1. This Letters Patent Appeal arises out of restitution proceedings in O. S. No. 37 of 1951, Sub-Court, Madurai. The first respondent herein is the judgment-debtor. The second respondent is the decree-holder-purchaser and the appellant is a purchaser from the decree-holder-purchaser.
2. The second respondent filed the suit, O. S. No. 37 of 1951, to recover a sum of nearly Rs. 9050 as due to him in respect of two loans, Rs. 6000 and Rs. 2000 respectively and obtained a decree for that sum together with subsequent interest on .18-11.1952. The first respondent herein, the debtor, filed an appeal to this Court in A. S. No. 174 of 1953 (Mad) and during the pendency of the appeal, it appears, the debtor paid several sums on various dates in all amounting to Rs. 3500, but he did not completely comply with the conditions subject to which stay of execution was ordered by the High Court. The decree, holder therefore pursued his execution petition and purchased the properties himself at the auction sale on 21-8-1954, for a sum of Rs. 6015. The judgment-debtor filed an application under O. XXI, R. 90, C. P. C, to set aside the sale but it was dismissed and the sale was confirmed on 3 8-1954. The decree-holder-purchaser took delivery of the properties on 30-8-1954.
3. On 26-7-1956, the appellant entered into an agreement to purchase those properties from the decree-holder-purchaser. In the meanwhile, on 4-12-1956, the judgment-debtor's appeal, A. S. No. 174 of 1953 (Mad) was allowed; as a result of which the judgment debtor succeeded to a substantial extent in this Court. But even before the judgment by the High Court, on 17-11-1956, the decree-holder executed a sale deed in favour of the appellant herein. It appears that there was some dispute about registration, and the sale deed was registered compulsorily after the judgment of the High Court.
4. The judgment-debtor filed E. A. No. 266 of 1957, out of which the present appeal arises, for restitution by way of re-delivery to him of the property sold in Court auction. The learned Subordinate Judge dismissed his application, holding that the appellant herein is a bona fide purchaser from the decree-holder-purchaser, and therefore, an order for restitution could not be passed as against the property in his hands. This order was confirmed on appeal by the learned District Judge. The judgment-debtor, the first respondent herein, preferred C. M. S. A. No, 147 of 1.960 and Ramachandra Iyer, C.J., allowed the appeal and ordered restitution and redelivery of the property. The appellant (the purchaser from the decree-holder-purchaser) has filed the present Letters Patent Appeal.
5. After an anxious and careful consideration of all the aspects of the matter adverted to in the judgment of the learned Judge we have come to the conclusion that this appeal has to be allowed. We are free to confess that the question which arises for decision is by no means free from difficulty, but, with due respect, we are of the opinion that the view taken by the learned Judge is not in line with some of the Bench decisions of this Court with which we find ourselves in respectful agreement.
6. Before the learned Judge some argument appears to have been advanced on the question as to what exactly would be the state of account between the judgment-debtor and the decree-holder after the judgment of the High Court. On behalf of the purchaser, it was contended that giving credit for all the part payments made, a sum of Rs. 190 and odd was still due by the judgment-debtors and therefore the execution sale was clearly justified. On the other band, on, behalf of the judgment-debtor, it was contended that he had really over paid a sum of Rs. 2318-0 and therefore there was no justification for the execution sale. It was also contended that the appellant (that is the purchaser from the 'decree-holder-purchaser) was bona fide purchaser for value having paid Rs. 6500 and that he had no knowledge of any defect or infirmity in the title of his vendor. The learned Judge did not express any final opinion on these aspects, in the view he took, that in the matter of liability for restitution, there was no difference between a decree-holder-purchaser and a purchaser from him, even though the latter may be a bona fide transferee for valuable consideration.
7. The learned Judge, has followed the view taken by the Calcutta High Court in two Bench decisions, Satischandra v. Rameswari Dasi, AIR 1915 Cal 363 : 31 Ind Cas 894 and Sagore v. Mofi Juddin, AIR 1920 Cal 550 : 24 Cal WN 50 : 51 Ind Cas 959. The main reasoning of the learned Judge is that (a) when a property is purchased in execution of a decree by the decree-holder-purchaser himself, such property will undoubtedly be liable to an obligation or claim for restitution in the event of the decree under execution being reversed or set aside on appeal, and that a decree-holder-purchaser placed in that situation, cannot confer a better or higher title than what he has, by selling the property to a stranger however bona fide he may be; and (b) the rule that a sale cannot be set aside and restitution cannot be obtained if the sale had duly taken place, in execution of a decree in force at the time of execution, ought to be confined to stranger purchasers and should not be applied to decree-holder-purchasers or purchasers from such decree-holder-purchasers.
8. Section 144, C. P. Code which provides for restitution runs as follows :
'1. Where and in so far as a decree is varied or reversed, the Court of first instance shall, on the application of any party entitled to any benefit by way of restitution or otherwise, cause such restitution to be made as will, so far as may be, place the parties in the position which they would have occupied but for such decree or such part thereof, as has been varied or reversed; and for this purpose, the court may make an order, including orders for the refund of costs and for the payment of interest, damages, compensation and mesne profits, which are properly consequential on such variation or reversal.
