SUPREME COURT HOLDS THAT SECURITY FURNISHED BY APPLICANTS CANNOT BELONG TO A THIRD PARTY

A two Judge Bench of the Supreme Court comprising of Justice K.M. Joseph and Justice Hrishikesh Roy passed a Judgment dated 18.05.2023 in the case of ‘Arti Dixit and Anr vs Sushil Kumar Mishra and Ors., Civil Appeal No. 3858 of 2023’ and held that the security / surety furnished under Section 17 of the Provincial Small Cause Courts Act, 1887 must be enforceable for sale and cannot be in the name of a third party.

Facts:

In the present case, one, Ms. Arti Dixit (Defendant- Appellant 1), one, Rajat Dixit (Defendant- Appellant 2) and one, Abhishek Dixit (Defendant- Appellant 3) were residing in Sivaji Nagar, Uttar Pradesh as tenants in a house owned by one, Mr. Sushil Kumar Mishra (Plaintiff-Respondent). Due to unknown reasons, the Appellants failed to pay their monthly rents and taxes that were due to the Plaintiff-Respondent.

In 2012, to recover the same, the Plaintiff-Respondent instituted a Small Cause Court Suit No. 27 of 2012 (SCC Suit) in the Small Causes Court, Kanpur Nagar, Uttar Pradesh (Trial Court) against the Appellants praying for a decree of ejectment and recovery of arrears of rent, taxes, damages, etc.

The Trial Court vide Order dated 18.10.2012 granted an ex-parte Decree in favor of the Plaintiff-Respondent for the recovery of rent and taxes amounting to Rs. 98,624/- (Decretal amount) that were due from the Appellants. The Plaintiff-Respondent executed the ex-parte Decree dated 18.10.2012 on 05.04.2014.

The Appellants claimed that they had no knowledge of the ex-parte Decree passed by the Trial Court and in response to it, made an Application dated 06.05.2014 (Application 1) under Section 17 of the Provincial Small Cause Courts Act, 1887 (PSCC Act) – (Application of the Code of Civil Proidecure,1908) in the Trial Court. The Appellants, in the Application filed them dated 06.05.2014, prayed that out of the total Decretal Amount, the amount of Rs.12,600/- had been deposited by them in the Trial Court, whereas for the remaining amount of Rs. 86,024/-, a tender of Rs. 36,024/- had been annexed. The Appellants sought permission for furnishing surety for the remaining amount of Rs. 50,000/- and prayed for the same to be taken on record, from the Trial Court under Section 17 of the PSCC Act.

The Appellants further filed another Application dated 06.05.2014 (Application 2) under Order 9, Rule 13 of the Code of Civil Procedure, 1908 (C.P.C) – (Setting Aside Decree Ex Parte Against Defendant) and prayed to set aside the ex-parte Decree dated 18.10.2012 by the Trial Court.

The Trial Court vide Order dated 23.09.2015 dismissed both the Applications dated 06.05.2014 on the ground that the surety furnished by the Appellants in Application 1 was not in accordance with the law, therefore, the Trial Court found no justification in passing an order favorable to the Appellants in Application 2.

Aggrieved by the Trial Court Order dated 23.09.2015, the Appellants filed a Writ Petition before the Allahabad High Court in Matters Under Application 227 in 2175/2021 (MUA 227) praying to set aside the ex-parte Decree dated 18.10.2012 passed by the Trial Court.

In the High Court

The High Court observed that the surety presented by the Defendant- Appellant 3 was a rental shop vested in the name of in Municipal Corporation Kanpur Metropolitan, Kanpur. Since the Defendant- Appellant 3 was not the owner of the rental shop presented as surety, the High Court held that the surety could not be recovered by selling the shop under the provisions of Section 145 of C.P.C (Enforcement of Liability of Surety). Therefore, the High Court vide Order dated 19.08.2021 dismissed the MUA 227- 2175/2021 and held that the Trial Court was right in dismissing the Appellants Applications.

Aggrieved by the High Court Order dated 19.08.2021, the Appellants filed a Civil Appeal No. 3858 of 2023 in the Supreme Court for setting aside the ex-parte Decree dated 18.10.2012.

Supreme Court Observations:

After hearing both the parties, the Hon’ble Supreme Court observed the following-

1) That upon filing an application under Section 17 of the PSCC Act, the applicant must firstly seek a direction from the concerned court whether to submit the security in cash/ any other kind. When the court gives its direction regarding the nature of the security that requires deposition, the applicant should present his application for setting aside the ex-parte decree, together with the security demanded. In response to this, the concerned court will scrutinize the security to its satisfaction.

2) That upon scrutinizing the security submitted by the applicants, the concerned court could either dispense with the security or take it on record.

3) That a security provided under Section 17 of the PSCC Act is liable for sale as enforced under the provisions of Section 145 of C.P.C. Section 145 C.P.C is produced below for easy reference-

‘145. Enforcement of liability of surety

 Where any person has furnished security or given a guarantee —

(a) for the performance of any decree or any part thereof, or

(b) for the restitution of any property taken in execution of a decree, or

(c) for the payment of any money, or for the fulfilment of any condition imposed on any person, under an order of the Court in any suit or in any proceeding consequent thereon, the decree or order may be executed in the manner therein provided for the execution of decrees, namely:—

(i) if he has rendered himself personally liable, against him to that extent;

(ii) if he has furnished any property as security, by sale of such property to the extent of the security;

(iii) if the case falls both under clauses (i) and (ii) then to the extent specified in those clauses, and such person shall, be deemed to be a party within the meaning of section 47. Provided that, such notice as the Court in each case thinks sufficient has been given to the surety of the Act. Section 145 of the CPC inter alia provides that the security provided by a surety can be enforced by effecting sale of the property.’

4) That the security should be of such nature that it can be lawfully sold to satisfy a decree passed for recovery of arrears, rent, taxes, etc.

5) That after filing an application under Section 17 of the PSCC Act, the applicant must file an application under Order 13 rule 9 of C.P.C to set aside the ex-parte decree passed against him.

6) That in the present case, the security submitted by the Appellants in the form of a rental shop, is in the name of a third party, i.e. Municipal Corporation Kanpur Metropolitan, Kanpur, therefore, it fails to qualify for enforcement under Section 145 of C.P.C as none of the Appellants are the rightful owners of the rental shop.

Conclusion:

Thus applying the above observations, the Hon’ble Supreme Court vide Order dated 18.05.2023 dismissed the Civil Appeal No. 3858 of 2023 filed by the Appellants on no merits.

 

Shalini Donthi

Legal Associate

The Indian Lawyer