This article is authored by Miran Ahmed who is a student of BBA.LLB(H) at Amity Law School, Kolkata; and deals with the distribution of assets under the Code of Civil Procedure.
The Civil Procedure Code, 1908 is a procedural law related to the administration of civil proceedings in India. It lists the procedure for the distribution of assets by a Court for cases involving one party or more, on deciding which assets are available for rateable distribution and which are not; and the method of distribution of assets in such cases. The individuals holding a decree can participate in the assets of the judgement-debtor. In cases where multiple parties hold a decree, the judgement for co-plaintiffs is passed as a whole but the execution of decree can be done in a matter of attachment and sale. There is a special provision in the Civil Procedure Code that deals with the execution of decree when there are multiple parties involved.
Nature, scope and objective
The distribution of assets involves evaluation of the market value of assets, analysation of the share of individuals entitled to the assets, granting a decree to the individuals entitled to the assets by passing judgement and executing the decree to divide the assets among the entitled individuals.
For example, ‘X’ and ‘Y’ are co-plaintiffs and become decree-holders after the judgement is granted which entitles them to the assets. Let us say for the purpose of the execution of decree since ‘X’ is entitled to half of the assets in the suit related to property, whereas ‘Y’ is entitled to only a quarter. The execution of such property shall be done according to respective shares of individuals in a matter of the sale. And whatever the amount be received after selling off that property, for the purpose of execution of such decree, ‘X’ will get exactly half the amount whereas ‘Y’ will get exactly one fourth the amount. This process of distribution is called distribution of assets for civil suits and the provisions regarding the same are provided under Section 73 of the Code of Civil Procedure, 1908.
The object of Section 73, which provides for the distribution of proceeds of execution sale rateable amongst the decree-holders, is to provide a cheap and expeditious remedy for the execution of money decree held against the same judgment-debtor by adjusting the claims of rival decree-holders without the necessity for separate proceedings. The special provision was provided to ensure all the decree-holders had an equal footing in the property or assets they were entitled to, for the purpose of execution. And that each decree-holder secured their share of the assets lawfully. There are two prime objectives of the special provision under Section 73, which are:
- It helps prevent an unnecessary multiplicity of proceedings when dealing with multiple parties holding a decree or claim to be entitled to a share in the assets.
- To ensure a lawful and equitable distribution of assets among all decree-holders by providing an equal footing to them.
The following conditions must be met to entitle a decree-holder to participate in the assets of a judgement-debtor and are essential for the application of Section 73:
- An application must be made to the Court which holds the assets by the decree-holder claiming to share in the rateable distribution;
- Such an application should have been made before the receipt of assets held by the Court;
- Only the assets held by the Court can be claimed in rateable distribution;
- Both the attaching creditor and the decree-holder claiming to participate in the assets should hold the decree for payment of money;
- Such decree should have been obtained against the same judgement-debtor.
In the case of Bharat Paint Mart V. Bhagwati Devi, 1961, it was held that the essential conditions of Section 73 must be met for its application as stated above.
The holder of a decree against two or more persons applies for a rateable distribution of the assets realized from the property of one person, the application is one for the execution of the decree against the same judgement-debtor. Also, a decree against a partner and a decree against him in his individual capacity are decreed against the same judgement-debtor. But a decree against a firm and a decree against a partner in his individual capacity are not against the same judgement-debtor.
In the case of Boban V. Sajith Kumar, 2003, the Kerala High Court reiterated that the application for execution of decree must be filed to the Court before the assets came into the custody of the said Court.
Section 73 does not require a separate application for rateable distribution and there cannot be any objection to include a prayer for distribution of assets in an application which is, in fact, the execution of the decree itself This can be observed in the case of M/s. Suraj Lal V. P.R.K Sugar Works,1960 by the Allahabad High Court and Shamsunder and Co. V. Sunnilal Vesaji, 2001 by the Mysore High Court, where the decree-holder had his decree under execution before the Court received the assets and was entitled to claim rateable distribution. Section 73 has nothing in it that warrants the decree-holder to make a separate application for rateable distribution.
Assets available for rateable distribution
Section 73 provides for a case where the assets are held by a court, and multiple individuals have made an application to the court for the execution of decrees and payment of money before the receipt of assets. And have not obtained the assets after deduction of the cost of realization. Such assets will be rateaby distributed among all persons entitled to the property provided if any property is sold subject to mortgage or charge; the mortgagee shall not be entitled to share in any surplus arising from the sale. And any property liable to be sold in execution of decree subject to mortgage or charge may be ordered by the Court to be sold free from mortgage or charge with consent of the mortgagee, giving him the same interest in the proceeds of the sale as he had in the property sold.
With regard to the distribution of the proceeds of the sale, Section 73(1)(c) provides, “Where any immovable property is sold in execution of a decree ordering its sale for the discharge of an incumbrance thereon, the proceedings of sale shall be applied in the following way:
Firstly, in defraying the expenses of the sale;
Secondly, in discharging the amount due under the decree;
Thirdly, in discharging the interest and principal money due on subsequent incumbrances (if any); and
Fourthly, rateably among the holders of decrees for the payment of money against the judgment-debtor, who have, prior to the sale of the property, applied to the court which passed the decree ordering such sale for the execution of such decrees, and have not obtained satisfaction thereof?”