2. No suit shall be instituted for the purpose of obtaining any restitution or other relief which could be obtained by application under Sub-section (1).''
9. This provision merely embodies the cardinal principle of law that acts of Court should not be allowed to work any injury on the suitors and it is the clear duty of the Court to place the parties in the position which they would have occupied but for the erroneous order or decree which it had passed. The section is not exhaustive of the powers of the Court to order restitution and in suitable and appropriate cases, where ends of justice require, restitution can be and has been ordered under the Court's inherent jurisdiction. For instance, variation of the decree or the setting aside of the decree need not necessarily be in an appeal but it may be in a separate proceeding, in which case restitution is ordered under inherent jurisdiction apart from the provision Under Section 144. It is true that the power and duty to grant restitution which is based upon principles of equity is to restore the status quo between the parties. But at the same time it may be noticed that in some cases it will not be possible to restore the exact status quo ante between the parties on account of certain altered situations. That is just the reason, why the language employed in the-section is not absolute in character but specifically provides that
'the court of the first instance shall, on the application of any party entitled to any benefit by way of restitution or otherwise, cause such restitution to be made as will, as far as may be, place the parties.....'
In other words, the significance of the use of the words 'as will, so far as may be' should receive their proper meaning in a particular context. The language of Section 144 does not admit of an unqualified absolute interpretation that the ultimate result of the case is to be completely ignored and restitution ordered in any event, merely because the decree in execution of which the sale took place is varied or reversed. In the matter of restitution, equitable considerations are certainly relevant and essential. While exercising its equitable jurisdiction Under Section 144, the court should act rightly and fairly according to the circumstances towards all the parties involved. Vide Jai Berham v. Kedarnath Marwari, 44 Mad L J 735 : AIR 1922 P C 269.
10. In the case of a stranger auction purchaser the principle as to why the judgment-debtor is not allowed to obtain restitution of the property is contained in the leading judgment of the Privy Council in Rewa Mahton v. Ramkishen Singh, ILR 14 Cal 18 (PC) :
'A purchaser under a sale in execution is not bound to inquire whether the judgment-debtor had a cross-judgment of a higher amount any more than he would be bound in an ordinary case to inquire whether a judgment upon which an execution issues has been satisfied or not. Those are questions to be determined by the Court issuing the execution. To hold that a purchaser at a sale in execution is bound to enquire into such matters would throw a great impediment in the way of purchases under executions. If the court has jurisdiction, a purchaser is no more bound to enquire into the correctness of an order for execution than he is as to the correctness of the judgment upon which the execution issues.'
If the purchaser were to lose the benefit of his purchase on the contingency of the subsequent reversal of the decree, there will be no inducement to the intending purchasers to buy at execution sale and consequently the property would not fetch its proper price at such sales, and the net result would be that the judgment-debtor would be the ultimate sufferer. This wise policy of protecting the title of the stranger purchaser, even though in any individual case it may work some hardship, is clearly conceived in the interests of the general body of judgment-debtors so that purchasers will freely bid at the auction without any fear of later objection. But in the case of a decree-holder-purchaser the rule is different and in that case the purchase is subject to the final result of the litigation between the decree-holder and the judgment-debtor.
11. Learned counsel for the first respondent contends that it is the latter rule which applies to the instant case. His contention is that the general rule is that no man can convey a better or higher title than what he has, barring certain specified exceptions contained in some of the statutes, and that in this case at the time of the execution sale an appeal from the original decree was pending, and that when the property was purchased by the decree-holder, in his hands, it was undoubtedly subject to a claim for restitution, the title itself being a defeasible title depending upon the reversal of the decree, and that the decree-holder-purchaser cannot possibly transfer or pass on the property free from that obligation for restitution. He further urges that a person who purchases property from a person with such a defeasible title must suffer restitution when there is a reversal of the decree in execution of which the sale had taken place.
12. On the other hand, the argument of the learned counsel for the appellant is that the protection which is extended to a stranger: purchaser would equally apply whether a stranger is one who directly purchases in execution sale or one who bona fide purchases the property from the decree-holder purchaser for valuable consideration. His main argument is that at the time when the property was sold there was a valid enforceable decree, that the Court had ample and undoubted jurisdiction to sell the property, and that a valid title clearly passed to the decree-holder-purchaser. Learned counsel further contends that in this view, there was no defect whatsoever in the title of the purchase and that a tingent future claim for restitution cannot possibly be regarded as a defect in the title of the purchaser, and that, therefore, the rule that no man can convey a better or higher title than what he has, has no application to the instant case.
