Recovery through sale of mortgaged property: no fresh notice needed for commencement of execution proceedings: SC

The Supreme Court has upheld that under Section 19(1) of the Financial Institutions (Recovery of Finances) Ordinance 2001, no fresh notice is required for commencement of execution proceedings to sell mortgaged property in case of non-payment of availed financial facilities. A three-judge bench, headed by Justice Gulzar Ahmed, on 7th August, 2019 after hearing the arguments of the parties' lawyers had reserved the judgment. Fibercare Specialties, a proprietorship concern of the petitioner's (Nazli Hilal Rizvi) husband, availed financial facilities from respondent No.1 (Bank Alfalah Ltd) between the years 2007 and 2010.
This business was being run on property situated in Shah Baig Gabool Goth, FB Industrial Area, Karachi, owned by the petitioner. To secure the finance the property was mortgaged with the respondent No.1 (the bank). The last date to retire the debt expired on 30.04.2010 on which date a sum of Rs 3,972,399.47 was due towards principal amount excluding markup.
As the business failed to discharge its financial obligation within the stipulated time, even after a lapse of about 10 months of the debt becoming due, the respondent No.1 filed suit in the Banking Court on 11.02.2011 for recovery of principal amount along with markup and cost of funds.
The husband and son of the petitioner were both sued as guarantors of the finance provided for the business and she herself was sued as mortgagor as well as guarantor. They filed applications which were dismissed on 14.11.2012. The suit was then decreed for a sum of Rs 4,356,902.58 (Rs 3,972,399.47 being principal amount and Rs 384,503.11 towards markup that accrued up to 30.04.2010). None of the three judgment debtors preferred appeal and the judgment and decree passed by the Banking Court attained finality upon expiry of the period of limitation.
For recovery of the decretal amount through sale of mortgaged property, the respondent No.1 bank moved an application to the Banking Court on 21.10.2013 seeking conversion of the suit into execution proceedings as envisaged under Section 19 (1) of the Financial Institutions (Recovery of Finances) Ordinance, 2001.
The Section 19 (1) says, "Upon pronouncement of judgment and decree by a Banking Court, the suit shall automatically stand converted into execution proceedings without the need to file a separate application and no fresh notice need be issued to the judgment-debtor in this regard....".
The Banking Court thereafter while proceeding with execution of the decree issued notice for attachment of the mortgaged property on 12.02.2014 which was followed by another notice on 17.04.2014 for settlement of proclamation of sale after which on 23.05.2014 a notice for the sale of mortgaged property was issued. All notices were issued at the address on which the judgment debtors were initially served.
Thereafter, auction notice inviting bids was published in leading newspapers on 06.08.2014. Finally, on 11.08.2014 the mortgaged property was sold in auction for a sum of eleven million rupees as against the forced sale value assessed at Rs 10.344 million. After the property was auctioned, the petitioner moved an application under Order 21 Rule 90 of Code of Civil Procedure on 08.09.2014 seeking to set aside the auction mainly on the grounds of want of notice of the execution proceedings and incorrect appraisal of the mortgaged property.
In the application it was claimed that she was a resident of USA and no notice of execution application was served at her US address and the property worth twenty-one million rupees, having forced sale value of Rs 16 million was sold for Rs 11 million. Not convinced with any of the pleas taken by the petitioner, the Banking Court dismissed her application. The petitioner preferred appeal in the High Court, which too was dismissed.
The Supreme Court held that both the courts below rightly held that no case of want of notice on the petitioner of the execution proceedings was made out as in terms of Section 19(1) of the Financial Institutions (Recovery of Finances) Ordinance 2001 no fresh notice was required for commencement of execution proceedings and power of petitioner's counsel in any case was on the record to represent her. After dismissal of the leave to defend application, the judgment debtors ought to have anticipated that judgment and decree would be eventually passed for the sale of the mortgaged property, which was ultimately passed and was accepted by not preferring appeal. In such eventuality the only act that could have prevented the sale through auction was payment of the decretal amount for which considerable period of time was at their disposal, ie, 18 long months but they failed to do so.
The executing court, though in terms of Section 19(1) of the Financial Institutions (Recovery of Finances) Ordinance 2001 was not legally obliged to issue notice of execution proceedings, out of abundant caution had issued the same at the petitioner's address available on record, ie, the address on which she was served in the suit and had filed leave to defend application through her counsel who continued to hold power to represent the judgment debtors throughout proceedings.