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LEGAL CHAT

Keeping track of issues in property auction

Photo: C.V. Subrahmanyam

Legal angle: Some issues related to auctions have legal implications.

These are times of defaults. Many properties and assets are being sold through auctions. The auctions may be pursuant to court orders and decrees. There are certain important matters that have to be noted in such purchases. Some have legal implications as well. An auction is sale of land or property by an accepted process to a bidder. Normally, the property is sold to the highest bidder. This auction is usually open to public. The bidders have to qualify for or meet the conditions of the bid. The mechanism of auction has a process which ensures a fair bidding and sale.

A court may pass an order for sale. There are many types of orders. One is a decree. There are various types of decrees as well. For our immediate purpose, we can take decree as a formal expression of an adjudication which, so far as the court expressing it conclusively, determines the rights of the parties with regard to all or any of the matters in dispute or controversy. Strictly speaking, there are differences between decrees, judgments and orders. As such, the usage of order is not to be taken in the legal sense, but only as a reference to adjudication.

After a decree is passed and if the decree is not satisfied or not complied with, the person in whose favour the decree is passed, also known as the “Decree Holder”, can apply to the court for execution of the decree.

Execution, in this context, means carrying into effect. The terms of the decree are carried into effect by a process and further orders of court. A court executing a decree has the powers to pass orders for attachment of the property owned by the person who lost the proceedings and who is also called the “Judgment Debtor”. By this order, the Judgment Debtor is prohibited from transferring or charging the property in any manner. Normally, others also cannot take any benefit under such transfer or charge. This order is put into effect with a proclamation. This could be by beat of drum or other customary modes. A copy of the order is also affixed on a conspicuous part of the property and in other places like court buildings, Collector’s office, Panchayat, etc. The idea is to bring the fact of attachment to the knowledge of public at large.

At this stage, it is possible for the Judgment Debtor to comply with the decree. In such an event, the attachment is lifted. You would have noticed that a decree is final only as regards the Court, which passes the decree. There is always scope for this decree being set aside or reversed in an appeal. In such case also, the order or attachment is withdrawn. It is also possible that the application for execution itself is dismissed in which case, the attachment shall continue or cease as per orders of Court. If no orders are passed on this aspect, then the attachment will cease.

The process involves adjudication of rights on whether the property can be attached or otherwise. The court, in this regard, can determine relevant issues. An order of attachment is to be communicated to the Registrar of Assurances. Similarly, an order raising the attachment is also communicated. The court may also give directions for stay or sale in certain conditions. Further, it has powers to order sale of property, usually by public auction.

There are other procedures to be followed for sale by public auction. Even when sale is ordered, the Judgment Debtor can comply with the terms of the decree in which event, the intended sale may be set aside. There are further processes for confirmation of sale and delivery of possession to the Purchaser. Generally, the procedures are designed to take care of the best interest of both the Judgment Debtor as well as the bona fide Purchaser.

At times, situations may arise when a property is sold to a bona fide third party Purchaser, after following all procedures. It is possible that the decree, pursuant to which the sale has been effected, is then set aside in an Appeal. The issue is whether in such cases, the sale is also liable to be set aside.

The legal position is that in such cases, independent rights of bona fide Purchasers, come into play. They may have purchased the properties in a valid auction. As such, the rights of such Purchasers, being third parties who have bought the properties relying on orders of the Court, are protected, notwithstanding the fact that decree is subsequently set aside.

In order to be eligible for this kind of protection, the Purchasers have to act bona fide and should not be parties to the suit or proceedings. In other words, this kind of procedure is applicable to strangers to the proceedings. It will not apply to cases where the Decree Holder purchases the property or to persons who buy it even though the Decree Holder may have bought it in auction. The reason is that third party Purchasers need to be assured of a clear title without which Court ordered auctions would not fetch the best price. On the other hand, a party to the proceedings is expected to be aware of all the attendant facts and circumstances and is therefore, not extended this kind of benefit.

There is scope for the Purchasers themselves to approach the court to set aside the sale on the ground that the Judgment Debtor has no saleable interest in the property. The Court can also set aside the sale on grounds of irregularity, fraud, etc. The above rules will broadly apply to sales effected through orders of other Authorities like Income Tax Department, etc. However, it is to be noted that the title in every such sale is in order as issues relating to title of the Judgment Debtor are different and have to be approached independently.

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