Seller's property can still be attached if the buyer knew of seller’s arbitral dues: SC rules

On February 12, 2026, the Supreme Court ruled that if someone buys a property after knowing about an arbitral award for the recovery of seller’s unpaid dues, then they can’t prevent that property from being attached to pay off those dues. In technical language, the Supreme Court said that the doctrine of ‘lis pendens’ under Section Section 52 of the Transfer of Property Act, 1882, applies even to money suits.

The court also held that a buyer of property after passing an arbitration award is barred by Order XXI Rule 102 of CPC from resisting the execution of attachment of that property for recovery of unpaid debt of the seller.

Background details of this disputed property and seller’s unpaid dues

On January 22, 1998, a Coimbatore-based textile company signed a sale agreement with a government company to buy cotton bales. However, this textile company failed to pay for the cotton bales. As a result, due to a dispute over the recovery of the sale price of cotton bales provided under the agreement, the government company filed an arbitration case (AP No. 9 of 1999) for recovery of Rs 37.51 lakh with interest and costs.


On June 11, 2001, the arbitrator passed an award of Rs 26 lakh with future interest at 18% per annum and cost.

On September 25, 2001, the textile company filed a case before the Court of Principal District Judge, Coimbatore under Section 34 of the Arbitration and Conciliation Act, 1996 challenging this arbitration award. On January 21, 2013, the appeal was dismissed, and thus the arbitration award in the government company’s favour became final, since no further appeal was filed by the textile company.

Separately, ICICI Bank had lent money to the textile company and for default of payment on the sums borrowed, ICICI Bank initiated recovery proceedings on November 11, 2013 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and attached the properties of the textile company.

From the recovery proceedings, an execution petition (EP) was initiated for attachment of various properties which also included the now disputed property. On December 29, 2014, a tripartite agreement was entered into between ICICI Bank, the textile company and a lady. From this tripartite agreement, a sale deed was signed April 23, 2015 in the lady’s (Smt Naidu’s) favour. She paid money to the bank for this property and thus the bank recovered its dues.

As a result of this sale deed, the case filed by ICICI Bank was closed and a compromise reached as proved by a tripartite agreement on December 29, 2014.

The buyer of this now disputed property (Smt Naidu) is the mother of the Managing Director of the textile company and also the wife of the ex-director. She was also a non-executive director of this textile company from 2007 to 2012.

However, on July 16, 2019, the government company filed a separate execution petition before the Court of Principal District Judge, Coimbatore, for executing the arbitration award dated June 11, 2001. The government company was owed Rs 26 lakh with interest, as per the arbitration award.

On August 19, 2021, the executing court ordered the conditional attachment of the property purchased by Smt Naidu for recovery of the textile company’s dues towards the government company, that is Rs 26 lakh with interest.

Consequently, Smt Naidu filed a case (EA No. 141 of 2021) by claiming that she is a third party buyer of that now disputed property and asked the court to remove that property from being attached in the textile company’s recovery of dues case. She told the court that on April 23, 2015 she bought the now disputed property by signing a tripartite agreement with ICICI Bank, the textile company and herself.

She argued that the sale of this property in her favour was for a valid consideration and without notice, namely, the existing liability of the textile company arising out of the arbitral award.

To sum up, it is alleged that she is the absolute owner of the property and had paid the money to the bank, and didn’t know about the ongoing dispute between the textile company and the government company.

The High Court upheld the executing court’s decision and ordered attachment of the property for recovery of the textile company’s unpaid dues towards the government company. Unhappy with this decision, Mrs Naidu filed a case in the Supreme Court. On February 12, 2026, she lost the case in Supreme Court.

Also read: Ancestral or inherited properties can also be attached under the Prevention of Money Laundering Act, 2002

Why did she lose the case in Supreme Court?

Haaris Fazili, Partner, DMD Advocates, said to ET Wealth Online: Smt. Naidu lost this case due to a combination of factors working against her - she was deemed a “transferee pendente lite” because she purchased the property in 2015, long after the arbitration proceedings were instituted in 1999 and the award was passed in 2001.

