3-1998 relied upon by Ch. Muhammad Bashir and the sale deeds mentioned in paragraph 4 above were, undeniably entered into after the date of the decree for the sale of the disputed property i,e, 20-1-1998. In fact, the sale deeds mentioned in paragraph 4 were executed. Even subsequent to the filing of the execution petition 'on 2-6-1998.
11. In order to determine the locus standi of the above-referred objectors it would be useful to refer to the provisions of Order XXI, rules 89 and 90, C.P.C., and section 52 of the Transfer of Property Act, 1882. For proper appreciation of the said legal provisions and for ease of reference the same are reproduced hereunder:- ' O.XXI, R. 89: Application to set aside sale on deposit.---(1) Where immovable property has been sold in execution of a decree, any person, either owning such property or holding an interest therein by virtue of a title acquired before such sale, may apply to have the sale set aside on his depositing in Court---
(a) for payment to the purchaser, a sum equal to five per cent., of the purchase-money, and
(b) for payment to the decree-holder, the amount specified in the proclamation of sale as that for the recovery of which the sale was ordered, less any amount which may, since the date of such proclamation of sale, have been received by the decree-holder.
(2) Where a person applies under rule 90 to set aside the sale of his immovable property, he shall not, unless he withdraws his application, be entitled to make or prosecute an application under this rule.
(3) Nothing in this rule shall relieve the judgment-debtor from any liability he may be under in respect of costs and interest not covered by the proclamation of sale."
Lahore High Court Amendment. ---"In sub-rule (1) of this rule for the words any person....Acquired before such sale", substitute the words "any person claiming any interest in the property sold at the time of the sale or at the time of making the application under this rule or acting for or in the interest of such a person".
' 0. XXI, R.90: Application to set aside on ground of irregularity or fraud.---Where any immovable property has been sold in execution of a decree, the decree-holder, or any person entitled to share in a rateable distribution of assets, or whose interests are affected by the sale, may apply to the Court to set aside the sale on the ground of a material irregularity or fraud in publishing or conducting it: ' Provided that no sale shall be set aside on the ground of irregularity or fraud unless upon the facts proved the Court is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud: ' Provided further that no such application shall be entertained unless the applicant deposits such amount not exceeding 20 per cent. Of the sum released at the sale, or furnishes such security as the Court may direct."
"Section 52. Transfer of property pending_ suit relating thereto.---During the pendency in any Court having authority in Pakistan or established beyond the limits of Pakistan by the Central Government...Of any suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto under any decree or order which may be made therein, except under the authority of the Court and on such terms as it may impose."
Explanation. ---For the purposes of this section, the pendency of a suit or proceeding shall be deemed to commence from the date of the presentation of the plaint or the institution of the proceeding in a Court of competent jurisdiction, and to continue until the suit or proceeding has been disposed of by a final decree or order and complete satisfaction or discharge of such decree of order has been obtained or has become unobtainable by reason of the expiration of any period of limitation prescribed for the execution thereof by any law for the time being in force.
12. We propose first of all to consider Order XXI, rule 89, C.P.C. As it existed prior to the amendment made therein by the High Court. It is clearly stated in rule 89 aforesaid that an application to have a sale set aside, can be made by a person acquiring title before such sale. It will, therefore, be evident that any person, who acquires title in a property auctioned in execution of a decree prior to the auction sale, can make an application under Order XXI, rule 89, C.P.C. To have such sale set aside. The effect of the amendment made in rule 89 by the Lahore High Court is that the right to have an auction sale set aside has also been conferred on those persons who are vested with an interest, in the auctioned property, at the time of the making of an application under rule 89. Such interest may be -acquired by an applicant even subsequent to the auction sale. This is the clear purport of the amendment introduced by the High Court in rule 89 of Order XXI, C.P.C.
13. We next come to the provisions of rule 90 of Order XXI. This rule stipulates that an objection thereunder can be raised by any person entitled to share in the ratable distribution of assets.
Considering the impugned auction sale in the present proceedings, it is evident that if the auction sale had resulted in a surplus after satisfying the judgment debt, any owner in the auctioned property would have been entitled to claim ratable distribution. It follows, therefore, that the purchasers mentioned in paragraph 4 above, would have been entitled to a ratable distribution of any such surplus. The interests of the said purchasers are, therefore, potentially effected by the auction sale.
14. Based on the above discussion, we are left in no doubt that the purchasers mentioned in paragraph 4 above, who had acquired title in the disputed property prior to the date of the auction sale, had locus standi to maintain an objection petition either under rule 89 or rule 90 of Order XXI, C.P.C. The learned Banking Court, as such, far from being functus officio, was the competent forum having jurisdiction to decide the objection petitions filed by the said purchasers.
