Once a Property is Attached, Any Subsequent Sale is Legally Void Against the Decree-Holder: Andhra High Court Upholds Creditor’s Rights

Andhra Pradesh High Court held that a property once attached by a court order cannot be transferred to a third party in defiance of the attachment, and any such sale is legally void against the decree-holder’s claims. Dismissing an appeal filed by a purported bona fide purchaser, the court ruled that judgment debtors cannot defeat execution proceedings by executing sale deeds after attachment, even if the transfer is made through a registered instrument.

Justice Venuthurumalli Gopala Krishna Rao, while delivering the verdict in Kanneganti Durganand v. Yuvaraj Finance Pvt Ltd (F.A. No. 677/2006), made it clear that attachment creates an enforceable right in favor of the creditor, and any alienation made thereafter is ineffective in law. "The moment a property is attached under the Code of Civil Procedure, the judgment debtor is no longer free to transfer it in a manner that defeats the decree-holder’s interest. Any such transfer shall be void against the claims enforceable under the attachment," observed the court.

The dispute arose from an execution proceeding initiated by Yuvaraj Finance Pvt Ltd, which had obtained an arbitration award on February 20, 2002, in Arbitration Application No. 66 of 1999. To enforce the award, the decree-holder sought the attachment and sale of the judgment debtor’s immovable property in Kakinada, East Godavari District. The Execution Court issued an attachment order on August 2, 2002, under Order 21 Rule 54 of the Code of Civil Procedure (CPC), and public notice was affixed to the property, notifying all potential purchasers.

Despite this, the judgment debtor executed a registered sale deed in favor of Kanneganti Durganand on June 11, 2004, nearly two years after the attachment was imposed. Claiming to be a bona fide purchaser without knowledge of the attachment, Durganand approached the Execution Court, seeking recognition of his ownership and release of the property from attachment. The Execution Court dismissed his plea, holding that the sale was void against the decree-holder, as it was executed in defiance of the attachment order.

Aggrieved by the decision, Durganand filed an appeal before the Andhra Pradesh High Court, arguing that he had purchased the property in good faith and that his sale should be protected under Section 64(2) of the CPC, which permits transfers made in pursuance of contracts entered into before attachment.

The High Court upheld the Execution Court’s finding that the sale deed executed after the attachment order was void against the decree-holder’s claims. Interpreting Section 64(1) of the CPC, the court ruled that once an attachment is made, any subsequent transfer is legally ineffective. "The attachment order issued under Rule 54 of Order 21 CPC operates as a judicial restriction on the judgment debtor’s right to transfer the property. Any transfer made thereafter is in direct violation of that restriction and cannot override the decree-holder’s rights," the court stated.

Rejecting the appellant’s contention that he was unaware of the attachment, the court observed that public notice had been affixed to the property, which served as constructive notice to any intending purchaser. "When an attachment is made, a prospective buyer is under an obligation to verify the encumbrances affecting the property. The doctrine of constructive notice applies, and a purchaser cannot claim ignorance when the attachment is a matter of public record," remarked the bench.

No Protection for Transfers Executed After Attachment
The appellant relied on Section 64(2) of the CPC, which provides an exception for transfers executed in pursuance of contracts entered into before attachment. The High Court, however, rejected this defense, holding that the appellant had not produced any evidence of a pre-attachment contract. "For a sale to be protected under Section 64(2), there must be a legally enforceable agreement existing before the attachment. The appellant has failed to establish any such prior contract, and therefore, the transaction falls squarely within the prohibition of Section 64(1)," the court ruled.

The bench further noted that the timing of the sale, nearly two years after the attachment was imposed, raised serious doubts about its bona fides. "A judgment debtor cannot defeat the execution process by engaging in post-attachment transfers, especially when such transfers are executed at a stage when the decree-holder is actively pursuing enforcement of their rights," observed the court.

Claim of Bona Fide Purchase Without Notice Rejected
The appellant asserted that he was a bona fide purchaser for value without knowledge of the attachment. The court, however, found this claim to be unsubstantiated. "The doctrine of bona fide purchase is inapplicable when an attachment order has been made public. The Rule 54 CPC notice was affixed to the property, and the appellant cannot claim to be unaware of the encumbrance when he had ample opportunity to verify its legal status before purchase," the bench ruled.

Referring to the principle of caveat emptor, the court emphasized that a purchaser has a duty to conduct due diligence before acquiring property. "A buyer who fails to make reasonable inquiries cannot later plead ignorance of existing encumbrances. The burden of verification lies with the purchaser, and courts cannot grant protection to those who neglect their duty of due diligence," the judgment stated.

No Legal Effect to Fraudulent or Collusive Transfers
The decree-holder alleged that the sale was a collusive transaction between the judgment debtor and the appellant, designed solely to delay execution proceedings. The High Court observed that the judgment debtor had actively participated in the execution proceedings and was fully aware of the attachment, yet deliberately executed a sale deed at a time when the decree-holder was preparing for auction.

"The sequence of events indicates that the sale was not a bona fide transaction but a calculated attempt to obstruct the execution of the award. Courts cannot allow judgment debtors to evade their liabilities by engaging in post-attachment alienations," the court remarked.

Dismissing the appeal, the High Court upheld the Execution Court’s ruling that the sale deed executed in favor of the appellant was void against the decree-holder’s rights. The court reiterated that:

•    Attachment under Order 21 Rule 54 CPC imposes a legal bar on transfers, and any sale made thereafter is ineffective against the creditor.
•    A purchaser claiming protection under Section 64(2) must establish a prior agreement before attachment, failing which the transfer is void.
•    Mere registration of a sale deed does not confer valid title when the transfer is executed in defiance of a judicial attachment.
"The law does not permit a debtor to defeat a creditor’s rights through post-attachment transactions. Any such transfer is non est in law, and the decree-holder’s rights shall prevail over the claims of subsequent purchasers," concluded the bench.

Conclusion: A Landmark Judgment Protecting Creditor Rights
This ruling reinforces the sanctity of attachment orders in execution proceedings, ensuring that judgment debtors cannot escape their liabilities by executing post-attachment sales. The judgment clarifies that purchasers who fail to conduct due diligence cannot later claim to be bona fide buyers when the attachment was a matter of public record.

By upholding the superiority of decree-holder rights over subsequent private transfers, the Andhra Pradesh High Court has sent a strong message that execution proceedings cannot be frustrated through fraudulent or belated transactions.

Date of Decision: 24 February 2025