13. Mr. Thiagarajan, learned counsel for the first respondent, placed strong reliance upon certain observations of the Privy Council in the leading case Zain-ul-abdin Khan v. Mohamed Asghar Ali Khan, ILR 10 AH 168 (PC). It is necessary to have a precise and accurate idea of the facts of that case and the decision therein. In that case several properties of the judgment-debtor were sold in execution of an ex parte decree and some items were purchased by the decree-holder, and some items by strangers. Later on, the decree-holder sold some of the items purchased by him to strangers. After the ex parte decree was set aside the judgment-debtors commenced proceedings to set aside all the auction sales and obtain restitution of the properties sold in execution, and he had impleaded the decree-holder-purchaser, the purchasers from him, and stranger purchasers as parties thereto. The trial Court decreed restitution as against all at them without making any distinction between the three sets of defendants. Stranger purchasers-defendants who had purchased the property, bona fide in the execution sale alone took up the matter on appeal to the High Court; and the High Court reversed the decision of the trial Court and passed a decree dismissing the judgment-debtor's claim for restitution. The plaintiff-judgment-debtor preferred an appeal to the Judicial Committee to which the aforesaid stranger-purchasers alone were parties, and judgment of the High Court was affirmed by the Privy Council on the ground that when an auction sale had duly taken place in execution of a decree in force at that time, it could not atterwards be set aside and restitution ordered as against a stranger bona fide purchaser. It must be noticed that in the appeal before the Privy Council, purchasers from decree-holder-purchasers, were not parties at all, and the Privy Council merely decided, that the principle which applies to a decree-holder-purchaser, would not apply to a stranger bona fide purchaser at an execution sale. As the decree drafted by the High Court created a doubt that the plaintiff's suit should stand dismissed as against all the defendants (even though there was no appeal to the High Court by the decree-holder-purchaser and purchasers from them), the Privy Council made it clear that the High Court decree should be confined only to the properties purchased by the stranger bona fide purchasers, and that the decree for restitution passed by the trial Court in regard to the properties purchased by the decree-holder and purchasers from decree-holder would not in any way be affected by the decree of the High Court. Once this is noticed, it will be clear, that this decision on the Privy Council cannot be regarded as an authority for the position contended for by the learned counsel for the first respondent. In the narration of facts, Sir Barnes Peacock, at page 170 stated the facts thus :
'Some of the defendants were the decree-holders, and some were persons who came in under them; but all the defendants who are in that position may for the purpose of this judgment be classed under the head of the decree-holders. Others of the defendants were not decree-holders, but merely purchasers under the execution and strangers to the decree upon which the execution issued.'
Learned counsel :for the first respondent relied upon this statement of the facts as indicative of the view of the Privy Council that no distinction exists between a decree-holder purchaser and persons who claim title through them. In support of this argument learned counsel relied upon the judgment of the Bench of the Calcutta High Court in A I R 1915 Cal 363, in which 'this identical statement of Sir Barnes Peacock of the Privy Council was relied upon by the learned Judges, as authority for the position that persons claiming through decree holders stand on the same footing as the latter. With great respect to the learned Judges of the Calcutta High Court, we are unable to share their view. As mentioned earlier, in ILR 10 All 166 (PC), persons who claimed title from the decree-holder purchasers were not before, the Privy Council, and their rights were not agitated and there was no occasion for any decision. It is significant to notice that even the Privy Council in the statement extracted above had emphasised that it was only for the limited purpose of the judgment, that both the class of purchasers were classed under the head of 'decree-holders.'
14. We shall first refer to the decisions of this court which support the contention of the appellant, that restitution is impracticable and cannot be ordered where a decree-holder purchaser has sold the property to a bona fide stranger purchaser.
15. In Marimuthu Udayar v. Subbaraya Pillai, 13 Mad L J 231, the property of the judgment-debtor was sold in execution and purchased by the decree-holder himself, without obtaining the permission of the court Under Section 294, C. P. C. (corresponding to present O. 21, R. 72, C. P. C). Before the judgment-debtor took proceedings to set aside the sale on the ground of this irregularity the decree-holder purchaser, had sold the property to a stranger-purchaser, and the question arose whether the latter was bound to give back the property to the judgment-debtor. While neatening the claim for restitution the learned Judges observed as follows at p. 235:-
'But such restitution is impracticable in favour of a purchaser for value from the decree-holder or from the purchaser benami for the decree-holder. A purchase by the decree-holder, without the permission of the court (whether made by himself or through another person) being Under Section 294, Civil P. C, not void, but only voidable, it cannot for the above reasons be avoided against a transferee in good faith for valuable consideration, and this is in accordance with the principle of law that as a general rule, the right to avoid an avoidable contract is determined when the vendee has before the vendor's election to avoid, transferred the property to a purchaser in good faith for valuable' consideration (Babcock v. Lawson, (1880) 5QBD 284; affirmed on appeal The Horlock (1877) 2 P D 243; Leake on Contracts, 3rd Edn. at p. 327).'
From this statement it is clear that there is no substance in the argument of the learned counsel for the first respondent based upon the theory of a defeasible title. The fact that the property in the hands of the decree-holder purchaser is liable to be taken away in a particular contingency is not regarded as a defect' in the title of the purchaser so as to prevent him from conveying a valid title to a bona fide purchaser. In other words, restitution becomes impracticable inasmuch as rights of bona fide third parties intervene. In our view the rationale underlying this decision clearly applies to the instant case.
