2024 PLP 626 (CLD)

RAHEEL KAMRAN, J.

This is an appeal under Section 22 of the Financial Institutions (Recovery of Finances) Ordinance, 2001 ('the Ordinance') whereby the appellants have assailed the orders dated 30.06.2022 and 13.07.2022 passed by the learned Single Judge in Chambers disposing of their applications bearing Civil Miscellaneous Nos.02 and 08-C of 2022 in the Execution Application No.22-B of 2012 being not maintainable as the decree-holder/Bank had not yet filed the requisite accounts of the sale.

2. It is pertinent to mention here that through Civil Miscellaneous No.02 of 2022, the appellants were objecting to the sale of mortgaged property through auction dated 20.01.2022 without intervention of the Court whereas through Civil Miscellaneous No.08-C of 2022 they were seeking a restraining order against the decree-holder/Bank from transferring the mortgaged property in favour of the auction purchaser through the sale deed. It is manifest from perusal of the impugned orders that the application of the appellants being Civil Miscellaneous No.02 of 2022 (erroneously referred to as Civil Miscellaneous No.01 of 2022) was disposed of vide order dated 30.06.2022 for having become infructuous since Civil Miscellaneous No.05 of 2022 was dismissed as withdrawn, however, the appellants were held to be at liberty to file an appropriate application as and when the proper accounts were furnished by the decree-holder/Bank before this Court. Likewise, application of the appellants being Civil Miscellaneous No.08-C of 2022 seeking restraining the decree-holder/Bank from transferring the mortgaged property in favour of the auction purchaser through the sale deed was dismissed being not maintainable vide impugned order dated 13.07.2022 for the reason that the decree-holder/Bank had not filed the requisite accounts of the sale. Thus, while passing the orders impugned herein, the learned Single Judge has manifestly acted on the assumption that neither any objection to the sale nor an injunction restraining the sale of mortgaged property were maintainable before proper accounts for the sale proceeds are filed in the Court.

3. Learned counsel for the appellants contends that the impugned orders have been passed in disregard of the provisions of Section 15 of the Ordinance; that the appellants have not been granted proper opportunity of hearing; that with the intention to participate in the bidding process, the appellants approached the respondent-Bank along with pay orders at the venue of auction, however, the auction purchaser, with connivance of the Bank officials failed to conduct the public auction in a fair and transparent manner which is liable to be set aside and that the appellants have been non-suited without decision on their application on merit in accordance with law.

4. Conversely, learned counsel for the decree-holder/respondent No.1 as well as learned counsel for the auction purchaser-respondent No.3 have supported the impugned orders.

5. Arguments heard. Record perused.

6. The primary question for determination in the instant appeal is: whether applications of the appellants qua objections to the sale of mortgaged property without intervention of the Court and seeking injunction for restraining the sale of mortgaged property were maintainable before proper accounts for the sale proceeds are filed in the Court?

7. The sale of mortgaged property is governed by the provisions of Section 15 of the Ordinance. The financial institutions have been authorized to sell a particular mortgaged property without intervention of the Court by virtue of subsection (4) of Section 15 of the Ordinance. A discretion has been conferred upon the Banking Court under subsection (13) of Section 15 of the Ordinance to grant an injunction restraining the sale or proposed sale of mortgaged property on the grounds specified therein. Subsection (14) of Section 15 of the Ordinance confers a right upon the mortgagor or any person entitled to a share in the rateable distribution of assets or whose interest is affected by the sale to apply to the Banking Court for having the sale set aside on the ground of fraud, subject to conditions specified therein. Subsection (15) of Section 15 of the Ordinance provides limitation of seven days of completion of the public auction for filing an application for setting aside sale of the mortgaged property under subsection (14) of Section 15 of the Ordinance and stipulates a condition of deposit of an amount equal to twenty five per cent of the reserved price or furnishing security for the same amount to the satisfaction of the Banking Court for such application to be entertained.

