Skip to content


Babu Rama Chaugule Vs. the Goodwill Bank Ltd., Miraj - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai High Court
Decided On
Case NumberLetters Patent Appeal No. 45 of 1970 (With C.A. 901 of 1970)
Judge
Reported inAIR1973Bom342; (1973)75BOMLR561; 1973MhLJ960
ActsProvincial Insolvency Act, 1920 - Sections 28(6); Code of Civil Procedure (CPC), 1908 - Order 22, Rules 10 and 12
AppellantBabu Rama Chaugule
RespondentThe Goodwill Bank Ltd., Miraj
Advocates:H.G. Advani and ;S.C. Pratap, Advs.
Excerpt:
.....the suit - thus the provisions of rule 10 and 12 of order 22 of the code could be applied to the execution proceedings ; c) the case debated on the powers of the secured creditor for devolution of interest in the property by operation of law under section 28(6) of the provincial insolvency act, 1920 - it was held that section 28(6) of the act had the provisions related to 'power' to enforce security and 'manner' of doing the same - further, if the decree was obtained before the adjudication, then the property was required to be sold through the court and he could enforce the same in that manner - however, the same could not mean that if the devolution of interest had taken place by operation of law, he could ignore the same and could not bring the proper representative of the estate on..........is whether the provisions of order 22, rule 10 of the code of civil procedure, 1908 apply to the execution proceedings, but even if they do the second question to consider is whether the official receiver on whom devolves by operation of law the entire property of the insolvent including the equity of redemption must be added as a party defendant in the execution proceedings before enforcing the remedy of sale through court in execution proceedings to enforce the right of a mortgage-decree-holder .5. according to us both the points do not admit of any controversy. when a judgment-debtor like the present appellant is adjudicated insolvent, section 28 beings to operate and apart from the real implications of sub-section (6) thereof, which we shall deal a little later, there is no doubt.....
Judgment:

Deshmukh, J.

1. This appeal arises out of the execution proceedings. The facts are no longer in dispute. The respondent-Bank as a plaintiff filed Civil Suit No. 115 of 1949 against the appellant-defendant on the basis of a simple mortgage bond to enforce their debt by sale of a mortgaged property. This suit resulted in a final decree on 31-10-1949. It was an instalment decree payable by an annual instalment of Rs. 700. The first of such instalments was payable on 30th June, 1950 and regularly thereafter on the same date in the subsequent years. ON failure of payment of any two instalments, the entire decretal amount was due and payable. It appears that the first instalment was paid but thereafter there was no regular payment made within the time provided by the decree. Three Darkhast were given from time to time in 1955, 1958 and 1961. After Special Darkhast No. 48/61 was disposed of on 6-5-1962, the present Darkhast has been filed on February 7, 1963. It is out of this last Darkhast that the present appeal arises.

2. This Darkhast in 1963 has been filed against the judgment-debtor himself by the plaintiff-Bank as a decree-holder. While these Darkhast were being given from time to time, in Insolvency Petition No. 8/50 the appellant-judgment-debtor came to be adjudicated insolvent on 6-12-1957. In the present Darkhast the judgment-debtor raised several contentions which were all rejected. He subsequently gave an application, Ex. 38, dated 19-1-1965. In this application he pointedly mentioned that in Insolvency Petition No. 8 of 1950 he was adjudged insolvent and it was not lawful to continue the Darkhast against him. He also pointed out that a Receiver was appointed in insolvency in whom all his property including the equity of redemption vests and an execution could have been taken out only against the Receiver and not against him. The Darkhast given by the decree-holder against him in spite of his being adjudicated as an insolvent was unlawful and untenable. The decree-holder was called upon to give his say and on the same day and behind Ex. 38 itself the learned Advocate for the plaintiff-Bank gave in writing that the decree obtained by the Bank was long before the judgment-debtor was declared insolvent. In the circumstances, the question of joining the Receiver does not arise at all. This say was further amplified by filing a purshis, Ex. 40, in which not only the reasons for not joining the Receiver are stated but some case law is cited on which the learned Advocate for the plaintiff decree-holder relied upon. Thereafter elaborate arguments were addressed and the learned Executing Judge by his order date April 6, 1965, held that on the language of sub-section (6) of Section 28 of the Provincial Insolvency Act, the remedies of a secured creditor are preserved for him and are not affected by the insolvency of the judgment-debtor. It is therefore not necessary to make the Receiver a party and accepting the argument on behalf of the creditor Bank, the objections at Ex. 38 came to be dismissed.