16. The next decision we would like to refer to is Sheik Ismail Rowther v. Rajah Rowther, ILR 30 Mad 295, and in our opinion, this directly governs the instant 'case. In that case a compromise was entered into between the parties to a suit to the effect that a petition should be filed in terms of the compromise providing for the dismissal of the suit. But, the plaintiff, contrary to the arrangement, obtained a decree in his favour and also brought the properties of the judgment-debtor to sale and himself purchased the same in June 1897 and later on sold it, to bona fide stranger purchasers in May 1899. The judgment-debtor later on successfully got the decree amended directing that the suit shall stand dismissed according to the compromise between the parties. Thereupon he took proceedings for obtaining restitution. The District Judge granted restitution on the ground that the decree in the original suit and the sale thereunder were absolute nullities. But this view was reversed by the High Court. The learned Judges followed the Bench decision in 13 Mad L J 231, as authority for the position that a party claiming through a court auction purchaser is entitled to rely upon the plea that he was a bona fide purchaser for value without notice. It is significant to notice that the learned Judges held that the decision of the Privy Council in I L R 10 All 168 (PC) would not apply to that case as the purchasers were neither in the position of strangers who purchased at a court auction sale in execution or in the position of a party to the decree itself who is bound to grant restitution on the decree being set aside. We are of the opinion that I L R 30 Mad 295 is clear authority for the view that in the matter of restitution, there is a third category of persons, namely, bona fids purchaser for value claiming title from decree-holder purchasers. On the question as to whether the decree was void or voidable the learned Judges had observed as follows (at p. 297):
'We are unable to agree with the argument on behalf of the plaintiff, that the decree originally passed was void. The Court had undoubtedly jurisdiction over the subject-matter, and any error as to the effect of the compromise would not render the decree void. Assuming that the first defendant in obtaining the decree had been guilty of misrepresentation or fraud, the proceedings were only voidable, and a bona fide purchaser from him is entitled to rely on his title as such. The plaintiff had only an equity to set aside the proceedings which were the result of fraud or misrepresentation, and that equity cannot be allowed to prevail against persons in the position of the appellants.'
This again emphasises (as 13 Mad L J 231), that the fact that the title of the purchaser in liable to be avoided on the happening of a contingency does not prevent him from conveying a good title to a bona fide third party stranger purchaser before the contingency had occurred.
17. We may next refer to the Bench decision in Mrs. Rhodes v. Padmanabha, A.I R 1915 Mad 150 : 1 Mad L W 1033. In that case in execution of a decree obtained against an administrator representing the estate of the deceased the property of the deceased was sold and purchased by a stranger purchaser, and the suit was filed to set aside ,the sale on the ground that there was some defect in the representation of the estate in the suit in which the decree was obtained. It was held that as the purchaser was a stranger-purchaser his sale could not be invalidated on the ground of any defect or irregularity in the Court proceedings. It was held that the purchaser was entitled and had a right to presume that the court had taken the necessary steps to investigate the rights of parties, and that a proper decree had been passed, and that any other view would lead to highly mischievous results and introduce grave and serious doubts on sales held under the authority of court. The learned Judges referred to, with approval, the statement of the law in I L R 30 Mad 295, that the title of third party purchaser or a person who purchases the property bona fide from the decree-holder purchaser cannot be impeached.
18. This question of right to obtain restitution of property from a decree-holder purchaser again came up for direct decision before a Bench of this court constituting of Subba Rao and Somasundaram JJ., in Irulayee Ammal v. Murugiah, : AIR1950Mad640 . In that case a mortgage decree was obtained against the mortgagor, and several persons interested in the equity of redemption were made parties to the suit. The 13th defendant who was a purchaser of 3 items sold one of the three items to the 14th defendant, and the 29th defendant happened to be the legal representative of the 14th defendant. Proceedings for scaling down were taken in the trial court and there was an appeal to the High Court from the orders passed by the trial court. During the pendency of the appeal in the High Court, certain conditions were imposed by the High Court for grant of stay of execution, but they were not complied with, with the result that there was no stay with regard to the execution of the decree as regards the property sold to the 14th defendant represented by her legal representative, the 29th defendant. The decree-holder however executed his decree against the property purchased by the 14th defendant and in execution, he himself purchased the same. Later on the High Court allowed the appeal in the scaling down proceedings, holding that the decree should be deemed to have been discharged as against defendants 13, 14 and 29. The decree-holder after getting possession of the property sold it to a third party. The 29th defendant taking advantage of the decision of the High Court in the scaling down proceedings filed an application Under Section 144 for restitution and for redelivery of the property from the 29th. defendant. The trial Court allowed the application. On appeal the learned Judges allowed the appeal and negatived the claim for restitution, following 13 Mad L J 231 and ILR 30 Mad 295, the learned Judges stated the law thus :
'The question therefore is how far the purchase is affected by the order of the High Court in the civil miscellaneous appeal. It may be stated here that at the time the decree-holder brought the property to sale, there was no stay of sale in respect of this house and the decree therefore so far as the property is concerned can validly and legally be executed. The Court therefore has undoubted jurisdiction to sell the property. There was no flaw in the decree so as to fix the purchaser with any notice of such a defect. In such cases, it has been held that the equitable right to set aside such a decree cannot prevail against the rights of the subsequent purchaser for value without notice.'
