Residential-house exemption is personal to the judgment-debtor and cannot be claimed by legal heirs: Supreme Court

M/s Sterling Malt & Foods Pvt. Ltd. obtained credit facilities from Punjab & Sind Bank, secured by the company’s factory assets and personal guarantees of its directors.

The Delhi property at S-246, Panchsheel Park, New Delhi, was initially furnished as collateral security but was released under a compromise decree dated 15.10.1991, without discharging the judgment-debtor’s personal liability.

After default under the compromise decree, execution proceedings were initiated in 1995, in which the widow and children of the deceased judgment-debtor were impleaded.

The proceedings were subsequently transferred to the Debts Recovery Tribunal, Jabalpur under Section 31 of the Recovery of Debts and Bankruptcy Act, 1993.

The Recovery Officer ordered auction of the Delhi property.

Although no notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961 was served on the widow or her children, they had knowledge of the execution proceedings and the proposed auction, and the widow filed objections seeking recall of the auction order.

The property was auctioned on 27.11.2006 in favour of Sheela Gehlot, and the sale was confirmed with issuance of a sale certificate.

The Debts Recovery Tribunal set aside the Recovery Officer’s orders, but the Debts Recovery Appellate Tribunal restored the auction sale.

The High Court set aside the DRAT’s order and remitted the matter for inquiry into alleged prejudice caused by non-service of notice and the widow’s claim that the property was exempt from attachment under Section 60(1)(ccc) of the Code of Civil Procedure.

1. Whether non-compliance with Order XXI Rule 22 of the Code of Civil Procedure affected the validity of the auction sale after the execution proceedings had been transferred to the DRT under the 1993 Act?

2. Whether failure to serve notice under Rule 2 of the Second Schedule to the Income-tax Act, 1961 rendered the execution proceedings or auction sale void?

3. Whether the Delhi property was exempt from attachment and sale under Rule 10 of the Second Schedule to the Income-tax Act read with Section 60(1)(ccc) of the Code of Civil Procedure?

Section 22(1) of the Recovery of Debts and Bankruptcy Act, 1993 provides that DRT proceedings are not bound by the Code of Civil Procedure but are guided by natural justice.

Section 29 requires recovery to be conducted, with necessary modifications, under the Second and Third Schedules to the Income-tax Act, 1961.

Order XXI Rule 22 CPC ordinarily requires notice before execution against legal representatives, but its non-compliance does not necessarily invalidate execution where the applicable law treats the omission as an irregularity or where the statutory execution procedure has superseded the CPC procedure.

Rule 2 of the Second Schedule requires service of a demand notice before recovery, while Rule 61 provides the specific remedy to set aside a sale for non-service or material irregularity, subject to proof of substantial injury and, for a defaulter, deposit of the recoverable amount.

Section 60(1)(ccc) CPC, as applicable to Delhi, protects one main residential house belonging to and occupied by the judgment-debtor, but the protection is personal to the judgment-debtor and does not extend to legal representatives.

A mixed question of law and fact requiring factual foundation cannot ordinarily be raised for the first time in writ proceedings.

The Supreme Court held that Order XXI Rule 22 CPC had no impact on the auction because, after transfer under Section 31 of the 1993 Act, the Recovery Officer proceeded under Section 29 and the Second Schedule to the Income-tax Act rather than under the CPC execution procedure applicable before the Morena court.

In any event, the legal representatives had been impleaded in the original execution proceedings, repeated attempts had been made to serve them, and the widow had actual knowledge of the proceedings by at least 10.07.2003.

Although Rule 2 notice was admittedly not served, the widow and her children knew of the execution and auction, filed objections before the sale, and failed to invoke Rule 61 within thirty days after the sale.

Consequently, no substantial prejudice was established and the omission did not render the execution or sale void.

The exemption claim under Section 60(1)(ccc) was unavailable because the provision protects the judgment-debtor personally and cannot be invoked by legal representatives merely because they occupy the deceased judgment-debtor’s residence.

Further, the exemption was raised belatedly, without a factual foundation or supporting evidence before the Recovery Officer or DRT, making the High Court’s remand for a fresh factual inquiry impermissible.

Non-compliance with Order XXI Rule 22 CPC did not invalidate the auction; non-service of notice under Rule 2 of the Second Schedule did not render the execution or sale void in the absence of substantial prejudice; and the legal representatives could not claim the personal residential-house exemption under Section 60(1)(ccc) CPC.

The High Court’s judgment dated 15.05.2009 was quashed and set aside.

Civil Appeals Nos. 182 of 2016 and 190 of 2016, filed by the auction-purchaser and the Bank, were allowed, while Civil Appeal No. 191 of 2016, filed by the judgment-debtor’s son, was dismissed.

No order as to costs was made.