2005 PLP 169 (CLD)

SABIHUDDIN AHMED, J.

This appeal is directed against an order of a learned Single Judge dated 30-4-2004, declining to review an earlier Order dated 19-5-2003, whereby the Official Assignee's reference dated 30-4-2003 was accepted and auction sale of two properties was confirmed. Briefly the facts appear to be that several bids were invited for sale of two properties namely, an automobile manufacturing and assembly unit on Plot No.F-8, site, Karachi, measuring about 11 acres (property `A') and another plot bearing No.F-9/A, site, Karachi, measuring 2.2 acres (property `B'). Both the properties appeared to be the assets of Messrs Naya Daur Motors (Pvt.) Ltd., and were directed to be sold in Execution of decrees in Exh.232/2000 and Suit No.482 of 1998 in favour of respondent No.3 and respondent No.4 whose assets had also been taken over by respondent No.4. apparently the properties were taken over as `non performing assets' by the respondent No.5 and were directed to be sold by the respondent No.2 through public auction under Orders of the Court. Public notices for auction-sale were published in the Press and distribution of pamphlets.

2. The case of the appellant is that the advertisement in question required separate bids for each of the two properties and strictly in. terms thereof he had made an offer of Rs.32.11 million for property `B' and undoubtedly happened to be highest bidder as is evident from the reference of respondent No.2. Nevertheless the respondent No.1 who had initially offered a consolidated amount of Rs.240 millions for both the properties (which was not required by public notice), subsequently raised his offer to Rs.360 millions. The respondent No.2 however, vide reference dated 30-4-2003 suggested that consolidated offer of the respondent No.1 be approved and a learned Single Judge without notice to the appellant or any other bidder approved the same.

3. The appellant preferred an application (C.M.A. No.3016 of 2000) under Order XLVII, rule 1, read with section 151, C. P. C. alleging that there was a material irregularity in the sale in as much as it was required to be on the basis of separate offers for the two properties and the sale was required to be set aside. The learned Single Judge vide the impugned order found "some force in the contention of the applicant that separate sealed tenders" were invited for the two properties but this was not brought to the attention of the Court. Moreover, no notice had been given to the appellant for the date when the sale was approved in Court. Nevertheless he held that since admittedly no appeal had been filed against the order of the confirmation of the sale and that section 27 of the Banking Companies (Recovery of Finance) Ordinance, 2001 barred the jurisdiction of Banking Court to review its order, the application has to be treated as riot maintainable and thereupon dismissed the same.

4. Mr. Anwar Mansoor Khan, learned counsel for the appellant argued that:- (i) Separate bids having been invited for the two properties, their disposal on the basis of a single offer, and without notice to the appellant, amounted to fraud and dishonesty in the conduct of sale. (ii) That though described as one under Order XLVII, rule 1, read with section 151 the appellant's application in pith and substance was one under Order XXI, rule 90, C.P.C. and the learned Single Judge ought to have treated it as such while deciding the question of its maintainability. (iii) That the provisions of C.P.C. were fully applicable to sales conducted under the Banking Companies (Recovery of Finance) Ordinance, 2001 and a sale could always be set, aside by the Banking Court if it was found to be vitiated by fraud or irregularity. (iv) That in any event the properties having been taken over by the respondent No.5, the learned Single Judge was required to exercise the original civil jurisdiction of the High Court and was not bound by the clog on the powers of a Banking Court under-the Financial Institutions (Recovery of Finances) Ordinance.

5. Having heard the learned counsel for the interested parties at length we considered it convenient to dispose of the whole appeal. On the jurisdictional aspects of the matter, Mr. Anwar Mansoor Khan assailed the observations of the learned Banking Court to the effect that since no appeal had been preferred against the order approving sale in favour of the respondent, the application decided vide the impugned order was not maintainable. He contended that no appeal was maintainable under the Financial Institutions (Recovery of Finances) Ordinance and the application preferred by him was the only mode of redress available. We are afraid we are unable to accept the view canvassed. Section 22(6) indeed restricts the right of appeal but is ex facie not applicable to orders passed under section 15(11) or section 19(7) of the Ordinance. Section 15(11) explicitly refers to disputes relating to sale of mortgaged properties and learned counsel was unable to show that the dispute in the instant case did not relate to such sale. Moreover, section 19(7)(c) stipulates that the Banking Court may, in its discretion, proceed with the sale of mortgaged property if in its opinion the interest of justice so required. Indeed such an order being a final order would be appealable. Nevertheless this controversy, in our humble view, may be insignificant, inasmuch as the power to review if available, is not dependent upon the absence of right to appeal.