After a discussion of the relevant case law, the law was summed up in these terms :
'The above decisions clearly lay down the proposition that where a decree is voidable and is not avoided before the property was transferred to a purchaser in good faith and for valuable consideration, the title of the purchaser to the property cannot be affected by any subsequent decision affecting the decree.'
From this it is clear that both in this judgment as well as in ILR 30 Mad 295 the learned Judges regarded the decree as voidable whenever it was liable to be varied or set aside by the appellate court, and that the title of a person who purchased in good faith before the decree was set aside or reversed by the court of appeal, could not be affected.
19. Reference may also be made to the Bench decision in Venkatesh Kotadia v. Shantha Bai, : AIR1961Mad105 to which one of us was a party. In that case, in execution of a decree property was purchased by a stranger auction purchaser, and the decree was modified in appeal before the confirmation of the sale. The question arose whether the subsistence of the decree was a condition precedent to the confirmation of the sale and Or. XXI rule 92, Civil Procedure Code and for the issue of a sale certificate thereafter under rule 94. Alter a detailed discussion of the relevant case law it was held that the subsistence of a decree was not necessary and the title of the purchaser vested in him from the date of the sale even though it became effective when the sale was confirmed. A reading of the judgment shows that the purchaser would acquire an absolute and indefeasible title at the execution sale, if at the time when the sale takes place there was a valid and enforceable decree, whatever might happen to the decree, whether a reversal or confirmation on appeal. In other words, the title of the purchaser cannot be invalidated, by the decision in the appeal from the decree in question.
20. Before we refer to the contrary view taken by the Calcutta High Court, we might as well refer to a recent Bench decision of the Patna High Court in Gopilal v. Jamuna Prasad, AIR 1954 Pat 36 in which the learned judges have taken the same view as that of the Madras High Court. In that case in an execution petition the objection of bar of limitation raised by the judgment-debtor was overruled and an appeal was preferred to the High Court by the judgment-debtor. While the appeal was pending the properties were sold in execution and purchased by the decree-holder purchaser on .14-5-1943. On 15-12-1944, a compromise was entered into that the decree under execution will be executable only for a particular amount. On 26-2-1946, the decree-holders obtained delivery and sold the property to a bona fide purchaser on 10-5-1948, for a sum of Rs. 3745. On 2911-1948, six months later the judgment-debtors deposited the money as per the compromise decree dated 15-12-1944 and asked for restitution and redelivery of the property. The learned judges took the view that at the time when the property was sold there was a valid decree and the court had undoubted jurisdiction to sell the property in execution thereof, and the fact that later on, on appeal, the decree was varied by consent cannot invalidate the title of a bona fide stranger purchaser who had purchased the property from the decree-holder purchaser. The learned Judges have stated the law thus at p. 37:
'It is not said on behalf of the petitioners that this transfer is not 'bona fide' or that Gaghunath Mahto and the other purchasers had not paid the consideration on account of the sale deed. This is a very important circumstance which must be kept in view in deciding whether the petitioners ought to be granted an order for restitution even on the assumption that the construction of the compromise order, for which Mr. Lalnarayan Sinha contends is correct. The doctrine of restitution is based on the equitable principle that, on the reversal or modification of the previous order, the party affected should, as far as possible, be placed in the same position which he would have occupied but for such a decree, because it is the duty of the court to act rightly and fairly according to circumstances towards all the parties involved. But this principle cannot be applied in a case where it conflicts with another rule of equity, namely, that a 'bona fide' purchaser for value should not be allowed to suffer on account of the mistakes or irregularities committed in a court of law.
In our opinion, there can be no order of restitution passed in this case since a portion of the property had already gone into the possession of third parties and there is no material on the record to suggest that the third parties concerned were not 'bona fide' purchasers for value or that they had notice of the compromise order passed on 15-12-1944 by the High Court. Our view on this question is supported by the decisions in Chota Nagpur Banking, Association v. Smith, : AIR1943Pat325 '
With respect, this view of the learned Judges is in accord with the view taken by this court and we are of opinion that this reasoning equally applies to the instant case.
21. We shall now refer to the decisions of the Calcutta High Court. In AIR 1915 Cal 363 : 31 Ind Cas 894 in execution of an ex parte decree the decree-holder himself purchased the property and subsequently he sold the same to stranger, and the question arose, when the ex parte decree was set aside, whether the judgment-debtor-defendant was entitled to obtain restitution, The learned Judges in unatnbiguous terms stated that ILR 30 Mad 295 was clear authority for the position that restilution cannot be ordered in such cases; but that that decision, according to them, did not lay down correct law. In other words, they expressly dissented from the view taken in the decision of this court cited above. In doing so, the learned Judges of the Calcutta High Court took the view that the observation of the Privy Council in ILR 10 All 166 (PC) that the decree-holder-purchaser and purchaser from the decree-holder may be classed 'under the head of decree-holders' was a clear indication and a direct decision on the question by the Judicial Committee. The following observations of the learned Judges of the Calcutta High Court indicate the basis of their view: -
'This passage is important and the rest of the opinion must be read in the light of the extended meaning it gives to the word 'decree-holders'. And when it is said that 'a great distinction has been made between the case of bona fide purchasers who are no parties to a decree at a sale under execution and the decree-holders themselves', it has to be remembered who are included in the term decree-holders. It is on the strength of this distinction, between those who are and those who are not decree-holders that the decision went in favour of the latter. This appears to me to be the result of the language-employed by their Lordships, and I am unable to accede to the argument that the result is so opposed to legal principles that we ought not to give complete effect to the language used .... They have bought from one whose title is liable to be defeated and if the decision in Zainulabdin Khan's case, ILR 10 All 166 (PC) bears the meaning I have attributed to it, the title acquired by the purchaser from the decree-holder is similarly defeasible. And the defeasibility of a decree-holder's title where the decree is ex parte is of such common occurrence that the plea of a purchaser for value without notice hardly applies.'
