Decree Holder can Apply for Sale of Property subject only to the First Charge [JUDGMENT]

Civil P.C. 1908 – S. 64 - Mere execution of a loan application during continuance of the attachment would neither amount to a transfer nor a delivery of interest in the property.
O.P.(FC)No.290 of 2018
Dated this the 7th day of January 2019
AGAINST THE ORDER DATED 21.3.2018 IN E.A.No.298/2017 IN E.P.No. 2 of 2016 IN I.A.No. 1896/2013 IN OP 862/2013 ON THE FILES OF FAMILY COURT, THRISSUR
A claim petition filed by the Thrissur Service Co-operative Society Ltd. 1097 Thiruvambady (hereinafter called as claim petitioner) under Order XXI Rule 58 of the CPC in E.P. No.2/2016 was allowed by the Family Court, Thrissur by its order dated 21.3.2018. By the impugned order, the court upheld the charge claimed in the property by the Society and the decree holder was permitted to bring the property for sale subject only to the mortgage right held by it. The decree holder being the sole person aggrieved by the order, challenges the same in this O.P. invoking the powers of this Court under Article 227 of the Constitution of India.

2. The decree holder in O.P.862/2013 obtained a compromise decree on 15.6.2015, creating charge over 1.17 ares of land in survey No.222/5 B in Koorkanchery village, owned by third respondent under partition deed No.4533/2010 dated 1.12.2010. This property stands described as (C) schedule in the O.P. One of the terms agreed upon in the compromise decree by the parties is that, the respondents will be at liberty to encumber the property for raising funds for the purpose of satisfying the claim of the decree holder. With this object in mind, the attachment of the property effected before judgment on 7.6.2013, was lifted, subsequently on 27.7.2015. When the respondents in the O.P. failed to discharge their liability the decree holder filed E.P.No.2/2016 for realisation of an amount of Rs.13,68,360/- with interest from the judgment debtors and also applied for sale of the property based on the charged decree passed on 15.6.2015. It is in this context, the claim petitioner filed E.A. 298/2017 claiming first charge on the property and opposed the proposed sale in the execution proceedings.
3. The claim petitioner contended that the judgment debtors 2 and 3 had availed loans on various occasions mortgaging the property in its favour. There were transactions creating charge in the property even before institution of the Original Petition and also after lifting of attachment. The decree holder, who is the first respondent in the E.A.298/2017, opposed the claim petition. The judgment debtors, who are the parties to the compromise decree, did not choose to contest the claim petition for their own reasons.

4. The court below conducted an enquiry into the claim and after examining the documents on record, accepted the case of the claim petitioner that it had acquired first charge on the property. No oral evidence was adduced by any of the parties. On the side of the claim petitioner, Exts.A1 to A14 were marked. On the side of the decree holder, no evidence was tendered.
5. Contention of the decree holder that the charge created by the compromise decree on 15.6.2015 will prevail over the mortgage interest in favour of the claim petitioner, was not accepted by the lower court. By allowing the claim petition the court made it clear that, the proposed sale of the property in execution of compromise decree shall be subject only to the charge in favour of the Society.
6. Heard both sides.

7. Neither the decree holder nor the other respondents in the claim petition dispute that, even before institution of O.P.862/2013 there were various transactions of mortgage created with respect to the property in question in favour of the claim petitioner, by judgment debtors 2 and 3, in connection with availing of loans from the Society. The petition 'C' schedule property was attached before the judgment in the O.P., on 7.6.2013. The documents produced by the claim petitioner would show that the earliest mortgage created by judgment debtors 2 and 3 in respect of the property was on 3.6.2011 for a sum of Rs.3 lakhs and the said loan transaction was closed on 24.1.2012, before the institution of the O.P itself. Before closure of the above said loan, another mortgage was created a few days ago on 16.1.2012 for a sum of Rs.10 lakhs in respect of the same property. This mortgage continued to be in force on the date of filing of the Original Petition and it has not been redeemed or brought to an end hither to.
8. Since prior interest in favour of the claim petitioner was created by virtue of the mortgage, the attachment effected on 7.6.2013 cannot invalidate the earlier charge. Order XXXVIII Rule 10 of the CPC makes it very clear that, any attachment before judgment shall not affect rights existing prior to the attachment and also of persons not parties to the proceeding before the court. The decree holder also does not dispute that there was a prior charge created in favour of the claim petitioner on 7.6.2013, when the property was attached in the Original Petition. Thus, it goes without saying that, the property has always been subject to continuing charge in favour of the claim petitioner right from 16.1.2012.
9. There are subsequent mortgages executed by judgment debtors 2 and 3 in favour of the Society, on 19.2.2014 for a sum of Rs.3 lakhs and on 23.4.2014 for another amount of Rs.3 lakhs. The decree holder does not deny these two transactions also. Her contention is that those transactions do not create any charge in the property and are void under Section 64 of the CPC. The said provision of law invalidates the transfer and delivery of interest in the property effected in contravention of subsisting order of attachment. This contention did not find favour with the lower court. There were also three more transactions creating mortgage in favour of the Society after the attachment was lifted. On 3.10.2015, a mortgage was created for a sum of Rs.13 lakhs. On 16.11.2015 and 15.12.2015 also there were two more mortgages executed by judgment debtors 2 and 3 for a sum of Rs.50,000/- and Rs.80,000/-, respectively. Existence of these transactions is not in dispute.