15. At this point, we find it useful to analyze the provisions of section 52 of the Transfer of Property Act which have been reproduced above. This section stipulates that any property, which is subject- matter of a lis pendens, cannot be transferred or otherwise dealt with by any party to a suit or proceedings so as to affect the rights of any other party thereto under any decree or order which may be passed in such suit or proceedings. The explanation to section 52 is also material as it qualifies the duration of the pendency of a suit or proceedings. Pendency is deemed to commence from the date of the presentation of a plaint or the institution of pleadings and to continue till such time that a decree or order in the suit or proceedings has been completely discharged or the enforcement thereof has become barred by time. It is, therefore, clear that the law visualizes acquisition of rights in a property even during the pendency of a lis. The only reservation being that such acquisition of rights will be subject to the burden imposed by section 52 of the Transfer of Property Act. In the case titled Ajodheya Lal Mahaseth v. Mahanth Brij Kishore Dass (AIR 1940 Patna 615) it was held that the purchaser of a property pendente lite could join the execution proceedings under Order XXII, rule 10, C.P.C. And raise objections. Furthermore, such right was also available to the purchaser of a mortgaged property.
16. The fact that the property in dispute in the present proceedings, was mortgaged in favour of the Bank and a decree for the sale of the same had been passed in favour of the said Bank, does not effect the above noted legal principle and the conclusion that title in such property could have been conveyed by the mortgagor (who is the judgment-debtor in the present proceedings) during the pendency of the present proceedings. The conveyance of mortgaged property subject to the mortgage, is not prohibited by the general law. This legal proposition is well-settled. Reference, if required can be made in this behalf to the case titled Banque Indosuez v. Muhammad Saleem (1987 CLC 795).
17. Recent legislation has brought about a change in the law, the effect of which we now propose to consider, in the context of the present case. The Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 and the Financial Institutions (Recovery of Finances) Ordinance, 2001 are relevant for the purpose of our consideration as these statutes have purported to change the law in the case of mortgages created in favour of Banking Companies. Under section 19(i) of the aforesaid Act of 1997, sale of a mortgaged property in violation of the terms of the mortgage and delivery of possession of mortgaged property to a purchase, was made an offence. However, this statutory provision did not declare the sale itself to be void. It merely visualized penal consequences for the mortgagor and that too where the sale made by him was contrary to the terms of the mortgage. The said Act of 1997 therefore, does not affect the sales made by the mortgagor/judgment-debtor in favour of the purchasers mentioned in paragraph 4 above.
18. The Financial Institutions (Recovery of Finances) Ordinance, 2001' provides that the sale of property mortgaged in favour of financial institution, after the issuance of summons by a Banking Court, will be void unless permission of the Court is obtained under section 23(1) of the said statute.
In the present case, however, title in the disputed property had been acquired by the above mentioned purchasers prior to the change in the substantive law brought about by the provisions of the aforesaid Ordinance of 2001. The sale of portions of the disputed property in favour of such purchasers, as such, is not hit by section 23(1) of the said law.
19. As a result of the discussion in the preceding paragraphs we hold that the purchasers mentioned in paragraph 4 above were vested with locus standi to maintain objection petitions to challenge the auction sale confirmed by the learned Banking Court in favour of the auction- purchaser.
20. We now take up for consideration the matter of Ch. Muhammad Bashir who, admittedly, did not acquire title in the disputed property through any registered instrument or other legally recognized mode of conveyance of interest in the disputed property. He has claimed that he was put in possession of the disputed property and the construction at the site was raised by him with his own investment under an agreement which he entered into as a property developer. The question that arises for consideration is as to whether he also has locus standi to maintain an objection petition to challenge the auction sale.
21. As far as Order XXI, rule 89, C.P.C. Is concerned we are clear that the provisions of the said rule are attracted only where an objector has an interest in the property auctioned. In the present case Ch. Muhammad Bashir has relied merely on the investment agreement, referred to above, dated 28-3-1998 which he had entered into with the judgment-debtor. The said agreement, in our opinion, does not create any title or interest in the disputed property in favour of Ch. Muhammad Bashir. To this extent therefore, the finding of the learned Banking Court is not open to exception.
22. However, Ch. Muhammad Bashir appears to have a sufficient interest in the property to vest him with locus standi under Order XXI, rule 90, C.P.C. At this point it may be noted there is a material difference in the language employed in this rule as compared with the preceding rule. As noted above, rule 89 requires a subsisting interest in the property auctioned, in order to vest a person with locus standi to move an application thereunder. Rule 90, however, does not require that there should necessarily be an interest in the property sold. Its requirement merely is that the objector should be a person whose interests are effected by the sale. This difference in the language of rules 89 and 90 has been judicially interpreted as being material. It has been held in various precedents cited before us that the interest involved, referred to in rule 90, need not be an interest in the property as such but could be an interest which is otherwise adversely effected by an auction sale.
