Rateable distribution of assets of judgment debtor among decree holders

Section 73 of the Code which provides for rateable distribution of the assets of the judgment debtor among decree holders. The said provision says that where assets are held by a court and more persons than one have, before the receipt of such assets made application to the court for execution of decree for the payment of money passed against the same judgment debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realization, shall be rateably distributed among all such persons.

# Rateable Distribution

The proviso thereunder stipulates the conditions which a person applying for rateable distribution has to comply. Sub-section (2) of Section 73 says that where all or any of the assets liable to be rateably distributed under the said section are paid to a person not entitled to receive the same, any person so entitled may sue such person to compel him to refund the assets.

Section 73 of the Code of Civil Procedure reads thus:

73. Proceeds of execution sale to be ratably distributed among decree holders.- (1) Where assets are held by a court and more persons than one have, before the receipt of such assets, made application to the court for the execution of decrees for the payment of money passed against the same judgment debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realization, shall be ratably distributed among all such persons:

Provided as follows:—

(a) where any property is sold subject to a mortgage or charge, the mortgagee or incumbrancer shall not be entitled to share in any surplus arising from such sale;

(b) where any property liable to be sold in execution of a decree is subject to a mortgage or charge, the Court may, with the consent of the mortgagee or incumbrancer, order that the property be sold free from the mortgage or charge, giving to the mortgagee or incumbrancer the same interest in the proceeds of the sale as he had in the property sold;

(c) where any immovable properly is sold in execution of a decree ordering its sale for the discharge of an incumbrancer thereon, the proceeds of sale shall be applied—

firstly, in defraying the expenses of the sale;

secondly, in discharging the amount due under the decree;

thirdly, in discharging the interest and principal moneys due on subsequent incumbrances (if any); and

fourthly, rateably among the holders of decrees for the payment of money against the judgment debtor, who have, prior to the sale of the property, applied to the court which passed the decree ordering such sale for execution of such decrees, and have not obtained satisfaction thereof.

(2) Where all or any of the assets liable to be rateably distributed under this section are paid to a person not entitled to receive the same, any person so entitled may sue such person to compel him to refund the assets.

(3) Nothing in this Section affects any right of the Government.

Section 73 of the Code requires that the application for execution of the decree must have been filed by the person seeking rateable distribution to the court holding assets before the assets came into the custody of such court. Time and again it has been held by various binding decisions as to what are the mandatory requirements which a person applying for rateable distribution has to comply, one of which being that the application for execution should have been filed to the court which holds the assets before the assets came into the custody of the said court. The Kerala High Court has reiterated that in Boban v. Sajith Kumar (2003 (3) KLT SN Case No.176 Page No.137).

In M. Jambanna v. K. Honnappa (AIR 1957 Andhra Pradesh 1017), referring to Sec.73 and Order XXI, Rule 11 of the Code it is held that the important condition for applicability of Section 73 is that the party seeking rateable distribution should have filed an application for execution of the decree for the payment of money before the receipt of assets.

Section 73 does not require a separate application for rateable distribution and there can be no objection to include a prayer for distribution of the assets in the application which is really for execution of the decree itself. The same view was taken by the Allahabad High Court in M/s. Suraj Lal v. P.R.K. Sugar Works (AIR 1961 Allahabad 371) and the Mysore High court in Shamsunder and Co. v. Sunnilal Vesaji (AIR 1961 Mysore 12). In the said decisions it is held that the decree holder who had his decree under execution prior to the executing court getting the assets of the judgment debtor in its hands, is entitled to claim rateable distribution under Section 73.

It is not necessary to make an application for rateable distribution by a judgment-creditor in order to enable him to get the benefit conferred by S.73 on the judgment-creditors. It is also held that there is nothing in Section 73 of the Code warranting the inference that in addition to the decree holder applying for execution of his decree, he should also have made a separate application for rateable distribution.

The Supreme court in Kotak & Co. v. State of U.P. ((1987) 1 SCC 455) held that application by the person claiming rateable distribution must have been made to the court which is holding the assets before such assets came to the hands of that court.

Hence it was not necessary for the decree holder having filed an application to execute the decree in his favour before the assets came to the custody of the executing court to file a separate application for rateable distribution before the executing court.

# Separate Suit

Whether in view of sub-sec.(2) of Sec.73, the executing court should have kept its hands off in the matter and directed to file a separate suit. What Sub-sec.(2) of Sec.73 says is only that a person entitled to rateable distribution “may file a suit for compelling a person who has received the amount to refund the amount”. It is only an enabling provision. That provision does not restrict or curtail power of the executing court to direct the person who has received the entire amount notwithstanding the pendency of request for rateable distribution to refund the amount.

If a wrong or mistake is done by the court, that shall not prejudice a party. In such circumstances, the principle “actus curiae neminem gravabit” must apply. The court has to correct the mistake it has done, rather than asking the affected party to seek his remedy elsewhere, by filing a separate suit and getting a decree which may or may not be successfully be executed.

That position is highlighted in Suryarao v. Chalamayya (AIR (34) 1947 Madras 339). There, it is held that where a person not entitled to rateable distribution is paid wrongfully a portion of the assets, the fact that under Section 73(2) of the Code a remedy by way of suit is provided is no justification for depriving a court of its inherent jurisdiction to pass appropriate orders reversing, where the ends of justice so require, its own wrong orders, though it may be a ground for the court whose inherent jurisdiction is invoked to say that it will not exercise such jurisdiction and that the party may file a suit.

The same view is taken in Laxmi Narain v. Firm Ram Kumar (AIR 1971 Rajasthan 30) by a Division Bench of that Court. There, the court had erroneously disbursed the entire assets to one of the decree holders at a time when the request for rateable distribution by the other decree holders was pending consideration. It was held that the court erroneously excluding a person and paying the amount to others has the power to compel the person who received the entire amount (as against the provisions of Section 73 of the Code) to refund the rateable amount due to the excluded decree holder.

The Division Bench in that case relied on the decisions in Thanmull v. K. Krishnaswami (AIR 1935 Madras 988, Surendra Kumar v. Jamini Kumar (AIR 1936 Calcutta 723) and Simla Banking & I. Co. Ltd. V. Indo S.T. Co. Ltd. (AIR 1938 Lahore 754) in arriving at that conclusion.

Procedural law is meant to facilitate justice and not to defeat it. It is relevant to refer to the decision of the Supreme Court in Chinnammal v. Arumugham (AIR 1990 SC 1828). There it is held:

“It is well to remember that the Code of Civil Procedure is a body of procedural law designed to facilitate justice and it should not be treated as an enactment providing for punishments and penalties. The laws of procedure should be so construed as to render justice wherever reasonably possible”.

It is not as if because Section 73(2) enables to file a separate suit, the executing court is powerless to invoke its inherent power, rectify the mistake it has done and direct who has received the entire amount in violation of Section 73 of the Code when the request for rateable distribution was pending decision to refund the amount rateably payable.

[The above discussion on rateable distribution is extracted from a significant judgment of the Kerala High Court in Govindan Master Vs. Janaki, 2011 (3) KLT 837 : 2011 (3) KLJ 653 : ILR 2011 (3) Ker. 996 : 2011 (3) KHC 581 authored by Justice Thomas P. Joseph]

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