Irregular Reduction in Upset Price Renders Auction Sale Void: Kerala High Court

Drastic Reduction Without Reasons Constitutes Material Irregularity, the Kerala High Court overturned a property auction sale order due to procedural irregularities in fixing the upset price. The judgment, delivered by a division bench comprising Justice Sathish Ninan and Justice P.V. Balakrishnan, emphasized that reducing an upset price without sufficient reasoning constitutes a material irregularity that can invalidate the sale, especially when it causes substantial injury to the judgment debtor.

The appeal arose from a petition under Order 21 Rule 90 of the Civil Procedure Code, 1908, filed by Sudheer Vazhakalil, the judgment debtor, contesting the auction sale of his 1.25-acre property. The Subordinate Judge’s Court in Vadakara had earlier ordered the sale to satisfy a decree for ₹32,57,922. Initially, the upset price was set at ₹93,75,000 but was later reduced to ₹29,00,000 upon the decree holder’s application, despite the debtor's objections.

The appellant argued that the executing court arbitrarily slashed the upset price from ₹93,75,000 to ₹29,00,000 without any valid justification, ignoring the property’s assessed market value and potential to fetch a higher price. The appellant contended that such an unreasoned reduction severely undervalued the property and caused him substantial harm.

The respondent (decree holder), however, maintained that the price adjustment was necessary after multiple auction attempts failed to attract bidders, including an unsuccessful attempt even when the upset price was set at ₹29,30,000.

Justice Balakrishnan, delivering the judgment, noted a significant procedural oversight by the executing court, which did not reference the advocate commissioner’s valuation report. The Court observed:

“Such drastic reduction of the upset price without assigning any reasons is a material irregularity and will undoubtedly cause substantial injury to the judgment debtor.”

The Kerala High Court allowed the appeal, setting aside the Sub Court’s order dated January 6, 2018. The Court directed the executing court to reinitiate the auction sale process while ensuring compliance with proper valuation procedures. Both parties were instructed to appear before the executing court on December 17, 2024, and the proceedings are to be completed within six months.

Date of Decision: November 8, 2024