Balancing Judicial Authority and Property Rights: Insights from Celir LLP V. Sumati Bafna

Introduction

The Supreme Court of India in Celir LLP v. Sumati Bafna [1] has delivered a vital judgement on the interplay between ‘contempt jurisdiction’ and the doctrine of ‘lis pendens’ under Section 52 of the Transfer of Property Act, 1882. The judgment emphasises the court’s power to declare a sale void if it contravenes the court's directions, even though such transactions are not inherently void under the doctrine of lis pendens. The bench addressed this issue while hearing a contempt petition filed by Celir LLP, the auction purchaser of the disputed property.

The doctrine of ‘lis pendens’

Lis Pendens translates to ‘litigation pending’ and is derived from the maxim “Pendente lite nihil innovator" ; which states that no new changes should be introduced while a suit or litigation is ongoing.

This doctrine prohibits the transfer of property when there is an ongoing litigation with respect to the title or rights directly connected to an immovable property. It is rooted in common law principles and is codified under Section 52 of the Transfer of Property Act 1882, which provides that:

When a lawsuit involving the right to immovable property is pending before a competent court in India, no party to the dispute may transfer or deal with the property in a manner that could affect the rights of the other party to the dispute, as may be determined by the court’s eventual decision.

This restriction applies from filing the complaint or initiating proceedings in the court and continues until the court issues an order concluding the case.

Legal Issues in Celir LLP Case

The case involved the sale of a property under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”), where the Supreme Court (“Court”) directed the bank to issue a sale certificate to Celir LLP. However, the borrower executed an assignment deed during the litigation, transferring the property to a third party. Subsequently, a contempt petition was filed by Celir LLP, contending that the transfer violated the Court's directives and hampered the enforcement of the sale. In turn, the borrower accused Celir LLP of not taking possession of the property within the specified time and sought to void the assignment deed. The legal issues involved in this case are as follows:

(a) Doctrine of Lis Pendens: The borrower claimed that Section 52 of the Transfer of Property Act, 1882 does not void transfers made during litigation. The Court clarified that while such transfers are not inherently void, they are subject to the outcome of the litigation. Referring to the case of Siddamsetty Infra Projects Private Limited v. Katta Sujatha Reddy [2] , the Courthighlighted that lis pendens, based on equity and public policy, prevent ongoing litigation from being undermined by subsequent transactions.

(b) Contempt Jurisdiction: The Court examined whether contempt jurisdiction allows reversing transactions that violate judicial orders. Answering the same, it was ruled that the courts are empowered to annul actions intended to undermine judicial directions, holding the borrower'stransfer to be an act of contempt that subverted the judicial process.

The Court further clarified that while a transfer made during pending litigation is not inevitably void under Section 52 of the Transfer of Property Act, 1882, it can be reversed if it contravenes any judicial directions. The Court emphasised that contempt jurisdiction is not limited to overt disobedience but applies to actions that undermine judicial authority or obstruct the execution of court orders.

(c) Sale under SARFAESI Act: In the present case, the Court clarified the limited grounds for setting aside confirmed sales under the SARFAESI Act, which enables financial institutions to recover secured debts without judicial intervention. It underlined the importance of finality in public auctions and stated that minor procedural lapses do not annul the sale unless they cause severe injustice or substantial prejudice. Such auctions should only be challenged in case of fraud, collusion, or severe procedural flaws.

The Court further highlighted the risk of damage to the framework of the SARFAESI Act if confirmed sales are easily invalidated, which could discourage auction participation. Referring to the case of V.S. Palanivel v. P. Sriram [3] the Court emphasised judicial restraint in post-confirmation challenges. Issues that can be addressed before a confirmation should not be entertained afterwards unless procedural defects are causing substantial harm or preventing parties from exercising their rights.

Conclusion

Lis pendens does not prevent property rights from being vested but binds the purchaser to the outcome of litigation. The transfers made during a pending suit are not void but voidable at the option of the affected party. Although it restricts property transfers during litigation, such transfers are not inherently illegitimate. Instead, the purchaser remains subject to the suit’s outcome. In addition, the courts are empowered to reverse any transfers made during a pending suit under its contempt jurisdiction (even without prior directions to the parties). This doctrine serves as a bar to rights, title, and interest, ensuring transactions do not harm the opposing party’s interests.

Further, the Court’s rulings in Celir LLP and related cases clarify the relationship between contempt jurisdiction, the doctrine of lis pendens, and the SARFAESI Act. This judgment emphasises adherence to judicial directions and the finality of confirmed sales. By balancing procedural compliance with practical considerations, the Court upholds fairness, efficiency, and stability in property auctions. This jurisprudence reinforces the SARFAESI framework, ensuring effective debt recovery while safeguarding the rule of law.

Referneces 

[1] 2024 SCC OnLine SC 3727
[2] 2024 INSC 861
[3] 2024 INSC 659