INDUSTRIAL DEVELOPMENT BANK OF PAKISTAN Versus MAIDA LIMITED , S.M. Noorul Hasan, Advocate Supreme Court

1. SALEEM' AKHTAR, J.‑‑‑ This judgment will dispose of both the appeals as the facts and question of law involved are common. These appeals by the leave of the Court challenge the judgment passed by the Division Bench whereby claims made by Excise and Taxation Officer, Karachi Development Authority, Karachi Water and Sewerage Board and Karachi Electricity Supply Corporation Limited were given 'precedence over the claim of the appellant in the sale proceeds which were received by the Court in execution of the decree which was passed in favour of the appellant. In Appeal No.97‑K of 1989, the appellant filed suit in the High Court of Sindh under Order XXXIV, C.P.C. against respondents Nos. l to 4. A preliminary decree was passed in favour of the appellant. The appellant filed an execution application on 22‑4‑1985 and a sale proclamation was issued in respect of the mortgaged property. It was auctioned on 15‑10‑1988 and respondent No. 5 having offered Rs.17.50 lac was the highest bidder. According to the sale proclamation the possession of the mill was to be given free from all encumbrances. The auction was confirmed by the High Court and possession was handed over to respondent No.5 with the consent of the appellant. The auction amount was deposited by respondent No.5 in the Court. The appellant, being the decree‑holder applied for withdrawal of Rs.17,34,524.12 out of Rs.17.50 lac deposited in Court by the auction‑purchaser. It seems that while the amount remained in Court Excise and Taxation Officer (ETO) Karachi Development Authority (KDA), Karachi Water and Sewerage Board (KW&SB) and Karachi Electricity Corporation Ltd. (KESC) made claim of their dues which was outstanding against the mill. A reference was made by the Nazir demanding Rs.3,36,173.86 and the Court ordered to retain this amount and to pay the balance to the appellant. The appellant contended that all these four claimants did not have priority over the appellant's claim as property had been mortgaged and a decree had been obtained by it. The learned Single Judge, however, did not agree and ordered the payment of Rs.3,36,173.86 to these four claimants. A High Court Appeal filed by the appellant also failed.

2. In Civil Appeal No.98‑K of 1989 the appellant, who is common in both these appeals had obtained similar decree in a mortgage suit. The mortgaged property was auctioned free from all encumbrances. It was purchased 'by respondent No.3 who deposited the entire amount of Rs.70,00,000 and possession was handed over to him free from all encumbrances. In this appeal also the ETC and KW&SB made claim for their dues seeking priority over the appellant for the sum of Rs.1,28,847 and ks.15,800 respectively.

3. The learned Single Judge as well as the Division Bench in appeal upheld their claim of priority and ordered the payment of decretal amount after deducting the said amounts In both these appeals leave was granted to consider the contention that since dues of these claimants are not encumbrances on the property sold, they could not have preference over the claim of a decree -holder.

4. The main question for consideration is whether Excise and Taxation Officer, KDA, KW&SB and KESC can claim priority over the appellant. Admittedly, the sale proceeds were deposited by the auction‑purchaser and the property as advertised and ordered to be delivered was free from all encumbrances. The property was thus transferred to the auction‑purchaser free from encumbrances and burden which are claimed by these claimants. It is clear from the claims filed by these claimants that they want their dues and charges to be satisfied from the decretal amount and have made no claim to follow the property in the hand of the auction‑purchaser.

5. We will first consider whether a mortgagee (the appellant) can claim priority over these claimants. In this regard reference has been made to Order XXXIV, Rule 13, C.P.C. which prescribes the manner and order in which sale proceeds should be applied and reads as follows:‑‑

6. "Order XXXIV, Rule 13. Application of proceeds.‑‑(1) Such proceeds shall be brought into Court and applied as follows:‑‑

7. First, in payment of all expenses incident to the sale or property incurred in any attempted sale; secondly, in payment of whatever is due to the prior mortgagee, on, account of the prior mortgage, and of costs properly incurred in connection therewith; thirdly, in payment of all interest due on account of the mortgage in consequence whereof the sale was directed and of the cost of the suit in which the decree directing the sale was made; fourthly, in payment of the principal money due on account of that mortgage, and lastly, the residue (if any) shall be paid to the person proving himself to be interested in the property sold, or if there are more such persons than one, then to such person according to their respective interests therein or upon their joint receipt.

(2) Nothing in this rule or in rule 12 shall be deemed to affect the powers conferred by section 57 of the Transfer of Property Act, 1882. "

8. According to this provision the first priority has been given .to all expenses incurred on sale or any attempted sale. Then comes the claim of the prior mortgagee and cost incurred by him. Thereafter interest due on account of mortgage in pursuance of which decree was passed and sale was effected anti cost of the suit in which such decree was passed, have to be satisfied. The, principal amount of such mortgage has fourth priority. If any residue is left after satisfaction of the afore-stated claims it is to be appropriated amongst the persons who prove to be interested in the property sold according to their respective interests. The claimants do not fit in any category of creditors as provided by Order XXXIV, Rule 13, C.P.C. except in the last one where only residue is to be distributed amongst them. At this stage reference can be made to Rule 323 of. Sindh Chief Court Rules (O.S.) which reads as follows:‑‑

9. "An encumbrancer, not party to the suit, may at any time before the sale, apply to the Court to be made a party, or for leave to join the sale; and such order shall be made thereon and in protection of his rights and as to costs as to the Judge shall seem fit."