We have already sufficiently explained the scope of the observations of the Privy Council in which the decree-holder purchaser and purchaser from them were to be classed under one category, merely for the purpose of the judgment, and that it did not signify anything more. With great respect to the learned; Judges of the Calcutta High Court, we are of opinion that there is no basis for the view that the decision of the Privy Council in Zainulabdin Khan's case, ILR 10 All 166 (PC) is a pronouncement on the question that there is no distinction between decree-holder-purchasers and persons claiming title from or through them. We are again unable to agree with the view of the Calcutta High Court that the title of the decree-holder-purchaser is a defeasible title. At: the time when the property was sold there was a valid decree and the court: had undoubted jurisdiction to execute the same. The title to the property vests in the purchaser from the date of the sale and a contingent claim for restitution in future cannot be regarded as: a defect in title or a defeasible title.
22. The next decision to be referred to is Abdu. Rahman v. Sarat Ali, AIR 1916 Cal 710:31 Ind Cas 896. In that case also in execution of an ex parte mortgage decree, the decree-holder himself purchased the property and transferred the same to another person. After the ex parte decree was set aside, the defendants applied for restitution. The learned Judges followed the earlier Bench decision of the Calcutta High Court above referred to and took the same view regarding the effect of the decision of the Privy Council in Zainulabdin Khan's case, ILK 10 All 166 (PC). As regards the decision in ILR 30 Mad 295, the learned Judges observed :
'.....It is plain that the contrary view adopted in ILR 30 Mad 295 is supported neither by principle nor by authority. The theory whereby a special protection is afforded to a stranger who purchases at an execution sale will be found expounded in the case of Krishna Chandra v. Jogendra Narain, 27 Ind Cas 139 : AIR 1915 Cal 203 that rule cannot be extended to an assignee of the decree-holder auction-purchaser.'
For the reasons already mentioned, with great-respect, we are unable to accept this reasoning.
23. In AIR 1920 Cal 550 : 51 Ind Cas 959 : 24 Cal W N 50, the same view was taken by a Bench of the Calcutta High Court, following the two Bench decisions referred to earlier. In that case the landlord who obtained a rent decree against the tenant purchased the tenant's right to the holding in execution and settled the same with a third party bona fide transferee. After the rent decree was set aside, the tenant applied for restitution of his holding, and it was held that the third party stood in the same position as the landlord decree-holder purchaser himself. This decision does not throw any further light and it merely follows the earlier decisions of that court which expressly dissented from ILR 30 Mad 295.
24. The learned Judge in this case followed the view of the Calcutta High Court, which as we said, dissented from the two Bench decisions of the Madras High Court. As far as we can see, the learned Judge's attention was apparently not drawn to the decisions of this court taking the contrary view.
25. In England, the law appears to be the same regarding the effect of the reversal of the. decree on a prior execution sale at a time when there was a valid decree. Vide the judgment of Lord Bedesdale in Bennett v. Hamill, (1806) 2 Sch. & Lef. 566 and Bowen v. Evans, (1848) 2 L L C 257. In Tomtney v. White, (1850) 3 H L C 48 : 10 E R 19 Lord Broughan in delivering the opinion said at p. 25 :
'We cannot set aside the sale, for the sale was under the decree of the court, to a bona fide purchaser there being no fraud, and consequently the setting aside that sale is utterly and absolutely out of the Question; the sale must stand.'
The law in America on this question of restitution is contained in The Restatement of the Law; Vol. Restitution, at pages 313-314, Section 74. The corresponding Reporters' Notes containing the relevant case law is at page 92. The law is stated in these terms :
'If the judgment-creditor purchases at a valid execution or judicial sale and sells the property to a purchaser, the fact that the purchaser has notice of a pending appeal does not prevent the sale from being effective although the appeal succeeds, if the judgment set aside was not void (See Illustration 25).' Illustration 25 reads thus:'A obtains a judgment against B. Execution is levied upon B's land and at the execution sale it is purchased by A. A transfers title of the land to C who pays value, although knowing an appeal is pending. The judgment is reversed. B is not entitled to restitution from C.'
