Director Can’t Feign Ignorance Of Specific Performance Suit When Notice Was Issued To Company That Chose Not To Appear: Supreme Court Restores Executing Court’s Order

The Apex Court further highlighted how a litigant’s difficulties commence after he obtains a decree.

The Division Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran held, “Admittedly, in the suit filed for specific performance, the 2nd defendant who remained ex-parte was the Company in which both JD-1 and the present objector were Directors as evidenced from Annexure RJ-2 filed along with the rejoinder. The specific defense was also that the amounts paid as per the agreement was in fact a loan taken by the 2nd defendant company to further its business. The objection of the mother specifically contends that after her husband’s death in the year 1993, when her children were studying, she had taken care of the business left behind by her husband and along with her sons, had started various subsidiary companies wherein herself and her sons were Directors. The objector cannot hence feign ignorance of the suit, especially when notice was issued to the company who chose not to appear.”

AOR Sandeep Sudhakar Deshmukh represented the Appellant while Senior Advocate Sudhanshu Choudhari represented the Respondent.

Factual Background

The suit was filed in 2013 and decreed in 2017. The first defendant was the son of the respondent, and the second defendant was a Private Limited Company in which the first defendant and the present objector were Directors. The plaintiff (appellant) sought specific performance of the suit property based on an agreement of 2011 wherein part consideration of Rs 1,45,00,000 was paid by cheque to the account of the second defendant, out of the total sale consideration of Rs.1,51,00,000. The first defendant contended that there was no sale intended and the agreement was a security for the loan availed by the second defendant company. It was found that the suit property was mortgaged to the IDBI bank, whose mortgage was known to the plaintiff, as recited in the sale agreement, which enabled the plaintiff only to the right of subrogation.

The prayer for specific performance was declined, but the recovery of the amounts paid was directed from Judgment Debtor-1 (JD-1), the son of the respondent. The amounts having not been paid, the decree holder filed an execution petition in which an attachment order was passed, which was affixed in a conspicuous part of the suit property, which the objector claimed to have been in her possession for long. The auction having been first carried out, the confirmation of sale was challenged by one Vienna Multiventure, who was the assignee from JD-1. Both the assignee and the HDFC bank filed separate objections, which were declined by the Executing Court, confirmed up to the Supreme Court. The auction sale though, was set aside on an objection by JD-1, after which again a sale proclamation was made and the sale confirmed in favour of the auction purchaser, who was also the decree holder. A further objection by JD-1 by way of two writ petitions was dismissed by the High Court.

The High Court found that the claim of 1/3rd share in the joint family properties was natural insofar as JD-1 himself had inherited his father’s business and the purchase of the subject property had been made, possibly from the nucleus of the joint family business, which had to be proved. The Execution Court and the First Appellate Court found the objection to be not maintainable. In the second appeal, the High Court reversed the order passed under Order XXI, Rule 97 of the Civil Procedure Code, 1908, against which the appeal was filed before the Apex Court.

Reasoning

On a perusal of the facts of the case, the Bench failed to find a substantial question of law having arisen since the impugned order proceeded on mere surmises and conjectures, the facts having been dealt with in precision by the Executing Court and the first Appellate Court. The Bench was of the view that the objector Director could not feign ignorance of the suit, especially when notice was issued to the company, which chose not to appear.

The Bench stated, “It is also pertinent that the attachment in the execution proceedings with respect to the property, which is the subject matter of the present proceedings, being plot no. 11, was affixed in a conspicuous part of the property on 21.09.2017. The objector having asserted that she was all along residing in the said property, cannot feign ignorance of the execution proceedings and delay a proper objection being taken up till dispossession is threatened.”

The Bench took note of the fact that the suit was decreed in 2017, and the execution proceedings were pending for the last nine years, when several objections were raised, all of which stood declined. “A further objection by the mother of the original judgment debtor claiming 1/3rd share in the property at this stage, when all along the mother and the sons were carrying on the business together, to further the prospects of which, the loan admittedly was taken, is a deliberate attempt to stall the recovery”, it added.

As per the Bench, the opportunity to lead evidence and prove the claim of co-ownership of the subject property was proffered merely on a possibility of the claim being sustainable, especially when there was nothing produced to prima facie substantiate such a claim and the obvious facts were clearly against such a claim.

Thus, allowing the appeal, the Bench set aside the impugned order and restored the order of the Executing Court rejecting the objection. “The property, if not handed over as yet shall be expeditiously vacated and handed over to the appellant by the Executing Court”, it ordered.

Cause Title: Challani Ginning and Pressing Factory v. Kamal (Neutral Citation: 2026 INSC 426)

Appearance

Appellant: AOR Sandeep Sudhakar Deshmukh, Advocates P. F. Patni, Nishant Sharma, Ankur Savadikar, Kartik Sharma

Respondent: Senior Advocate Sudhanshu Choudhari, AOR Sagar Pahune Patil, Advocate Pranjal Chapalgaonkar

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