3. Against this order, the judgment-debtor filed First Appeal No. 310/65 which came up for hearing before Kantawala, j. (as he then was) without any appearance for the respondent-decree holder. The learned Counsel for the appellant relied upon the judgment of the Privy Council in Kalachand Banerjee v. Jagannath Marwari , Indian Cotton C. Ltd. v. Ramcharanlal Chunilal. AIR 1939 Nag 128 and Kripa Nath v. Ganga Prasad, : AIR1962All256 . The learned Judge observed that in each of these cases the question involved was whether an official receiver was a necessary party in suit to enforce the mortgage. In none of the cases, the Court had an occasion to consider the question whether after a decree absolute for sale is passed in favour of the mortgage-decree-holder if he files an application for sale of the property, is the official receiver a necessary party? After these observations, the learned Judge proceeds to consider the provisions of the Provincial Insolvency Act, which preserve the right of a secured creditor. It is pointed out that sub-section (6) of Section 28 of the Act lays down that nothing in this Section shall affect the power of any secured creditor to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with if this section had not been passed. The conclusion drawn is that the mortgage-decree-holder is entitled to proceed with the sale of the property with a view to realise the amount due under the decree and it was not obligatory to make the Official Receiver a party. Being aggrieved by this order, the judgment-debtor has carried the matter to the Letters Patent Appeal.

4. In view of the judgment already delivered in this litigation two points arise for our consideration. The first is whether the provisions of Order 22, Rule 10 of the Code of Civil Procedure, 1908 apply to the execution proceedings, but even if they do the second question to consider is whether the Official Receiver on whom devolves by operation of law the entire property of the insolvent including the equity of redemption must be added as a party defendant in the execution proceedings before enforcing the remedy of sale through Court in execution proceedings to enforce the right of a mortgage-decree-holder .

5. According to us both the points do not admit of any controversy. When a judgment-debtor like the present appellant is adjudicated insolvent, Section 28 beings to operate and apart from the real implications of sub-section (6) thereof, which we shall deal a little later, there is no doubt that all the effects contemplated by Section 28 must follow, upon an order of adjudication. Under sub-section (2) of Section 28 of the Provincial Insolvency Act on making an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall, during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceedings, except with the leave of the Court and on such terms as the Court may impose. There is therefore no doubt that as soon as adjudication order is passed the entire property of the insolvent vests in the Court and as soon as a Receiver comes to be appointed in insolvency it again devolves and vests in the Receiver. This is a legal devolution and takes effect as a natural consequence of the order of adjudication. No separate order as such is required to be made. Under Section 28 the existing property of the insolvent which is to vest in the Receiver would include the equity of redemption where immovable property is already mortgaged. Under the Provincial Insolvency Act all the property which the insolvent may acquire during the pendency of the proceedings or which may devolve upon the insolvent also automatically vests in the Receiver. This being so, we have no doubt that on December 6, 1957, when adjudication order came to be passed in Insolvency Petition No. 8 of 1950 and the Receiver also came to be appointed, the judgment-debtor ceased to have anything to do with the property, and it devolved by operation of law upon the Receiver and vested in him. In other words the judgment-debtor ceased to represent the estate on and from December 6, 1957, and the only person who could effectively represent the estate in law was the Receiver appointed by the Insolvency Court.

6. If there has been a devolution of interest of a litigant who is either a plaintiff or a defendant what must be done about the property, representation of the estate or the right to sue is provided for by O. 22 of C. P. C. It deals with death, marriage and insolvency of parties. The insolvency of a party has not been specifically dealt with and therefore falls under the general caption 'other cases of an assignment, creation or devolution of any interest' contemplated by Rule 10 of Order 22. Sub-rule (1) of R. 10 lays down that in other cases of an assignment, creation or devolution of any interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against the person to or upon whom such interest has come or devolved. Wherever these provisions apply it would be obvious that if a party becomes insolvent and thereby by operation of law the property of the insolvent devolves upon a Court Receiver, by the leave of the Court the remedy could be continued against the Court Receiver or by the Court Receiver as the case may be. The only question that falls to be considered is whether the provisions of this Rule of Order 22 apply to the execution proceedings.