In M. Jambanna V. K. Honnappa, it was held that the learned judge was wrong in denying the claim to rateable distribution as the application was filed before the receipt of assets by the Court as required by the rules under Section 73.
In Kotak & Co. V. State of U.P, 1987, it was held by the Supreme Court that the application claiming rateable distribution must have been made to the Court holding the assets before the assets were received by the Court.
Cost of Realization
The cost of realization of assets by the Court is deducted from the total value of the asset before the decree is executed and the asset is then distributed to the entitled individuals. The cost is borne by the decree-holder as the process of realization of the asset is done for the decree-holder or the individual entitled to the asset.
Mode of Distribution
The distribution of rateable assets is done by sale if two or more parties are involved. A property entitled to two individuals is sold by the Court and the cost of realization is deducted from the total sale value of the property. The remaining amount is then divided between the two parties based on the share they are entitled to and distributed.
Suit for Refund
Section 73(2) states that when all or any assets liable to be rateably distributed are paid to a person not entitled to receive the same, the person entitled may sue such a person and compel him to refund the assets.
In the case of Suryarao v. Chalamayya (AIR (34) 1947 Madras 339), a person not entitled to rateable distribution was wrongfully paid a portion of the assets. A court cannot be deprived of its jurisdiction to pass orders reversing its own orders to meet the ends of justice.
In the case of Laxmi Narain V. Firm Ram Kumar, 1970, the Court had erroneously disbursed the entire assets to one of the decree-holders when the request for rateable distribution of the other decree-holder was pending consideration. The decree-holder who received the entire amount was asked to refund the rateable amount to the excluded decree-holder.
The priority of Government Debts
During the execution of a decree, the priority shall be given to Government debts during the distribution of assets. In the case of Excise And Taxation Officer V. Gauri Mal Butail Trust, 1959, it was mentioned that “The Common Law doctrine, that if the debts due to the Crown are of equal degree to the debts due to a private citizen, then the crown must have priority against the private citizen, is a part of the law of this country.”
Determination of claim
The application of claim by decree-holders is analysed to determine the share of the entitled parties. And the rightful execution of a decree is done to ensure equitable distribution of assets under law. The determination of claim is essential to establish the debt to the government which takes precedence over other debts.
In this case, a revision petition was filed by the Income Tax Officer of Madura South praying that out of some money in the custody of that court in the course of the execution of a decree obtained by the present petitioner, the arrears of income-tax due by the assessee might be paid in the first instance. It was to be determined whether the debt to the Government takes priority and if the Income Tax Officer’s petition to a civil court was sustainable. The decision was that the debt to the Government took priority and a remedy given by a statute for the recovery of a debt due to the Government in no way takes away the right of the Government to invoke other methods if it thinks fit.
Section 108 mentions the procedure of appeals and appellate jurisdiction. The order of execution of a decree cannot be appealed and therefore any order under Section 73 for the purpose of distribution of assets is not appealable. This was not the case prior to the Amendment Act of 1976 as it was made appealable.
However, Section 144 discussed the application for restitution where a decree or order is reversed in any appeal, revision or other proceeding or set aside or modified in any suit instituted for that purpose; the Court that passed the decree shall cause restitution to be made to any party entitled to such restitution. The Court may make any orders which may include the order of refund of costs and payment of interest, damages, compensation and mesne profits. The Court which passed the order includes:
- The Court of the first instance where the decree is varied or reversed in the exercise of appellate or revision jurisdiction.
- Where the decree has been set aside by a separate suit, also in the Court of the first instance.
- Where the Court of the first instance has ceased to exist or ceased to have jurisdiction to execute it.
Section 115 discussed the procedure with regards to the revision of cases. The High Court may call for the record of any case which has been decided by a subordinate court and in which no appeal lies if the Court appears
- To have exercised a jurisdiction not vested in it by law,
- To have failed to exercise a jurisdiction vested in it by law,
- To have acted in exercise of its jurisdiction illegally or with irregularity.
The High Court shall not reverse or vary any order deciding an issue in the course of a suit except where the order made in favour of the party applying for revision would have disposed of the suit. The High Court shall not reverse an order against which an appeal lies in the High Court or subordinate court. Also, the revision shall not operate as a stay of suit or other proceedings before the Court except where the suit or other proceedings is stayed by the High Court.
In the case of Dhirendrarao Krishna V. Virbhadrappa, a revision application is observed when a review is requested allowing rateable distribution of the proceeds of a sale in execution at the suit of the applicant. But the application is turned down the judge.
The provisions for distribution of assets provides a fair claim for each decree-holder. The Civil Procedure Code is of superior judicial quality than what is generally available under other statutes. It is a body of procedural law designed to facilitate justice and it should not be treated as an enactment providing for punishments and penalties. The laws under this code should be so construed as to render justice wherever reasonably possible. The judge is entrusted exclusively with the administration of justice to the best of his ability under the provisions of the law.
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