S.144 CPC | Stranger Who Purchased Property Knowing About Appeal Pendency Can't Resist Restitution As Bona Fide Purchaser: Supreme Court

In an important ruling concerning the principle of 'restitution' under Section 144 of the Code of Civil Procedure, 1908 (“CPC”) the Supreme Court observed that if after knowing that the decree was likely to be reversed, a stranger auction purchaser (not being party to the proceedings) purchases the  property in execution of the decree, then he couldn't claim the protection of being a bona fide purchaser and the principle of restitution would apply in such circumstances.

Reversing the findings of the High Court, the bench comprising Justices Hrishikesh Roy and Prashant Kumar Mishra observed that if the person who has purchased the suit property from the decree-holder despite having full knowledge of pending appeal proceedings against the decree, then the purchaser of the suit property from the decree-holder is not entitled to object restitution on the ground that he is a bona fide purchaser.

The Judgment authored by Justice Prashant Kumar Mishra drew its strength from the case of Chinnamal & Ors. Vs. Arumugham & Anr, AIR 1990 SC 1828, where the Court distinguished between the decree-holder who purchased the property in execution of his own decree, which is afterward modified or reversed and a person who is not a party to the decree i.e., the stranger who purchases the property from the decree-holder.

The court in Chinnamal laid down the test to ascertain whether the stranger purchaser would be entitled to retain the property by the principle of restitution. The court said that the true question in each case, therefore, is whether the stranger auction purchaser knew of the pending litigation about the decree under execution.

“If the evidence indicates that he had no such knowledge he would be entitled to retain the property purchased being a bona fide purchaser and his title to the property remains unaffected by subsequent reversal of the decree. The court by all means should protect his purchase. But if it is shown by evidence that he was aware of the pending appeal against the decree when he purchased the property, it would be inappropriate to term him as a bona fide purchaser. In such a case the court also cannot assume that he was a bona fide or innocent purchaser for giving him protection against restitution. No assumption could be made contrary to the facts and circumstances of the case and any such assumption would be wrong and uncalled for.”, the court answered in Chinnamal.

In the present case, the respondents no. 1 and 2 (decree holders) purchased the suit property owned by the judgment debtor in execution of the decree. The transaction was initiated during the pendency of the appeal against the decree and got completed before the reversal of the decree by the appellate court.

In the meantime, respondents no. 1 and 2 sold some part of the suit property, purchased in the auction sale in execution of their decree, to respondent no.3 (third person not being party to the proceedings). The respondent no.3 was aware of the pending challenge to the decree by the appellant before the appellate court.

After the decree was reversed in appeal, the judgment debtor(appellant before the Supreme Court) filed an application under Section 144 CPC seeking restitution of the property.

Opposing the restitution, respondent no.3 contended that he was the bona fide purchaser of the suit property from the respondent no.1 and 2 after paying the full consideration to the decree holders, therefore the appellant couldn't claim restitution of the decree even if it's reversed by the appellate court.

The appellant/defendant claimed the restitution of the decree on the ground of reversal of the decree by the appellate court. He contended that once the decree is reversed by the appellate court and the third party purchased the property despite knowing that the decree was set aside/reversed, then respondent no.3/third party cannot be saved by the principle of restitution.

Allowing the appeal, the Supreme Court allowed the application under S.144 CPC. "The parties are restored back to the position where the execution was positioned before the attachment of the immovable properties of the judgment debtor," the Court ordered.

Case Title: BHIKCHAND S/O DHONDIRAM MUTHA (DECEASED) THROUGH LRS. VERSUS SHAMABAI DHANRAJ GUGALE (DECEASED) THROUGH LRS.

Citation : 2024 LiveLaw (SC) 375

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