7. In the case before us a final decree came to be passed on October 31, 1949. It was an instalment decree in which some payment was made. The decree-holder was otherwise filing execution petitions and keeping the decree alive and in time. However, we find that after the adjudication order and the appointment of a Receiver in December of 1957 there have been at least two execution proceedings instituted by the decree-holder. The first was a Special Darkhast No. 44/58 disposed of on 15-10-1958 and the second Darkhast was numbered as 48/61 and it was disposed of on 6-4-1962. Thereafter the present Darkhast has been filed on February 7, 1963, out of which the present appeal arises.

8. Order 22 generally provides for the effect that should follow upon death, marriage and insolvency of the parties but by Rule 12 a specific provision has been made that nothing in Rules 3, 4 and 8 shall apply to proceedings in execution of a decree or order. It, therefore, appears that the execution of a decree being in a way continuation of the suit, provisions of R. 10 of Order 22 which are not expressly excluded by Rule 12, should apply to execution proceedings as well. In fact barring the three Rules which have been specifically excluded it appears that the entire Order will apply from the institution of the suit till its final disposal by the realisation of the decree or realisation becoming impossible by way of limitation etc. This has always been the view of this Court, as will be clear from Krishnaji v. Bhikchand AIR 1942 Bom 82. A Division Bench of this Court held in that case that whenever the Legislature intends that certain rules of the Code which in terms apply to suits should not apply to execution proceedings, it has been expressly so provided. Order 22, Rule 12 excludes the operation of Rules 3, 4 and 8 of Order 22 to execution proceedings. Order 22, R. 10 therefore applies to execution proceedings as well. Both the learned Judges have written separate but concurrent orders. Wadia, J. in his order derives support from the observations of Full Bench of the Madras High Court in Muthiah Chettiar v. Govind Doss Krishnadoss, AIR 1921 Mad 599 and of the Calcutta High Court in Midnapore Zamindar Co. Ltd. v. Naresh Narain Roy, ILR (1912) Cal 220. The learned Judges further observed that it was difficult to reconcile the opposite view with the provision of Rule 12 of the O. 22. If the legislature had intended that R. 10 should not apply to execution proceedings, that rule would have been mentioned in R. 12 along with Rr. 3, 4 and 8. The other learned Judge Wassoodev, J. says that it has been held in a series of decisions of this Court and other Courts LLR (1902) Bom 109 and 31 Mad LJ 207 : AIR 1917 Mad 409 that an application in execution is a proceeding in a suit, or in, other words, execution is a continuation of the suit. In spite of the fact that execution is nothing but continuation of the suit, if the provisions of Order 22 were to be confined to suits only and cease to have any application to execution proceedings a distinction would have been made by the Legislature and Rule 12 would have been properly worded. There is therefore no doubt that on principles as well as the decisions of this Court the provisions of Order 22, Rule 10 apply to the Execution Proceedings.

9. If that is so, it would be now necessary to find out whether in respect of the present execution proceedings the provisions of Order 22, Rule 10 are attracted. A specific prayer was made by the judgment-debtor by pointing out the fact of his insolvency and the appointment of the Receiver, that the Receiver be joined as a party. That prayer was opposed by the decree-holder most emphatically by relying upon certain case law, which has been quoted by the learned Executing Judge. That argument was accepted and the application came to be rejected. We have already pointed out earlier that the minimum effect of an order of adjudication under provisions of sub-section (2) of Section 28 is that the whole of the property of the insolvent shall vest in the Court or in a receiver when one appointed. The representation of the estate by the insolvent now ceases and the only person who can effectively represent the estate in law and deal with it is the Insolvency Receiver, would it therefore be lawful to continue the execution without bringing the insolvency Receiver on record. The first hurdle of the application of Rule 10 of Order 22 having been crossed it is now necessary to consider the stand taken by the decree-holder that he can afford to ignore the Receiver altogether in view of sub-section (6) of Section 28. That sub-section, according to the decree-holder, entitled him to proceed against the property for the realisation of his dues without taking any cognizance of the Receiver. Sub-section (6) of Section 28 of the Provincial Insolvency Act, 1920, reads as follows:

'(6) Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed.' .

If the above sub-section is read along with Section 47 of the same Act, the totality of the right of a secured creditor and the procedure to be followed by him would be clear.