Fazili says that under the CPC, such transferees are explicitly barred from resisting execution, regardless of their knowledge of the proceedings. Critically, she also failed to prove she was a bona fide purchaser "without notice" of the debt.

Fazili says: "The Court found this claim untenable given the background that she was the mother of the judgment-debtor company's Managing Director, had served as a non-executive director during the pendency of the proceedings (2007-2012), and, crucially, failed to produce the tripartite agreement that formed the basis of her purchase, suggesting possible collusion rather than an arm’s-length transaction."

According to Fazili from DMD Advocates, the Court's scepticism underscores a critical legal lesson - as an insider with clear knowledge of the company's financial distress and legal liabilities, Smt. Naidu took a calculated risk. By purchasing property from an insolvent entity, she exposed herself to the predictable consequence that her ownership rights would be subservient to pre-existing, legitimate creditor claims.

Fazili says: "The case serves as a stark reminder of the perils of using related-party transfers in an attempt to shield assets from lawful execution, illustrating that such manoeuvres carry a high risk of losing both the property and the money invested."

As for the money she paid, the judgment does not address her financial recovery, leaving her in a precarious position. In principle, she could file a separate civil suit against the seller company for recovery.

Fazili says: "However, the practical reality appears grim; the company was already in default under SARFAESI proceedings and unable to satisfy the arbitral award, suggesting that it lacks the assets to satisfy any new court decree against it."

Supreme Court analysis and discussion

Justice Pankaj Mithal and Justice S.V.N. Bhatti of the Supreme Court of India gave this judgement on February 12, 2026.

The said property was purchased after the arbitration case was already filed in 1999

The Supreme Court said that looking at the facts and circumstances of the present case, the arbitral proceeding was started in 1999, and the award came on June 11, 2001.

Under Section 36 of the Arbitration and Conciliation Act, 1996, an arbitral award is enforceable in the same manner as if it were a decree of a court, essentially, a deemed decree.

The Supreme Court said that Order XXI Rule 102 of the CPC explicitly states that the protections available to bona fide claimants under Rules 98 and 100 do not apply to a transferee pendente lite.

The Supreme Court said: “A transferee pendente lite is defined as someone to whom the property is transferred after the institution of the suit in which the decree was passed.”

The suit, i.e., the arbitration proceeding, was instituted in 1999, and the Appellant (Smt Naidu) purchased the property on account of a sale deed dated April 23, 2015.

The Supreme Court said: “Since the transfer occurred after the institution of the proceedings and the passing of the award, the Appellant is a transferee pendente lite/post arbitral award purchaser, and is barred by Order XXI Rule 102 from resisting the execution.”

The Appellant (Smt Naidu), per contra, argued that the Section 34 challenge was dismissed in 2013, and the sale was in 2015, implying no litigation was pending.

The Supreme Court said: “However, the argument under Order XXI Rule 102 does not depend on the pendency of the Section 34 challenge, but on the fact that the transfer occurred after the institution of the suit in 1999, and after the arbitral award (decree) came into existence in 2001.”

A judgment debtor cannot defeat a decree by alienating the property after the decree is passed but before the decree is realised.

The Supreme Court said: “In other words, the steps taken defeat the very fruits of the money decree. The ratio of this Court in Usha Sinha v. Dina Ram, (AIR 2008 SC 1997; (2008) 7 SCC 144) is kept in perspective while appreciating the claim which falls under Rule 102 of Order XXI of the CPC.”

The Supreme Court rejected the buyer’s argument that she purchased the property without knowledge of the seller's debt

The Supreme Court said that at first glance, it appeared to them that to realise the amount due under an arbitral award, a third party’s property is attached.

The Supreme Court said that they have to arrive at an available finding examining the record and the foremost circumstances we preface are from 1999 till 2013, when the arbitration proceedings are pending against Respondent No. 2 (the textile company).

