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Alimahmad Abdul HusseIn Vs. Vadilal Devchand Parekh - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtMumbai
Decided On
Case NumberSecond Appeal No. 917 of 1916
Judge
Reported in(1919)21BOMLR849
AppellantAlimahmad Abdul Hussein
RespondentVadilal Devchand Parekh
DispositionAppeal dismissed
Excerpt:
.....order but before jinal discharge-alienation by insolvent bona fide and for value-intervention of official assignee-validity of alienation.;the property, movable or immovable, acquired by an insolvent after the adjudication order but before the final discharge, can be transferred by him, provided the transaction is bona fide and for value and is completed before the intervention of the official assignee.;cohen v. mitchell (1890) 25 q.b.d. 262, followed. - - d, 262. 9. if the mortgage in favour of jamnadas is good as against the official assignee, i do not see how the suit of 1910 can be said to be defective in any way. 10. it is urged, however, that a bona fide purchaser for value of the after-acquired immoveable property cannot get a good title against the official assignee even..........obtained then, a judgment for all the debts was entered against the insolvent in favour of the official assignee under section 86 of the indian insolvency act ( 11 & 12 vic. c. 21 ) on the 17th august 1887. the insolvent did not obtain any final discharge under the act and in fact nothing was done in the matter of the insolvency up to his death in 1904 or up to november 1917 after his death. owing to the non-production of the necessary papers the lower appellate court had some doubt as to the existence of the vesting order and as to whether there was a final discharge of the insolvent. in the argument before us the facts as stated above have not been disputed, and the papers relating to this insolvency, which we have seen with the consent of the parties in order to avoid delay and.....
Judgment:

Shah, J.

1. The facts material to the point arising in this second appeal after the remand are briefly these: One Tyabaji Farzullabhai applied to the Court for the Relief of Insolvent Debtors, Bombay, and the usual vesting order was made on the 10th January 1887. Subsequently on the debtor's application a personal discharge subject to any further orders was allowed and in accordance with the practice, that obtained then, a judgment for all the debts was entered against the insolvent in favour of the Official Assignee under Section 86 of the Indian Insolvency Act ( 11 & 12 Vic. c. 21 ) on the 17th August 1887. The insolvent did not obtain any final discharge under the Act and in fact nothing was done in the matter of the insolvency up to his death in 1904 or up to November 1917 after his death. Owing to the non-production of the necessary papers the lower appellate Court had some doubt as to the existence of the vesting order and as to whether there was a final discharge of the insolvent. In the argument before us the facts as stated above have not been disputed, and the papers relating to this insolvency, which we have seen with the consent of the parties in order to avoid delay and further remand on points capable of being easily ascertained, support the statement. Tyabaji was, therefore, an undercharged insolvent from 1887 to the time of his death in 1904.

2. In 1898 Tyabaji purchased a house at Kapadvanj and mortgaged it with possession on the same day (9th July 1898) to one Vajiraboo for Rs. 700 Babashahi and executed a second mortgage in favour of one Jamnadas on the same day. It is found by the lower appellate Court and not contested before us that the house was purchased by Tyabaji with the money borrowed from the two mortgagees.

3. Jamnadas filed suit No. 93 of 1910 on his mortgage against the heirs of Tyabaji and obtained a decree, in execution whereof the house was sold through the Court subject to the first mortgage and purchased by the present plaintiff, Vadilal, on the 12th September 1912. The plaintiff as auction-purchaser then filed the present suit against the defendants, the heirs of Vajiraboo, for redemption of the first mortgage. The trial Court allowed the plaintiff's claim. The lower appellate Court confirmed the decree. On appeal to this Court certain issues were sent down for findings in connection with the insolvency of Tyabaji. Before the remand the defendants purchased the right, title and interest of the Official Assignee in November 1917.