6. Nevertheless Mr. Anwar Mansoor Khan persuasively argued that the power to set aside a sale on grounds of fraud or material irregularity under Order XXI, rule 90 was an independent power conferred upon Civil Courts which was very different from the power of review available under section 114 or Order XLVII. He referred inter alia to a Division Bench judgment of this Court in Baghpotee Services (Pvt.) Ltd. v. Allied Bank Ltd. 2001 CLC 1363, authored by one of us (Sabihuddin Ahmed, J.), wherein, after referring to a number of precedents from the Honourable Supreme Court, it was held that notwithstanding absence of the power of review (which was required to be expressly conferred by law) a Banking Court could always recall an ex parte order upon sufficient cause for non-appearance being shown. Learned counsel contended that by analogy the same principle should be applicable to the instant case. Indeed we find a great deal of force in the argument on legal principle. Moreover, once it has been held that the power to set aside C even a decree on grounds of fraud under section 12(2), C.P.C. is available with a Banking Court, notwithstanding the bar of section 27 of the 2001 Ordinance, it appears a little anomalous that such Court should not be able to provide redress where fraud is committed only in sale in execution thereof. We are therefore, inclined to hold, with profound respect, that in an appropriate case a Banking Court could set aside a sale under order XXI, rule 90, C.P.C. notwithstanding the bar of section 27 of the Financial Institutions (Recovery of Finances) Ordinance.

7. Learned counsel proceeded to argue, that in the facts of the instant case, the learned Banking Court should have treated the appellant's application dismissed vide the impugned order as one under Order XXI, rule 90, C.P.C. and passed appropriate orders instead of considering it as one under Order XLVII, rule 1 and dismissing it on technical grounds. Indeed normally we would not have attached much weight to the objection that the appellant itself had moved the Court under the latter provision. It is well-settled that mere reference to a wrong provision of law is inconsequential and the Court is always expected to consider the substance rather than mere form of the application. Nevertheless, in the instant case, it is evident from the language of the proviso to Order XXI, rule 90 that an application can only be entertained when the applicant deposits such amount as may be directed by the Court. By moving the Court under Order XLVII the appellants successfully avoided such order of deposit being made and neither the application nor the impugned order nor the memo. of appeal itself shows that at any, stage such deposit was volunteered. Therefore, we are somewhat doubtful whether a wrong provision of law was invoked due to a bona fide error and therefore, the Single Judge was possibly justified in treating the application as one of review simpliciter under- Order XLVII, C.P.C.

8. Mr. Anwar Mansoor Khan argued that the issuance of public notice on behalf of respondent No.5 indicated that the right to recover stood transferred to the said respondent and therefore, the provisions of the Financial Institutions (Recovery of Finances) Ordinance 2001 including the clog on the power of review were not applicable. He drew our attention to two Ordinances promulgated in 2000 where a large number of Banking Laws, including the Banking Companies (Recovery of Loans, Advances, Credits and Finances) Act, 1997 (predecessor of the 2001 Ordinance) were referred to. He urged that under section 9 of the 2001 Ordinance a suit in the Banking Court could only be filed by a customer or a Financial Institution, where default in fulfillment of obligations was alleged. Section 19 of the Corporate and Industrial Restructuring Corporation Ordinance, 2000 (CIRC Ordinance), however, provided that the Corporation respondent No.5 would, without prejudice to the provision of section 32, be deemed to not be engaged in the business of Banking. Prima facie the argument appears attractive but fails to take note of the keywords "without prejudice to the provisions of section 32". Subsection (1) of section 32 provides that in respect of any Non Performing Assets, held by the Corporation it shall be entitled to exercise all rights and remedies available under several laws relating to Banking and the Companies Ordinance and its subsection (3) provides that all acts in exercise of the powers under the Ordinance and the remedies available thereunder shall be performed and pursued in accordance with the provisions of law mentioned in subsection (1). Moreover subsection (2) explicitly declares that the Corporation shall be entitled to the rights, interest, benefits and privileges of the financial institutions and will also be subject to the legal liability, if any, of such institutions. In view of the foregoing we are quite clear in our minds that the respondent No.3 is only entitled to such rights and remedies as were available to respondents Nos.4 and 5 and therefore, only entitled to invoke .the exclusive jurisdiction of a Banking Court in such matters.