In 50 Corpus Juris Secundum the law relating to the effect of reversal or variation of a decree is stated in these terms at page 659:
'In general, the reversal or vacation for irregularity or error of a decree for sale, made by a court having jurisdiction over the subject and the parties, does not invalidate the title of a stranger who bought in good faith at a sale had while the decree was in force. This rule is embodied in the statutes of some jurisdictions. However, the rule does not operate or apply where the decree for sale was a nullity; . . . . '
At page 699, the law relating to the rights of a bona fide purchaser from the execution purchaser is stated in these terms:
'A bona fide grantee for value from a purchaser at a judicial sale is not affected by irregularities, mistakes or fraud of which he did not have notice, and which do not render the sale void, although as to the grantor the sale might have been set aside..... A bona fide purchaser at a judicial sale can transfer to his grantee the standing and all the rights of a bona fide purchaser, although such grantee has notice of fraud sufficient to avoid the sale; likewise, where a party to a suit purchases land under an erroneous decree and sells to a stranger who purchases in good faith, the title in the hands of the stranger's grantee is unimpeachable, although he knew of facts rendering voidable the title of the original purchaser.'
Reference may also be made to the statement of the law in Freeman on Void Judicial Sales, 4th Edn.S. 41, at page 133 :
'Nor can an innocent purchaser be injuriously affected by proof of any mistake, error or fraud of an administrator or guardian in conducting a sale. Although the original purchaser has himself been guilty of fraudulent devise, or has had notice of such devices practised by others, he can transmit a valid, unimpeachable title to a vendee for value, in good faith, and without notice.'
26. In Kleber on Void Judicial and Execution Sales, the law relating to the effect of reversal of judgment upon the sale thereunder is stated in the following terms at pages 273-274 :
'Section 291 : It is a universal rule of law that an execution sale made to a stranger who purchases in good faith and without notice, and who has bought the legal title and has paid his money, is not avoided by reason of a subsequent reversal of the money judgment which is merely voidable for irregularity. Sales consummated under the coercive process of the law emanating from an erroneous or irregular judgment are not affected by the reversal of that judgment by the appellate court when no slay bond has been given, and in the absence of collusion and unfairness......But this rule has no application, as a matter of necessity, to the judgment creditor as he is not a bona fide purchaser without notice, being bound to know that the proceedings are irregular or illegal, and cannot hold the property upon a reversal of the judgment, whether the property sold be real estate or personality......Section 292 : According to a decided preponderance of authority it is the rule that if the property is sold under execution issued upon an irregular or erroneous judgment and is bought in by a stranger to the proceedings, upon a reversal of the judgment the defendant in the writ or his assignee may recover from the plaintiff the full value of the property, but the title to the same is unaffected by the reversal.'
Reference may also be made to the statement of the law regarding the rights of an innocent purchaser from a purchaser at pages 331-332 :
'Section 372 : Should the original purchaser at an execution or judicial sale be guilty of entering into collusion, or fraudulent schemes or devises regarding the property involved, or in the absence of such complicity should he be cognizant of the fraudulent devices and machinations practised by others, he may yet, notwithstanding his participation in or knowledge of such fraud, transmit a valid and unimpeachable title to one who purchases from him for value and in good faith, having no notice of the fraud or infirmity. The sale originally was voidable and capable of being avoided at the instance of interested parties, and the transfer of the voidable title to an innocent purchaser for a valuable consideration and without notice, passes the title free from such infirmity in his hands.......Therefore, where the guardian was authorised to sell the ward's lands, was himself indirectly, but really, the purchaser at his sale, the proceedings are voidable, though ostensibly made to a stranger, the land passing to the nominal purchaser subject to being divested for fraud. But the right to avoid it is restricted to the nominal purchaser and those holding under him with notice of the circumstances which environ the proceedings, or a purchaser from the original vendee having not paid an adequate consideration. A bona fide purchaser from the original vendee before the sale is vacated receives an unimpeachable title.....So a purchaser for a value and without notice from a claimant who purchased from an administrator under an order of sale based upon fictitious claims allowed by the fraud and collusion of the fiduciary and purchasing claimant, will be protected in his purchase, notwithstanding the fraud of his grantor.....An innocent purchaser for value from a fraudulent vendee at a sale under execution issued upon a judgment obtained through collusion or connivance, will not be affected by the fraud and will take a good title, though the sale was void as to the fraudulent vendee at the execution sale.'
27. The law relating to voidable conveyance and as to when it can be avoided is stated thus in 16 Halsbury page 686, Section 1321, (Simonds Edn) .-
'Parties claiming through grantee : A conveyance made in. such circumstances as to be impeachable by the grantor as against the grantee is impeachable as against all volunteers claiming through the grantee. It is also impeachable as against a purchaser for value deriving title under the grantee who takes with notice of the grantor's equity, or of the circumstances from which the court infers such equity; but purchasers for value without notice of the circumstances in which the deed was executed are not affected by the equity, and so far as their interests are concerned, the conveyance will be upheld.'