23. In this context the case titled Narayanan v. Pappayi (AIR 1927 Madras 783) is of relevance. In this case the executing Court had ordered that certain immovable property belonging to one person would be sold only if the sale proceeds of two other properties owned by other persons were insufficient to satisfy the decree being executed. The person owning of the first mentioned property objected to the sale of the latter properties under Order XXI, rule 90, C.P.C. The executing Court summarily dismissed the application on the short ground that the owner of the first mentioned property had no interest in the latter properties and, as such, was not vested with locus standi to object to the sale of the latter properties. The High Court in appeal reversed the decision of the executing Court holding that the interest of the objector that his own property should escape execution sale, was an interest which would be effected by the sale of the latter properties notwithstanding the fact he had no legal title or interest in the latter properties.
24. The case titled Dhirendra Narth Roy v. Kamini Kumar Pal (AIR 1924 Calcutta 786) is also of assistance in the question being considered by us. In the said case an attaching creditor was aggrieved by the execution sale of certain immovable property. It was held by the Court that although the attachment by itself did not create an interest in the aforesaid immovable property, the provisions of Order XXI, rule 90 would be attracted even in cases where the objector had no interest in the property but whose interest otherwise was effected by the sale. The following extract from the aforesaid precedent, encapsulates its ratio:-- "It has also been urged with great deal of emphasis that the word 'interest' in Rule 90, C.P.C. Must be interest in property; that is interest which must be some sort of proprietary or possessory title, I am not prepared to restrict the meaning of a plain word so as to, exclude all other interest such as pecuniary interest. In my opinion, the present petitioner is a person whose right to the property, however, insignificant it may be, is affected by the sale."
25. The above-referred precedents are based on cogent reasoning, which recognises the essential distinction between the language used in rule 89 and the wording of rule 90, C.P.C. No argument was advanced before us to justify the restricted meaning given to Rule 90 in the order of the learned Banking Court which disregards the afore noted material difference in language.
26. Applying the above discussed principles to the circumstances of the present case we are left in no doubt that the interests of Ch. Muhammad Bashir have been effected by the auction sale even though he has no title or legal interest in the property in question.
27. We also note that the agreement, dated 28-3-1998, asserted by Ch. Muhammad Bashir is not a mere agreement to sell as observed by the learned Banking Court. It is a contract which according to him, has been materially acted upon. Ch. Muhammad Bashir has not only been put in possession of the disputed property but has also raised construction thereon after investing a substantial sum of Fnoney at the site as a real estate developer. His grievance is that if the auction sale remains in force, his entire investment would be lost. Upon questioning learned counsel for the parties we have conservatively estimated the value of the disputed property at Rs,80,00,000 approximately. The auction sale, which Ch. Muhammad Bashir desires to challenge, has been made for a sum of Rs,12,30,000 in favour of Ch. Ahmed Nadeem the real brother of the judgment- debtor. It is his case that the purported auction proceedings are a complete sham and if allowed to stand, will adversely effect his interest.
28. Considering the circumstances of the case and our conclusions as to the law, we find that Ch. Muhammad Bashir has locus standi to maintain an objection petition under Order XXI, rule 90, C.P.C.
29. For the foregoing reasons, we allow these appeals and set aside the impugned orders. The objection petitions are remanded to the learned Banking Court No,IV at Lahore, for decision on merits.
30. Needless to say on re-hearing of the matter remanded to it, the learned executing Court shall decide the same on the basis of the state of law at the time when the various parties came to be vested with substantive rights, if any, in Zhe disputed property. However, the facts of the present case demonstrate the need for radical changes to be made' in existing laws in order to ensure protection of the bona fide interests of innocent parties. These appeals show how easily a bona fide purchaser of property for valuable consideration can have his property rights jeopardized because there are no effective means available to him to make a title search and to avoid the nightmarish consequences which the appellants have faced.
31. We would, in the circumstances, suggest to the Federal and Provincial Governments the need to urgently consider legislation to protect the rights of innocent citizens. For this purpose let a copy of this judgment be sent to the Federal and Provincial Law Ministries for consideration and for appropriate legislation with their perspective domains.
32. Before parting with this judgment we would like to express our appreciation for the admirable assistance rendered to us by Mr. Tariq Kamal Kazi, Advocate, as amicus curiae, and to acknowledge that without such assistance this judgment would not have been possible.