9. Learned counsel then drew our attention of the Non-Performing Assets and Rehabilitation of Industrial Undertakings (Legal Proceedings) Ordinance, 2000, he pointed out that under section 4 of this Ordinance all proceedings relating to matters to which the CIRC Ordinance applied were exclusively triable by the High Court and under section 6 even execution proceedings pending before a Banking Court were liable to be transferred to the High Court. Learned counsel is undoubtedly correct to the above extent. With profound respects however, it does not necessarily mean that the Nigh Court can only exercise its original civil jurisdiction and the provisions of the Banking Laws would not apply. Section .5 which deals with the powers and procedure of the High Court explicitly mentions in clause b(iii) that in exercise of its Banking jurisdiction it will follow the procedure and have the powers of a Banking Court under the 1997 Act (which now stand replaced) by the Financial Institutions (Recovery of Finances) Ordinance 2001. Moreover section 8 requires that when proceedings are transferred to the High Court, under section 6 they are to be pursued under the respective laws under which they were originally filed.

10. Against the above legal matrix it appears that prior to the promulgation of the CIRC Ordinance, matter was proceeding under the 1997 Act. While it would be fair to assume that non-performing assets were taken over by the respondent No.5 the proceedings continued under the aforesaid Act in view of sections 32 and 8 respectively o: the two Ordinances mentioned by the learned counsel. Upon the promulgation of the 2001 Ordinance such proceedings were deemed to be transferred to Banking Court under section 7(6) of the aforesaid Ordinance. The expression `Banking Court' under section 2(b) includes a High Court in respect of claims exceeding Rs.50 million, therefore, it must be held that the proceedings were always pending before the High Court, but in the exercise of its Banking Court jurisdiction. The contention of learned counsel, in our view, therefore, is patently untenable.

11. Nevertheless even if it be assumed that the learned Banking Court was obliged to consider the appellant's application under Order XXI, rule 90, C.P.C., it needs to be seen on merits as to whether the sale effected could be set aside within the para meter of the aforesaid legal provision which reads as follows:-- "

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 had 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 twenty per cent of the sum realized at the sale, or furnishes such security, as the Court may direct."

12. In the first instance learned counsel stoutly relied upon certain observation of the learned Single Judge in the above context:-- "there appears, to be some force in the contention of the learned counsel for the applicant that this aspect of the matter was not brought to the notice of the Court at the relevant time and notice for the said date was also not issued to the applicant." He proceeded to urge that the sale was required to be set aside but declined to grant relief on ground of absence of jurisdiction. With all respect we are unable to subscribe to this view. In our humble opinion, his Lordship only found some force in the arguments but did not record a conclusion and dismissed the application on other grounds. At best the observation could only be treated as obiter dicta.

13. Learned counsel emphatically argued that the sale in question was vitiated both by fraud and material irregularity. As regards fraud we may state at the outset that neither the reference upon which the sale was approved appear to contain any active concealment of facts nor has any such allegation been made except to the extent that the approval was obtained without notice to the appellant (which we propose to discuss a little later). As is evident from the reference of the respondent No.2 (the contents whereof have not been disputed) public offers were invited for the sale of the two properties five times. The highest offer through separate bids for the two properties did not even cover the reserve price of Rs.245 millions for property `A'. On the other hand the consolidated offer of the respondent No.1 was far in excess of the sum total of such reserve price and the appellant's offer for property `B'. It was more than twice the amount offered under separate bids and could not be considered as an attempt to favour any party. Hence the imputation of fraud must be repelled.