28. In the case of transactions inter vivos and which are voidable, it is settled law that if the innocent third party has acquired an interest in the property under the voidable contract this will preclude the owner of the property from exercising his right to rescind and obtain restitution, and this is based upon the rule of equity that restitution in the face of intervention of jus tertii would result in injustice. Reference can also be usefully made to the following statement of the law in Story on Equity page 154, Section 381 :
'In concluding this discussion, so far as it regards creditors, it is proper to be remarked, that although voluntary and other conveyances, in fraud of creditors, are thus declared to be utterly void; yet, they are so, only so far as the original parties and their privies, and others claiming under them, who have notice of the fraud, are concerned. For, bona fide purchasers for a valuable consideration, without notice of the fraudulent or voluntary grant, are of such high consideration, that they will be protected, as well at law as in equity, in their purchases. It would be plainly inequitable, that a party who has, bona fide, paid his money upon the faith of a good title, should be defeated by any creditor of the original grantor, who has no superior equity, since it would be impossible for him to guard himself against such latent frauds.'
At p. 168 in Section 410, it is stated thus :
'..... And it is wholly immaterial of what nature the equity is, whether it is a lien, or an incumbrance, or a trust, or any other claim; for a bona fide purchase of an estate, for a valuable consideration purges away the equity from the estate, in the hands of all persons who may derive title under it, with the exception of the original party, whose conscience stands bound by the violation of his trust and mediated fraud. But, if the estate becomes re-vested in him, the original equity will re-attack to it in his hands.'
In emphasising the intrinsic justice and the policy of the law in protecting the rights of bona fide purchases even from a fraudulent grantee, the learned author observes as follows at p. 175, Section 436 :
'Indeed, the principle is more broad and comprehensive; and although not absolutely universal (for there are anomalies in the case of judgment creditors, and the case of dower); yet it is generally true, and applies to cases of every sort, where an equity is sought to be enforced against a bona fide purchaser of the legal estate without notice, or even against a bona fide purchaser not having the legal estate, where he has a better right or title to call for the legal estate than the other party. It applies, therefore, to cases of accident and mistake, as well as to cases of fraud, which, however, remediable between the original parties, are not relievable, as against such purchasers, under such circumstances'.
29. In the light of the above discussion, it is clear to us that in the case of voidable transactions, even though as between the transferor and the transferee, the title of the transferee is liable to be defeated on the avoidance of the transaction, the transferee nevertheless can confer a clear and absolute title to a bona fide purchaser for valuable consideration. Any subsequent event, even as a result of a judicial decision, which avoids the transaction as between the original parties thereto, will have no Segal effect or consequence as against the bona fide purchaser. We do not see any reason why the same rule should not apply to the equitable right to obtain restitution in the case of execution sales as well. Any other view, in our opinion, would work serious injustice and hardship upon the purchaser. At the time when the decree-holder brought the property to sale as the conditions of stay were not complied with, the decree could be validly and legally executed. The Court has undoubted jurisdiction to sell the property. There was no flaw or any defect in the title of the decree-holder purchaser. In such a situation, he should be in a position to convey good title and secure its real market value if he desires to sell the same. If the law were, that he suffers under a legal disability, in the sense of having only a defeasible title and so would not be in a position to convey good title even to a bona fide purchaser till the appeal is disposed of, the property in his hands would be simply useless and he will have no possible means of dealing with it. Possibility of restitution of property is not a defect in the title of the decree-holder purchaser. It is a meaningless contradiction in terms to say in one breath that he has an undoubted right to execute the decree and purchase the property and at the same time to say that he could not sell the property as owner. The two conceptions are mutually inconsistent and there is neither justice nor equity that merely because an appeal is pending, the decree-holder should be denied the full fruits of his purchase, Imposition of any such limitations or fetters on his free powers of alienation would render his right to execute the decree wholly illusory and futile. The acceptance of the other view would be greatly injurious to the judgment-debtor himself, as there will be no inducement to the decree-holder to purchase the property and the property, may be knocked down for a grossly inadequate price by stranger purchasers.
30. No question of defeasance by restitution can arise when the decree-holder purchaser has sold and parted with the property, to a bona fide stranger purchaser for value. In this case the appellant has purchased the property for valuable consideration and nothing is proved to show that he is not a bona fide purchaser. The fact that an appeal is pending from the decree cannot affect his status as a bona fide purchaser.
31. In Raghavachori v. Pakkiri Mahomed, A I R 1917 Mad 250 : 30 Mad L J 497, it was held that the protection which is given to a bona fide purchaser against the claim for restitution is not affected by the purchaser's knowledge of the pendency of an appeal on the date of the sale. In Bhagwant Singh v. Sri Kishan Das, : 4SCR559 , the scope of the right to obtain restitution Under Section 144, Civil P. C, has been explained in the following terms :
'The doctrine of restitution is that on the reversal of a judgment the law raises an obligation on the party to the record, who received the benefit of the erroneous judgment to make restitution to the other party for what he had lost and it is the duty of the Court to enforce that obligation unless it is shown that restitution would be clearly contrary to the interests of justice.'
For all the reasons mentioned above, we are of opinion that no restitution ion of the property from the appellant can be ordered. On that view, it is unnecessary to consider any other point.
32. This judgment will not affect in any manner the rights of the judgment-debtor to obtain restitution horn the decree-holder in appropriate proceedings.
33. We, therefore, allow the appeal with costs throughout.