10. The decree holder's contention in this respect is that, those are transactions which came into existence after the compromise decree passed on 15.6.2015, creating charge on the property. Consequently, the subsequent mortgages would take effect only subject to the charged decree, is the contention. The claim petitioner, it is contended, cannot acquire first charge in the property depriving the decree holder's right to bring the property to sale, is the argument.
11. What Section 64 of CPC invalidates is transfer or delivery of interest in the property after attachment while the order is in force. In the case of a mortgage created prior to the attachment for securing payment of future debt or discharge of a loan transaction, it is by all means a prior interest saved by Order XXXVIII Rule 10 of the CPC. Section 64 cannot come into play in such a situation and render the creation of charge void. Mere execution of a loan application during continuance of the attachment would neither amount to a transfer nor a delivery of interest in the property. Execution of continuing guarantee bonds in connection with availment of subsequent loans also will not be hit by Section 64 of the CPC, since the property had been given as security much before the order of attachment as proved by documents on record. On 19.2.2014 and 23.4.2014, there were, in fact no transfer of the property or interests therein. Only continuing guarantee bonds were executed in favour of the claim petitioner in connection with the loans availed on the said dates. The execution of continuing guarantee bonds on these dates will have retrospective operation from Ext.A6 mortgage date viz., 16.1.2012 when the property was offered as security for the future debts also.
12. Ext.A6 Gehan/mortgage hypothecation deed dated 16.1.2012 shows that, the property was offered as security resulting in creation of charge much before the attachment was ordered by the Family court. Ext.A6 further discloses that mortgage was intended not only for due repayment of the loan already availed on the date, but also for all future advances with the Society as per the terms and conditions in the loan sanctioning order. In other words, the charge created with respect to the property as on 16.1.2012 continued to be in force all through out, whenever the loans were subsequently availed by the borrowers. The position continued to be the same even after the attachment was ordered to be lifted and when it ceased on 29.7.2015. It is in evidence that the original title deed deposited with the claim petitioner has not been hitherto released to the third judgment debtor, even though the earliest loan availed for Rs.3 lakh was closed as early as on 24.1.2012. Therefore, the contention of the decree holder that the mortgages created during subsistence of attachment are void under Section 64 of the CPC, cannot be accepted.

13. Section 36 A of the Kerala Co-operative Societies Act 1969, creates special charge on movable or immovable property of the borrower, in favour of the Society, on the borrower executing Gehan which has all the characteristic features of a mortgage under provisions of the Transfer of Property Act. When Section 36 A provides for a special charge, it is obvious that a charge created by a decree cannot prevail over Gahan/mortgage hypothecation. In short, the charge created by mortgages executed on 3.10.2015, 16.11.2015 and 15.12.2015, by all means prevails over the charge created by the compromise decree of the court. In any view of the matter, under no circumstances, neither the attachment effected by the court nor the charged decree passed by it can defeat the charge created by the mortgages executed by judgment debtors 2 and 3 in favour of the claim petitioner.
14. The claim petitioner has a contention that it is entitled to realise a total amount of Rs.17,82,012/- with interest from the borrowers. We are not concerned with the correctness of the amount claimed nor is it relevant also for our consideration in this proceeding. The legal position in view of what we have discussed in detail above is that, the claim petitioner is entitled to first charge over the property and has every right to recover the arrears of debt by proceeding against the property. The decree holder in execution of the compromise decree can apply for sale of property subject only to the first charge in favour of the claim petitioner and without affecting its right. The lower court has made this position clear in the impugned order. The view taken by the lower court cannot be said to be illegal or perverse and we do not find any reasons to interfere with the same.
Confirming the impugned order passed by the Family court, Thrissur, we dismiss Original Petition.
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