From 2014 till date, the proceedings in execution are pending against Respondent No. 2 (the textile company). The EP has been filed before the Court of Principal District Judge, Coimbatore, and was transferred to Tirupur. The transferee court, within whose jurisdiction the properties are situated, had ordered attachment for realisation of the arbitral award dated June 11, 2001.

The Appellant (Smt Naidu) presents the case as a third-party stranger.

The Supreme Court said that they should not hasten and conclude that there is fraud between the Appellant (Smt Naidu) and Respondent No. 2 (textile company) in the transfer of the now disputed property by sale deed dated April 23, 2015.

The Supreme Court said: “But the non-production of tripartite agreement, which is the genesis for discharging the claim of ICICI Bank, as has been rightly held by the Executing Court, enables this Court to safely conclude that the sale in favour of Appellant (Smt Naidu), even if for a consideration cannot be without notice of the existing liability of the Company/Respondent No. 2 (textile company).”

The Supreme Court said that the recovery proceedings under SARFAESI Act are independent and do not give any shield of protection to other claims against the Judgment Debtor/Borrower in default.

The Supreme Court said: “In the circumstances of the case, we reject the argument that the sale in favour of the Appellant is without notice.”

Supreme Court dismissed her appeal

The Supreme Court said that the question that arose for their consideration is whether the sale in favour of the Appellant (Smt Naidu) can be brought within the purview of pendente lite, given that the arbitral award is for the recovery of money.

The question need not be treated as res integra; the valid reasoning of the Madras High Court, affirmed by Supreme Court in Danesh’s case, is a complete answer.

The Supreme Court said that it is a well-worn proverb in litigation, echoing the Privy Council’s century-old observation, that the true difficulties of a litigant begin only after they have obtained a decree.3 It is generally stated that a suit may take 5 years to conclude, but its execution takes 10 years.

Order XXI of the CPC was comprehensively amended in 1976 specifically to cure this mischief, operating as a self-contained code that strictly bars separate suits (under Section 47, Rule 92(3), and Rule 101) and imposes rigid limitation periods for raising objections.

The Supreme Court said that if the argument of the appellant (Smt Naidu) is accepted allowing pendente lite purchasers or third parties to bypass these strict procedural safeguards and institute separate suits or raise belated objections long after the execution processes (like attachment and sale) have advanced, it would completely derail the statutory machinery.

The Supreme Court said that judgment-debtors would be incentivized to systematically defeat decrees by transferring properties or planting surrogate objectors to initiate endless collateral litigation. Consequently, execution proceedings would not merely take 10 years, but would get trapped in an infinite loop and practically never get completed, reducing the hard-won decrees of competent courts to mere “paper tigers.”

The Supreme Court said that another bench of their court emphasized in Jini Dhanrajgir v. Shibu Mathew ((2023) 20 SCC 76) that winning a case is meaningless unless the winner actually gets the relief they sought.

The Supreme Court said that we need a shift in mindset: the goal of the legal system should not just be to dispose of cases, but to ensure that the litigant enjoys the reliefs.

The Supreme Court said: “The provisions in the CPC must be employed to secure actual relief, not just a formal decree. We must ensure that the legal process results in justice not just appearing to be done, but justice actually being done.”

The Supreme Court said that to sum up, they note that the Appellant (Smt Naidu) is a purchaser post-arbitral award for recovery of the amount. The execution proceeding was pending when the sale deed was entered into between Respondent No. 2 (textile company) and the Appellant.

Judgement: “Moreover, the Appellant failed to discharge the onus on the sale being without notice of the existing claim. The arbitral award remains unrealised till date. Therefore, in the circumstances of this case, and by following the ratio in Danesh’s case we (Supreme Court) hold that the claim petition of the Appellant is rightly dismissed by the courts below.”

Judgement:

• In the circumstances of the case and for the above reasons, we agree with the order impugned, and the Civil Appeal fails and is dismissed. The executing court disposes of Execution Proceedings within two months from today.
• No order as to costs. Pending applications, if any, stand disposed of.