2003 (10) TMI 610 - SC - Indian Laws

Whether the right of the auction purchaser could have been set at naught by reason of a consent order passed in his absence? Held that - The consent order, as is well-known, is an agreement between the parties with the seal of the Court superadded to it. The appellant herein in the Review Application categorically stated that the parties to the appeal had suppressed the auction sale as also the confirmation thereof. The effect of the events appearing subsequent to the filing of First Appeal resulting in creation of a third party right was bound to be taken into consideration by the High Court. A third party right cannot be set at naught by consent. The High Court, therefore, was required to consider the contention of the appellant in their proper perspective. The High Court, in our opinion, was obligated to address itself on these questions for the purpose of reviewing its order. It is true that pursuant to or in furtherance of the consent order, the respondents had deposited the amount and the State Government has appropriated the same. The legal, issues as regard the effect of commission of fraud on court vis-a-vis the conduct of the parties are still at large. The High Court was therefore, required to adjust the equities between ,the parties. The Bank cannot also unjustly enrich itself insofar as; while enforcing a preliminary decree of mortgage, it cannot take also recourse to recover the decretal amount from the judgment-debtors at the expense of the auction purchaser. Appeal allowed. The matters may now be considered afresh by the High Court in the light of the observations made hereinbefore.

Issues Involved:
1. Effect of fraud on court.
2. Validity of auction sale and subsequent possession.
3. Jurisdiction and powers of the court to set aside decrees obtained by fraud.
4. Equitable adjustments and remedies available to parties affected by fraudulent acts.

Detailed Analysis:

1. Effect of Fraud on Court:
The core issue in these appeals is the effect of fraud on court. The judgment reiterates that "fraud vitiates every solemn act" and emphasizes that "fraud and justice never dwell together." Fraud, whether by misrepresentation or deceit, invalidates judicial acts, contracts, and transactions. The court cites several precedents, including Derry v. Peek and Lazarus Estate v. Berly, to underscore that fraud unravels all judicial acts and decisions.

2. Validity of Auction Sale and Subsequent Possession:
The appellant became the highest bidder in an auction sale of 30 acres of land, which was confirmed by the Executing Court. However, the auction sale was later set aside by the High Court, directing the appellant to seek partition or include the purchased area in the mortgagor's share. The appellant's subsequent possession and investment in the land were challenged, leading to further legal disputes. The court emphasizes that any order obtained by fraud is non-est in the eyes of law, rendering the auction sale and subsequent possession invalid if fraud is proven.

3. Jurisdiction and Powers of the Court to Set Aside Decrees Obtained by Fraud:
The judgment asserts that courts have inherent jurisdiction to set aside decrees obtained by fraud. It references Manohar Lal Chopra v. Raj Bahadur Rao Raja Seth Hiralal, stating that civil courts can pass orders necessary for the ends of justice or to prevent abuse of process. The court highlights that principles of res judicata do not apply to judgments obtained by fraud, as fraud vitiates all judicial acts.

4. Equitable Adjustments and Remedies Available to Parties Affected by Fraudulent Acts:
The court discusses the need for equitable adjustments when fraud is involved. It emphasizes that third-party rights, such as those of the auction purchaser, cannot be nullified by consent orders in which they were not a party. The judgment underscores the principle 'actus curiae neminem gravabit' (an act of the court shall prejudice no man) and the need for courts to adjust equities between parties. The court acknowledges that the Bank cannot unjustly enrich itself at the expense of the auction purchaser and that appropriate remedies must be found to ensure justice.

Conclusion:
The Supreme Court set aside the impugned judgments, emphasizing that fraud vitiates all judicial acts and that courts have inherent powers to address fraud. The matters were remanded to the High Court for fresh consideration, with instructions to adjust equities and provide just remedies in light of the observations made. The appeals were allowed without costs.

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