4. On these facts it is urged on behalf of the defendants that the plaintiff did not purchase Tyabaji's interest at the Court-sale as it was vested in the Official Assignee, and that they having purchased that interest from the Official Assignee they are entitled and willing to redeem the mortgage in favour of Jamnadas which is vested in the plaintiff. It is conceded on behalf of the defendants that this mortgage now vested in the plaintiff is binding upon the Official Assignee and that the plaintiff is entitled to be redeemed. The plaintiff contends that the after-acquired property of the insolvent cannot vest in the Official Assignee until he intervenes, and that the Court-sale which took place long before his intervention is binding upon him, and conveys to the plaintiff the whole interest of Tyabaji and the second mortgagee subject of course to the first mortgage.

5. It may be mentioned that the point now made on behalf of the defendants was not urged in the trial Court, and that what is described as the intervention of the Official Assignee really came into existence long after the decision of the lower appellate Court. It involves practically a reconsideration of the rights of the parties on a new basis. This Court has, however, allowed the point to be raised at the time of the remand, and it is clear that the appellants are entitled to have their rights determined on the facts now ascertained.

6. It must be taken for the purpose of this appeal that the transactions of the insolvent with Jamnadas and Vajiraboo were bona fide and for value, that Jamnadas sued the heirs of Tyabaji in complete ignorance of the insolvency proceedings, and that the subsequent proceedings on the suit resulting in the Court-sale were bona fide throughout.

7. It is urged, however, that under Section 7 of the Indian Insolvency Act, the interest of Tyabaji was vested in the Official Assignee. No doubt that section applies to after-acquired property of the insolvent. But as pointed out in Kerakoose v. Brooks (1860) 8 M.I.A. 339 the right of the Official Assignee is subject to the qualification that 'if the insolvent has acquired property subject to liens and obligations, then any property taken by the Assignee under that state of things is taken subject to those charges and equities which affect the property in the hands of the insolvent'. It is not necessary to refer to the other qualification mentioned by their Lordships of the Privy Council. It is conceded in the present case that the Official Assignee would take the property subject to the two mortgages effected by Tyabaji in 1898; and in view of the fact that Tyabaji purchased the property with the moneys received from the two mortgagees, it is indisputable that the insolvent acquired the property subject to those charges.

8. It is argued, however, that the equity of redemption was vested in the Official Assignee, and that the suit by Jamnadas was not properly constituted as the Official Assignee was not a party to it. It is urged by way of reply, that the suit was properly constituted, that the sale in execution of the decree is binding upon the Official Assignee as a bona fide transaction for value, and the equity of redemption would not vest in the Assignee before his intervention according to the rule in Cohen v. Mitchell (1890) 25 Q.B.D, 262.

9. If the mortgage in favour of Jamnadas is good as against the Official Assignee, I do not see how the suit of 1910 can be said to be defective in any way. If Tyabaji or his heirs could have sued Jamnadas to redeem the mortgage in his favour as the Official Assignee had not intervened, Jamnadas could sue the heirs of Tyabaji to enforce his mortgage. It is difficult to see what else Jamnadas could have done to enforce his mortgage, as he was ignorant of Tyabaji's insolvency and as the Official Assignee had not intervened. The suit and all the subsequent proceedings appear to me to be quite proper on the assumption that at the time it was open to Tyabaji or his heirs to deal with the equity of redemption. The Court purchaser could not be in any worse position than a bona fide purchaser for value under similar circumstances from the insolvent or his heirs before the intervention of the Official Assignee ; and the learned counsel for the appellants has not suggested that he should be in any worse position.

10. It is urged, however, that a bona fide purchaser for value of the after-acquired immoveable property cannot get a good title against the Official Assignee even though the latter has not intervened as the equity of redemption is vested in the Official Assignee. The plaintiff seeks to meet this contention by relying upon the rule in Cohen v. Mitchell which is stated by the Court of Appeal in these terms: 'Until the trustee intervenes, all transactions by a bankrupt after his bankruptcy with any person dealing with him bona fide and for value, in respect of his after-acquired property, whether with or without knowledge of the bankruptcy, are valid against the trustee'. This rule is stated in perfectly general terms and there is no suggestion in the rule itself that it applies only to personal and not to real property. If this rule applies to after-acquired immoveable property in India, the appellants' contention must fail. The question, therefore, is whether it applies to such immoveable property.