8. Applications of the appellants were required to be considered and decided keeping in view the provisions of subsections (13) to (15) of Section 15 of the Ordinance. There is nothing in the aforementioned provisions to suggest that applications qua objections to the sale of mortgaged property without intervention of the Court and seeking injunction for restraining the sale of mortgaged property were not maintainable before proper accounts for the sale proceeds are filed in the Court.

9. After the sale takes place (real or fictitious), a sale deed in respect of the property is to be executed by the financial institution which is authorized in this behalf by virtue of subsection (8) of Section 15 of the Ordinance. It is noteworthy that subsection (8) ibid contains a proviso that no such sale deed shall be executed or registered until expiry of seven days after the completion of the public auction for the sale of the mortgaged property. The object of this proviso manifestly is to provide an opportunity to those entitled under subsections (13) and (14) of Section 15 of the Ordinance to avail the remedies provided under the said provisions inasmuch as otherwise, in terms of subsection (9) of Section 15 of the Ordinance, upon execution and registration of the sale deed of the mortgaged property in favour of the purchaser, all rights in such mortgaged property vest in the purchaser free from all encumbrances and the mortgagor is divested of any right, title and interest in the mortgaged property. Needless to observe that execution or registration of the sale deed qua mortgaged property is subject to the order, if any, passed by the Banking Court under the aforementioned provisions.

10. It is noteworthy that prior to enactment of the Financial Institutions (Recovery of Finances) amendment Act (XXXVIII of 2016), there was no provision which permitted to object to the conduct of sale after the fall of hammer, which was declared repugnant to due process and fair trial, as guaranteed under Article 10-A of the Constitution of Islamic Republic of Pakistan, 1973 by the Hon'ble Supreme Court of Pakistan in the case of National Bank of Pakistan and 117 others v. SAF Textile Mills Limited (PLD 2014 SC 243), whereafter provisions of Section 15 of the Ordinance were amended to provide for the remedies under subsections (13) and (14) ibid. Subsequently, a Full Bench of this Court in the case of Muhammad Shoaib Arshad and another v. Federation of Pakistan through Secretary, Ministry of Law, Justice Human Rights and Parliamentary Affairs and 4 others (2020 CLD 638), while declaring the provisions of aforementioned amended Section 15 intra vires the Constitution, held in Paragraph No.26 as under:- " .The Right of the mortgagor to redeem the property upon payment of outstanding mortgage money is guaranteed and so is the right to seek setting aside of the auction sale upon establishing element of fraud, resulting in substantial injury, not capable of being compensated by damages. The right to object is preserved by providing a remedy under subsections (14) and (15) of re-enacted section 15 remedy in the nature of post-sale objections, having similitude to the remedy under Order XXI, Rule 90 of the Code. The remedies provided under subsections (13), (14) and (15) of re-enacted section are exclusive to the mortgage auction and shall be governed subject to the requirements and conditions prescribed under re-enacted section 15."

11. No doubt the financial institution which has sold the mortgaged property is required to submit proper accounts of the sale proceeds in the Banking Court within thirty days of the sale, as manifest from subsection (11) of Section 15 of the Ordinance, however, in the scheme of said Section such occasion arises after the sale has become absolute either because no remedy was availed under subsections (13) and (14) of the Ordinance or the remedy availed did not yield fruitful results for the objector.

12. The impugned orders have been passed apparently without having regard to the provisions of subsections (13) to (15) and proviso to subsection (8) of Section 15 of the Ordinance, therefore, the same are not sustainable in law. Accordingly, this appeal is allowed and the impugned orders are hereby set aside. Applications of the appellants being Civil Miscellaneous No.02 of 2022 and Civil Miscellaneous No.08-C of 2022 shall be deemed to be pending before the learned Single Judge to be decided in accordance with law. There shall be no order as to costs. MQ/N-7/L Appeal allowed.