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Violations of Mandatory Legal Provisions --- Lahore High Court Declares Auction Sale Invalid

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Violations of Mandatory Legal Provisions --- Lahore High Court Declares Auction Sale Invalid

Islamabad 23-11-2024: The Lahore High Court (LHC) Multan Bench, in a significant ruling, declared an auction sale conducted in favor of Bank Al-Habib as null and void, citing non-compliance with mandatory provisions of the Code of Civil Procedure, 1908 (CPC). The decision was delivered in the case of M/s Rafi Cotton Industries (Pvt.) Ltd. & Others Vs. Bank Al-Habib & Others (EFA No. 30/2022).

The Court held that the auction proceedings violated Rule 84 of Order XXI, CPC, which requires the highest bidder to deposit 25% of the purchase money immediately after the sale. Upon failure, the property must be re-sold in a fresh auction. Instead, the property was offered to the second and third highest bidders without adhering to this rule, rendering the sale invalid.

The Court emphasized that public auctions must ensure competitive bidding. It raised concerns over repeated adjournments, which facilitated the participation of the decree-holder bank and led to a lack of competitive bidders. The presence of only one bidder was held contrary to the principles of public auction and transparency.

While the decree-holder bank claimed a right of set-off under Rule 72 of Order XXI, CPC, the Court clarified that this privilege does not excuse compliance with statutory requirements, including immediate deposit and re-sale upon default.

Although the appellants failed to deposit 20% of the auction amount under Rule 90 of Order XXI, CPC, the Court ruled that procedural violations in the auction process outweighed this lapse. Exceptional circumstances justified setting aside the auction.

The Court criticized the auctioneers for failing to ensure transparency and fairness in the auction process. It noted that the repeated adjournments facilitated the decree-holder bank, raising doubts about the integrity of the auction proceedings.

The Lahore High Court declared the auction sale as null, void, and of no legal effect, setting aside the confirmation order dated October 13, 2022. The Court directed the property to be auctioned afresh in compliance with the mandatory provisions of the law.

This ruling underscores the mandatory nature of auction rules under the CPC, emphasizing the importance of transparency, fairness, and adherence to statutory provisions in public auctions. It serves as a reminder to Courts and auctioneers to ensure compliance with the law to protect the interests of all parties involved.