11. It will be convenient to state briefly how the rule has been applied in England. It has been held that the rule does not apply to real estate: see In re New Land Development Association and Gray (1892) 3 Ch. 138. In this case the decision of Chitty J. was upheld by the Court of Appeal on a different ground, but in the course of argument the Lords Justices expressed a strong opinion in favour of limiting the application of the rule to personal estate. In Ex parte Beardmora (1894) 2 Q.B. 393 Davey L. J. referred to the same rule with approval without any reference to the limitation as to the nature of the after-acquired property. In 1895 Chitty J. refused to attempt to introduce any limitation in the rule beyond that stated by him in the case of In re New Land Development Association and Gray and applied the rule to lease-hold property: see In re Clayton and Barclay's Contract (1895) 2 Ch. 212. In Official Receiver v. Cooke (1906) 2 Ch. 661, Neville J. felt himself bound to treat the rule as applicable only to personal estate including lease-holds. The same learned Judge applied it to the after-acquired real estate, which undercharged bankrupts purchased as partners for partnership purposes and sold and conveyed to bona fide purchaser for value before the trustee intervened in the case of In re Kent County Gas Light and Coke Company Limited [1909] 2 Ch. 195. The rule in Cohen v. Mitchell received a statutory recognition in Section 11 of the Bankruptcy and Deeds of Arrangement Act, 1913 (3 & 4 Geo. V, c. 34) and later in Section. 47, Sub-section (1) of the Bankruptcy Act of 1914 (4 & 5 Geo. V, c. 59). In the recent case of Hill v. Settle [1917] 1 Ch. 319, Lord Cozens-Hardy M. R. after referring to Cohen v. Mitchell and the Bankruptcy Act of 1914 has observed that 'the Legislature has plainly recognised the validity and effect of that which is to be found in what is, no doubt, judge-made law as expressed in a series of decisions extending over some 200 years.' I have not thought it necessary to refer to the decisions prior to Cohen v. Mitchell.

12. Thus it is clear that the rule has always been recognised as a beneficent rule, that though for some years the view that it did not apply to real property prevailed, the tendency was in favour of extending its application and that finally the Legislature has fully recognised the rule both as to the real and personal property, and has applied it retrospectively to all transactions completed before April 1914, subject to the condition that the trustee has intervened before that date.

13. In India long before the decision in Cohen v. Mitchell it was held in Kristocomul Mitter v. Suresh Ghunder Deb I.L.R (1882). Cal. 556, that so long as the Official Assignee had not interfered, an insolvent who had not obtained his final discharge had power with respect to after-acquired property to buy and sell and give discharge and do all other acts which he could have done before his insolvency. The property in that suit was immoveable property. In Fatimabibi v. Fatimabibi I.L.R.1892) 16 Bom. 452, it was held by Parsons J. that the Official Assignee was not a necessary party to a suit by the heirs of the deceased undercharged insolvent for a share in the after-acquired property, and that such property vested in the insolvent subject to the right of the Official Assignee to intervene and to claim the property. There is no reference to the rule in Cohen v. Mitchell in the judgment. The Madras High Court declined to apply the rule to dealings by the insolvent with immoveable property: see Rowlandson v. Champion . It may be noted that Collins C. J. had in the first I.L.R(1893). Mad. 21instance applied the rule to immoveable property. In appeal, however, the learned Judges reversed the order of the Chief Justice and their judgments show that their decision was influenced by the case of In re New Land Development Association and Gray already referred to. Later on in Sriramulu Naidu v. Andalammal I.L.R(1906) Mad. 145, the decision in Fatimabibi v. Fatimabibi was approved, and the learned Judges were content to distinguish Rowlandson'a case on the ground that there was no question of contract or transfer by the insolvent relating to his after-acquired immoveable property. The rule in Cohen v. Mitchell has been referred to in two decisions of this Court. In Naoroji N. Thoonthi v. Kazi Sidick Mirza I.L.R.(1896) 20 Bom. 636, it was considered in relation to a special set of facts, and there was no occasion to consider it with reference to the point arising in this case. At page 654 of the report it is pointed out that the rule in Cohen v. Mitchell could not apply to the agreement with which the Court had to deal in that case. In Macleod v. B. B. & C. I. Ry. Company (1905) 7 Bom. I.R. 618 it was urged that the doctrine of Cohen v. Mitchell was limited to those cases where the insolvent's after-acquired property had been the outcome of subsequent trade. The appeal was ultimately decided on a different ground, and the question of law was left undecided. But after referring to certain cases Jenkins C. J. observed as follows:-'In the face of this I hesitate to say the doctrine on which Cohen v. Mitchell rests is limited to subsequent acquisitions in trade, though I do not say it may not be the correct view. In this connection I have not overlooked the decision in Kerakoose v. Brooks, but I am not clear that their Lordships intended there to lay down an exhaustive statement of the law as to after-acquired property except so far as was necessary for the purposes of the case then before them.' I do not think that there can be any doubt as to the trend of the learned Chief Justice's opinion with reference to the scope of the doctrine on which Cohen v. Mitchell is based. At any rate there is nothing in the judgment, which is opposed to the view that the rule applies to all the after-acquired property, moveable and immoveable, of the insolvent,