14. Indeed learned counsel appears to be right to the extent that there was an irregularity in the sale inasmuch as separate sealed tenders were invited but eventually both the properties were sold on the basis of single consolidated H offer. What needs to be seen however, is whether the irregularity was material and of such nature which would vitiate the sale. It is quite clear to us from the language and the statutory provisions of the case law cited at the bar that sales have been set aside only when it has been shown that the irregularity is material and has caused serious injury to the applicant.

15. Mr. Anwar Mansoor Khan referred to a large number of cases where auction sales were set aside on grounds of material irregularity. We have, nevertheless noticed that in all such cases it was found either that the valuable properties were sold at a throw away price or the applicant was not given an opportunity to match the highest bid. Indeed learned counsel candidly conceded that every sale was not liable to be set aside on account of fraud or irregularity but material injury to the applicant ought to be established.

16. In the above context however, Mr. Anwar Mansoor Khan argued that being the highest bidder for property `B', it was the obligation of the Court to protect the interests of the appellant. He relied upon the observations of the Honourable Supreme Court in Hudaybia Textile Mills v. Allied Bank of Pakistan PLD 1987 SC 512 relating to sanctity of judicial sales and protection of third party interests. Indeed there could be no doubt that apart from interests of the decree-holders and judgment-debtors the Court is also required to protect the interests of third party acquired before confirmation of sale. Nevertheless Mr. M. Ilyas Khan referring to the same judgment pointed out that such interest would accrue only after a sale had been effected. In the instant case the respondent No.2 never accepted the offer of the appellant but on the contrary recommended that it may be rejected and both properties be sold to the respondent No.1 on the basis of their consolidated offer. As such the appellant could only be classified as a mere bidder and not an auction purchaser.

17. We may also add that in United Bank Ltd. v. Asma Zafarul Hassan 1980 CLC 565 referred to by Mr. Anwar Mansoor Khan himself. This Court held that though sale by public-auction was the rule, a Court was never precluded from disposing it through private negotiations upon being satisfied that it was reasonable to do so and after notice to interested parties. The above view was sustained by the Honourable Supreme Court, which is reported in Asma Zafarul Hassan v. UBL 1981 SCMR

108. We are therefore, satisfied, keeping in view the facts of the case and the amplitude of the powers of the Court that any deviation from the terms of the public notice was entirely justified.

18. Nevertheless Mr. Anwar Mansoor Khan's objection as to absence of notice at the time of confirmation of sale in the circumstances, notwithstanding Mr. M. Ilyas Khan's assertion as to the status of the appellant, appears to be formidable. We may classify here, that in our opinion, while the appellant had not acquired any legal interest in property required to be protected, but could be interested in the purchase and entitled to a notice in accordance with the principles of natural justice and the dictum laid down in Asma Zafarul Hassan's case, so as to be able to match the price offered by respondent No.1. However, we are unable to accept the plea that in the absence of such notice the sale had to be declared void ab initio. Indeed learned counsel himself was unable to rely upon any L statutory provision and claimed notice only upon principles of natural justice.

19. In the above context the well settled distinction recognized by the Honourable Supreme Court, inter alia, in Collector of Sahiwal v. Muhammad Akhtar 1971 SCMR 681 and followed in Sindh Employees Social Security Institution v. Dawood Cotton Mill PLD 1977 SC 177 appears to be that when notice is to be given to a party according to the mandatory provisions of law all proceedings in the absence of such notice are to be treated as void ab initio. However, when notice is claimed merely upon the principle of natural justice the irregularity can always be rectified at the appellate or revisional stage. Therefore, we repeatedly invited learned counsel to state whether the appellant, was willing to match the offer of respondent No.1, but each time he replied that the appellant was only interested in property `B'. In these circumstances, it would have been extremely unconscionable to allow the appeal whereby less than one tenth of the amount offered could have been recovered and a public agency (respondent No.5) would be required to entail additional expenses for preserving and maintaining the non-performing assets. These are our reasons for the short order announced on 13-7-2004. M.B.A./P-19/K Order accordingly.