10. This rule provides a procedure for an encumbrancer not a party to the suit for the protection of his right and claim. An encumbrancer is entitled to apply to be joined as a party to the sale, who can be made party in the proceedings and protect his claim. At that stage the claimant can press his claim and also claim priority, if any. None of these claimants have taken this step nor joined the proceedings of the sale therefore this opportunity which was available to them was lost.

11. Inter se priority amongst the claimants in appropriation of decretal amount can be claimed either on the basis of law or contract. As presently no claim is based on contract we ignore this aspect of the case. The claimants can succeed in claiming priority over a mortgagee‑decree‑holder provided such right has been conferred on them in super-session of the right of such mortgagee which I he enjoys under law.

12. The claim of Excise and Taxation Officer arises from the Urban Immovable Property Tax Act, 1958. It is a tax on property and is payable by the owner who under section 2(e) of the Urban Immovable Property Tax Act, 1958 includes a mortgagee with possession. Section 16 of the Urban Immovable Tax Act, 1958 providing method for recovery of tax and also creates first charge on the immovable property and. upon such building or rent belonging to the person liable for such tax or penalty. Section 16 as amended by Sindh Immovable Property Tax Amendment Act (Sindh Act VII of 1977) which reads as follows:‑‑

13. "16. Recovery of dues .‑‑ ‑(1) Where any tax, surcharge or penalty due under this Act is not paid within the time fixed for the payment, such officer of the Excise and Taxation Department as may be authorized by Government in this behalf, may, after giving the defaulter an opportunity of being heard, issue a warrant in the prescribed manner, directing the recovery to be made by distress and sale of movable property or attachment or sale of the immovable property, belonging to defaulter.

(2) The warrant issued under subsection (1) may be addressed to the prescribed officer of the Excise and Taxation Department, and be executed in the prescribed manner, by such officer with or without such assistance of other officials of the Department as he may deem fit.

(3) Government or any officer authorized by it in this behalf may permit any sum recoverable under this section to be paid in instalments subject to the condition that interest shall be payable on the unpaid portion of such sum, at such rate not exceeding the rate at which the scheduled banks advance loans as may be prescribed.

(4) Notwithstanding anything contained in any law or contract, any tax, surcharge or penalty due under this Act in respect of any land or building shall be a first charge upon such land or building and upon the movable property, if any, found thereon belonging to the defaulter. "

14. Subsection (4) in clear terms provides that any tax surcharge due under this Act shall have a first charge upon the building in super-session of anything contained in any law or contract. Therefore any right conferred by any law or contract which is in conflict with the priority conferred by this provision cannot be enforced against a claim for recovery of tax, surcharge or penalty due under this Act. When the attention of Mr. A.I. Chundrigar was invited to this provision he fairly conceded the legal position. Tax under the Urban Immovable Property Tax Act will have priority over the appellant's claim on the sale I proceeds.

15. Second claim relates to Karachi Development Authority and Karachi Water and Sewerage Board. This claim relates to the water charges which was recovered by KDA and was later in the year 1979 taken over by KW&SB. The learned counsel for the KW&SB has referred to section 9(vi) of Karachi Water Management Board ordinance, 1984 (Sindh Ordinance of 1981) which empowers the Board to collect water charges including arrears for such charges from consumers. Section 13 provides that all sum due to the Board from any person shall be recoverable as arrear of land revenue. There is no other provision by which the KW&SB or KDA can claim priority over the claim of the appellant as in the case of Urban Immovable Property Tax. Merely because a particular charge is to be recovered as arrears of land revenue, it does not mean that it will have same priority over other claims which the land revenue of the Government enjoys. As this provision provides a mode for recovery of water charges which is employed for recovery of land revenue under the Land Revenue Act, 1967, KDA and KW&SB cannot claim priority over the appellant and they will have to seek their relief from the residue left after satisfying the decree of the appellant and prior claims as recognised by Order XXXIV, Rule 13, Civil Procedure Code.

16. The last claim is of Karachi Electricity Supply Corporation. Mr. Noorul Hassan for KESC has vehemently argued that the KESC is entitled to recovery from consumer which under the definition in Karachi Electricity Supply Corporation Act includes the mortgagee. KESC may have a claim against the mortgagee as consumer but so far priority in appropriation of the decretal amount is concerned it cannot claim the same against the mortgagee. The learned counsel has not been able to show any provision in the Karachi Electricity Supply Corporation Act which may entitle KESC to claim priority notwithstanding the provision of Order XXXIV, Rule 13, C.P.C. referred above.

17. Mr. K.A. Wahab the learned counsel for the auction‑purchaser in Appeal No. 97‑K of 1989 has referred to various orders passed by the learned Single Judge and contended that from the issue of publication of proclamation, confirmation sale and the order passed for handing over possession, the property was declared and delivered free from all encumbrances and therefore none of the claimants can lay hand over the property and should seek their remedy against the sale proceeds deposited in the Court. The contention seems to be correct as the property was sold free from all encumbrances. In the sale proclamation the liabilities specified therein did not contain dues and charges of these claimants. In these circumstances auction‑purchaser's title cannot be clouded by these claims. The same position was taken by Mr. Maroof Ali Khan for the auction- purchaser in C.A. No.98‑K of 1989.

18. The upshot of the above discussion is that in appropriation of the sale proceeds deposited in Court, the tax, charges and dues under the Sindh Urban Immovable Property Tax Act, 1958 shall have priority over the claim of the appellant. The rest of the claimants cannot claim priority over the appellant and have to seek satisfaction from the residual amount as provided by Order XXXIV, Rule 13, Civil Procedure Code. The appeals are partly allowed with no order as to cost.

19. M.B.A./I‑212/5 Appeals partly allowed.