14. On a careful consideration of all the decisions above referred to, it seems to me that the rule in Cohen v. Mitchell can be, and ought to be applied to all the property, moveable and immoveable, acquired by the bankrupt after the adjudication order, provided that the transaction by the bankrupt is bona fide and for value and is completed before the intervention of the Official Assignee. In other words I do not think that the nature of the after-acquired property forms any essential part of the rule: what is essential is that the transactions with reference to the property with third parties must be bona fide and for value and that they must be entered into before the Official Assignee intervenes. The reason of the rule does not compel the recognition of any restriction as to the nature of the property in its application: and I do not think that the distinction between real and personal property made in England in applying the rule can be properly applied to immoveable and moveable property in India. The statement of the law as to after-acquired property in Kerakoose v. Brooks has been held not to be exhaustive in Indian decisions; and the weight of judicial opinion in India seems to favour the view that the rule in Cohen v. Mitchell applies to the after-acquired property, moveable as well as immoveable. With due respect for the opinion of the Madras High Court to the contrary in Jlowlandson's case, I think that the rule can be properly applied to all after-acquired property, whether moveable or immoveable.

15. Thus in the present case the property was effectively disposed of before the Official Assignee can be said to have intervened. The conveyance in favour of the appellants by the Official Assignee cannot help them as the Official Assignee had nothing to convey at the date.

16. For the purpose of this ease, I have assumed that the Official Assignee intervened when he sold his right, title and interest to the appellants in November 1917. I am not sure that that amounts to an intervention on the part of the Official Assignee as is required to vest the property in him. it is not necessary for the purpose of this case to examine the point further, as the transaction was completed long before the alleged intervention; and I express no opinion on the question whether the intervention such as we have here is effective.

17. I also refrain from expressing any opinion as to whether under the circumstances the Official Assignee should have attempted to enforce the judgment under Section 86 of the Indian Insolvency Act or should have himself intervened in those proceedings, if he thought that he had any right to the property in suit, instead of allowing his intervention to be pleaded through the appellants.

18. The result is that the appeal is dismissed and the decree of the lower appellate Court confirmed with costs.

Heaton, J.

19. My learned brother's judgment shows that the only point of interest in the case is whether Section 7 of the Indian Insolvency Act, 11 & 12 Vic. Clause 21 is to be literally construed or not. If it is, the words (sic) vest in the Official

20. Assignee' must be given their full ordinary meaning. If that be done then the entire interest in property apparently acquired by an undischarged insolvent belongs to the Official Assignee. Many years' experience both in India and England has demonstrated that this would be a most undesirable position. The words have not been literally construed either in India or in England. It is therefore established that there is a measure of freedom allowed to us in construing this section. That being so I agree with the method of applying the section to the facts of this case adopted by my learned brother, I agree that the appeal should be dismissed with costs.


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