10. In the present case, the secured creditor who has already obtained a decree for the sale of immovable property has not chosen to relinquish his security for the general benefit of the creditors and hence it is not necessary for him to prove his whole debt before the Insolvency Court. He had already obtained a decree before the judgment-debtor was adjudged insolvent and he had therefore the choice to pursue the security for the realisation of his dues. However, a close reading of sub-section (6) quoted above will show that only two things are saved for the creditor for the purpose of realising his dues against the security and they are: the power of the secured creditor to realise or otherwise deal with his security and the manner in which he would have been entitled to realise or deal with it. The last clause of sub-section (6) viz. '................... if this section had not been passed,' does not mean that the secured creditor had to deal with his security as if this section was never passed at all. The operation of S. 28 which automatically commences upon the passing of the order of adjudication is saved or suspended in case of a secured creditor to the extent of two of his rights, viz., the power to deal with the security and the manner in which he deals with it for the purpose of realising his dues. To be more explicit if a secured creditor has a right to sell the property through Court or privately, or to foreclose it, that right is not affected. The manner of enforcing the security, viz. selling privately or through Court foreclosing through the same manner is also not affected. This does not mean that the secured creditor could deal with the property in the absence of any legal representation of that property. If by operation of law from the date of the adjudication the insolvent ceases to represent the property altogether and the only person that can represent that property and deal with it is the Receiver appointed by the Insolvency Court, the secured creditor cannot ignore this fact. In other words a devolution by the operation of law pending suit cannot be ignored by the secured creditor.

11. In the present case if we were to assume that the judgment-debtor were to die a physical death, could the execution have proceeded without bringing the legal heirs on record? Who would then be representing the estate? Instead of physical death, by the order of adjudication, a sort of civil death is brought about and the whole property of the insolvent now devolves upon the Court or a Receiver by the operation of law. The insolvent though physically joined as a party-defendant or judgment-debtor in the execution proceedings has no legal right to represent the estate and the execution proceedings in the present case are as if against the property alone without its representation by any person. It is here that the provisions of Order 22, Rule 10 operate and the Receiver who alone would now represent the estate must be brought on record, in order to have effective remedy against the property which is secured. In the absence of the Receiver made a party the continuation of the proceedings in the suit and the realisation thereof in the execution would not bind the Receiver and the estate which he represents.

12. A few judgments may now be usefully considered. In Tribhovandas v. A. H. Bhaghadivalla, : AIR1915Bom298 , the learned single Judge of this Court had to consider whether the insolvent who was present before him could be heard in the peculiar circumstances of that case. An ex parte decree was passed against the judgment-debtor who became an insolvent. About a month after his insolvency, he applied to have the ex parte decree set aside and the matter was argued without any mention being made of the defendant No.1 having been adjudicated an insolvent. The decree was set aside and about a month later it came to the notice of the plaintiff that defendant No.1 was an insolvent. Correspondent was exchanged between the Official Assignee and the plaintiff and leave was obtained to bring the Official Assignee on the record under Rule 10 of Order 22. That was done. The Official Assignee subsequently refused to defend the suit. However, defendant No.1 elected to defend the suit independently of the Official Assignee and appeared before the learned Single Judge with two Counsels. The question was whether he could be allowed to defend the suit. Relying upon the earlier judgment of this Court In Re Hunt Monnet & Co. v. Bholangir Mangir, (1862) 1 Bom HCR 251, as also another judgment of the Calcutta High Court in Chandmul v. Ranee Soondery Dossee, ILR (1895) Cal 259, the learned Judge observed that no cause of action at present survived against defendant No.1 and the suit against him ought to be dismissed. The property of the insolvent having been devolved upon the Official assignee and the Official Assignee having been made a party with the leave of the Court, the only person who could at present represent the interest in the property was the official Assignee and not defendant No.1 at all. In this view of the matter, the learned Judge dismissed the suit against defendant No.1.

