§ Section 73(1), CPC 1908 (in substance)

Where assets are held by a Court and more persons than one have, before the receipt of such assets, made application to the Court for the execution of decrees for the payment of money passed against the same judgment-debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realisation, shall be rateably distributed among all such persons:

Provided as follows — (a) where any property is sold subject to a mortgage or charge, the mortgagee or encumbrancer shall not be entitled to share in any surplus arising from such sale; (b) where any property liable to be sold in execution of a decree is subject to a mortgage or charge, the Court may, with the consent of the mortgagee or encumbrancer, order that the property be sold free from the mortgage or charge, giving him the same interest in the proceeds of the sale as he had in the property sold; (c) where any immovable property is sold in execution of a decree ordering its sale for the discharge of an encumbrance thereon, the proceeds of sale shall be applied first in defraying the expenses of the sale, then in discharging the amount due under the decree, then in discharging the interest and principal monies due on subsequent encumbrances, and lastly in paying the balance to the judgment-debtor.

§ All four must be satisfied

A decree-holder shares in the fund only if:

• He holds a decree for the payment of money. A decree for possession, for an injunction or for specific performance does not qualify, since the section distributes money among money claims.

• The decree is against the same judgment-debtor. The competing decrees must run against the same person, since it is his assets that are being distributed.

• He has applied for execution to the court holding the assets. An application to a different court, however diligent, does not qualify; the applicant must be before the court that holds the fund.

• He applied before the receipt of the assets by that court. This is the decisive timing condition: an application made after the assets came into the court's hands is too late, and the applicant takes nothing from that fund.

§ Why the timing condition is the crux

The words before the receipt of such assets fix the moment at which the class of sharers closes. Everything turns on when the court received the assets, ordinarily the date the sale proceeds or the attached money came into court.

The rule is strict because the fund must be capable of distribution at a definite point; a court cannot hold money indefinitely while further decree-holders present themselves.

The practical lesson is therefore simple: apply early, and apply to the right court. Diligence in obtaining a decree counts for nothing under this section if the execution application is filed late.

A creditor who has not obtained a decree

The section operates only among decree-holders; an unsecured creditor without a decree has no claim on the fund

A decree-holder who applied to a different court

The application must be to the court holding the assets, since it is that court that distributes them

A decree-holder who applied after the receipt of the assets

The timing condition closes the class at the moment the assets are received

A holder of a decree that is not for money

The section is confined to decrees for the payment of money

A secured creditor, as regards his security

A mortgagee or encumbrancer stands outside the rateable pool; proviso (a) also denies him a share in any surplus where the property was sold subject to his mortgage

A decree-holder who has already obtained satisfaction

The section speaks of persons who have not obtained satisfaction of their decrees

§ The three provisos

Each deals with property subject to a mortgage or charge:

• Proviso (a): sale subject to the mortgage. Where property is sold subject to a mortgage or charge, the mortgagee or encumbrancer shall not share in any surplus arising from the sale. His security remains on the property in the purchaser's hands, so he has already been provided for.

• Proviso (b): sale free of the mortgage, with consent. Where property liable to be sold is subject to a mortgage or charge, the court may, with the consent of the mortgagee, order it to be sold free from the mortgage, giving him the same interest in the proceeds as he had in the property. His security is transferred to the fund, out of which he is paid in priority.

• Proviso (c): sale to discharge an encumbrance. Where immovable property is sold in execution of a decree ordering its sale for the discharge of an encumbrance, the proceeds are applied first to the expenses of the sale, then to the amount due under the decree, then to subsequent encumbrances with interest and principal, and lastly the balance to the judgment-debtor.

§ Equality among unsecured decree-holders

Section 73 enacts a principle of equality among unsecured creditors who have reduced their claims to decrees and come to the same court in time. It prevents a scramble in which the most aggressive creditor takes the whole fund and the rest take nothing.

The principle is the one that underlies the rules of insolvency, and indeed Order XX Rule 13(2) applies insolvency rules where an estate under administration proves insufficient.

But the section is not a general insolvency provision. It operates only on the particular fund held by the particular court, only among those who satisfy its four conditions, and it leaves secured creditors to their security. It is a rule of distribution, not a scheme of collective realisation.