13. A similar situation arose in . In that case one Tara Prasanna Bose had executed a mortgage for the sum of Rs. 40,000/- in favour of Jagannath Marwari by mortgaging certain immovable property. As he failed to repay the amount in terms of the bond, the suit for enforcing the mortgage came to be filed on January, 11, 1913. It was a suit for foreclosure of the mortgage. Some consent terms were arrived at between Tara Prasanna Bose and the mortgagee and they were actually filed in the Court. Under the terms it was agreed that the time for payment of the mortgage debt should be extended on the undertaking of the mortgagor to pay the interest regularly every year, failing which the mortgagees were entitled to foreclose. Before any order was passed on the compromise or Solenamah the mortgagor died on September 7, 1915. He was survived by his only son Amulya Krishna Bose, who was already adjudged insolvent by an order dated February 21, 1914. This was therefore a case where the property of Tara Prasanna Bose by inheritance in the first instance went to his son Amulya but that son having been already adjudged insolvent, the same property devolved by operation of law upon the Court Receiver. However, without taking cognizance of the Court Receiver Amulya Bose signed the Solenamah and the mortgagee obtained a decree final for foreclosure in terms of the compromise. As the instalments were not paid the mortgagee treated the property as foreclosed. When this position was disputed by the Receiver he failed to bring himself on record and get a declaration that the proceedings never bound him after the death of Tara Prasanna Bose. An appeal was carried to the Privy Council by the Receiver. Their Lordships of the Privy council were called upon to interpret the real meaning and import of clauses (4) and (5) of Section 16 of the Provincial Insolvency Act, 1907 (Act 3 of 1907). Clause (5) is almost in the same words as sub-section (6) of Section 28 of the present Act except for one difference. Sub-section (6) of Section 28 of the Present Act while reserving the power of the mortgagor uses the expression 'to realise or otherwise deal with his security'; whereas clause (5) of Act 3 of 1907 merely uses the expression 'to deal with the security'. However, the subsequent portion, which lays down that the creditor may realise his security in the same manner as he would have been entitled to realise, if this section had not been passed, is retained in the same words. The difference in the earlier portion of the sub-section does not seem to materially alter the general meaning and import of that section. However, for our purpose the relevant provision being the end of second part of sub-section (6), which is retained in the same language, the authority of the judgment of the Privy Council is in no way impaired. Having earlier dealt with clause (4) of Section 16 which dealt with the topic covered by sub-section (2) of Section 28, their Lordships point out that after the devolution of interest upon the Receiver he is alone entitled to deal with the equity of redemption. To take a contrary view would be to throw the gate open for frauds being committed by the secured creditors by taking the insolvent judgment-debtor into confidence against the interest of other creditor whose debts are provable in insolvency.

14. Apart from the practical approach to the question, their Lordships point out that on a plain construction of clause (5) of Section 16, what is saved is the power to deal with the security and the manner in which it could be enforced, but apart from these two savings there is no general saving from the consequences of the devolution of the property. On page 109, in column 2, of the report this is what they have observed:

'The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interest in the subject-matter of the suit. To him, therefore, must be given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditors of the insolvent with those interests the Receiver is charged.'

With these observations their Lordships point out that the ratification by Amulya of the deed of compromise on which the decree against him proceeded was therefore a nullity, and the whole proceedings by which he was made a party to the suit were equally ineffective to bind the equity of redemption vested in the Receiver.

15. In our view therefore what is saved by sub-section (6) of Section 28 is the 'power' to enforce security and the 'manner' in which it could be done, and the 'power' and the 'manner' are not to be confused with the adequate representation of the estate through proper parties, on record. The secured creditor in the present case was entitled to enforce his decree. That 'Power' was reserved to him. If the decree which was already obtained before the order of adjudication said that the property be sold through Court for realisation of his debt he could enforce it in that 'manner'. However, this does not mean that where a devolution of interest has taken place by operation of law, he could ignore it and not bring the proper representative of the estate on record.

16. We may also point out that a similar view has also been taken by a Division Bench of the Allahabad High Court in : AIR1962All256 by relying upon the same judgment of the Privy Council.

17. If the legal position is as we have pointed out above, reverting back to the facts of the present case if the order of adjudication is dated December 6, 1957, but after the appointment of the Receiver he alone represents the estate and taking out execution proceedings against the original judgment-debtor without bringing the insolvency Receiver on record would amount to filing Darkhast proceedings against wrong parties. These proceedings could not bind the equity of redemption vested in the Receiver and the Receiver himself who alone was representing that equity of redemption. Since the decree-holder himself opposed the application of the judgment-debtor to bring the Insolvency Receiver on record, we must hold that the present execution petition against the judgment-debtor himself is misconceived in law and should stand dismissed.

18. We therefore allow this appeal and direct that the Execution Petition against the original insolvent stands dismissed. The appellant will be entitled to his costs in this appeal from the respondent. For the proceedings below, there will be no order as to costs.

19. Civil Application does not survive. No order as to costs.

20. Order accordingly.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //