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Fatechand Tarachand and anr. Vs. Parashram Maghanmal - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtMumbai High Court
Decided On
Case NumberO.C.J. Suit No. 1665 of 1949
Judge
Reported inAIR1953Bom101; (1952)54BOMLR757
ActsTransfer of Property Act, 1882 - Sections 6, 43 and 100; Presidency Towns Insolvency Act, 1909 - Sections 17, 52, 52(1) and 52(2); Code of Civil Procedure (CPC), 1908 - Sections 64 - Order 21, Rules 43, 46 and 64 - Order 40, Rule 1
AppellantFatechand Tarachand and anr.
RespondentParashram Maghanmal
Appellant AdvocateK.T. Desai, Adv.
Respondent AdvocateMurzban Mistree and ;B.S. Pamnani, Advs.
Excerpt:
.....as security for payment of decretal amount--attachment of property by plaintiff in execution of decree--attachment effected by sheriff by seizure of property--defendant adjudicated insolvent--application by plaintiff for execution of decree by sale of property--rights of official assignee to property.; under a decree a floating charge over certain movable property belonging to the defendant was created as security for repayment of the decretal amount to the plaintiff. the plaintiff applied for execution of the decree, under order xxi, rules 46 and 43, of the civil procedure code, 1908, by attachment and sale of the property. the attachment was effected by the sheriff by seizure under order xxi, rule 43, of the code. the defendant was then adjudicated an insolvent on the petition of a..........purported to create a floating charge on property which was not in existence at the date of the decree, plaintiffs can have no right to execute their decree by attachment and sale of that property. it was argued that the effect of the decree may be to create a personal obligation enforceable against the defendant under which he may be compelled by proper proceedings to hand over such property to the plaintiffs or to create a charge after such property came into existence, but mr. desai urged that the rule of english law that a charge on future property operates upon such property as soon as it comes into existence has no application under the indian law.(7) i am unable to accept mr. desai's argument. it is true that in india, the law does not recognise any distinction between legal.....
Judgment:

(1) This is a chamber summons taken out by the Official Assignee of Bombay praying that a warrant of sale issued on January 10, 1951, be quashed and set aside and that the Sheriff of Bombay be directed to hand over to the Official Assignee the move-able property belonging to the defendant, viz. the assets, stock-in-trade, cash and other articles and things of Messrs. Northern India Radio Distributors of which the defendant was the sole proprietor and which had been attached by the Sheriff under a warrant of attachment under Order XXI, Rule 43, on October 16, 1950, in execution of a decree obtained by the plaintiffs.

(2) Fatechand Tarachand and Karamchand Tejumal, hereinafter called the plaintiffs, filed suit No. 1665 of 1949 against Parasram Maghanmal, hereinafter called the defendant, for a decree that the partnership between the plaintiffs and the defendant carried on in shop No. 75, of Old Oriental Building, Mahatma Gandhi Road, be dissolved and accounts may be taken of the assets and business of that partnership. On March 3, 1950, a consent decree was passed whereby it was inter alia declared, that the partnership of Northern India Radio Distributors was dissolved on November 21, 1949, and the defendant was directed to pay to the plaintiffs a sum of Rs. 55,450 with simple interest at three per cent, from September 1, 1949. The defendant was allowed to pay the amount of the decree by instalments. It was further decreed that in default of payment of a sum of Rs. 8,300 by the defendant to the plaintiffs on or before March 16, 1 950, and in default of furnishing sureties on or before May 3, 1950, or in default, of payment of any two installments on their respective due dates as provided in the decree the whole of the decree amount or the balance then remaining unpaid shall become immediately due and payable. The decree proceeded to state that in the event of the defendant making any default as aforesaid plaintiff No. 1 was to be appointed receiver to take charge of the business of the Northern India Radio Distributors with all its assets, stock-in-trade, and other articles with liberty to sell or dispose of the stock or the business as a going concern or to carry on the business himself or through an agent on account of the defendant with all powers under Order XL, Rule 1 (d), Civil P. C. It was also provided that as security for repayment of the decretal amount due by the defendant, the defendant by the said decree created a charge over the stock-in-trade, and all goods, articles and things belonging to the defendant in the course of the radio business from time to time and lying in the shop at 75, Old Oriental Building, Mahatma Gandhi Road, and/or in any go down and/or at any other place or places wherein the said stock-in-trade, goods, articles or things are stored.

(3) It appears that the instalments agreed to be paid by the defendant were not duly paid. Under the terms of the decree, it was open to plaintiff 1 to take possession of the business of the defendant with all its assets stock-in-trade, and other articles as a receiver; but, instead of following that course, on October 11, 1950, the plaintiffs applied for execution of the decree by attachment and sale of the assets, stock-in-trade, cash and other articles and things (except furnitures and fixtures) of the Northern India Radio Distributors, and the moneys in the banking account standing in the name of the defendant and/or the business under Order XXI, Rules 46 and 43, Civil P. C. On this application, a warrant of attachment was issued on October 16, 1950, and attachment on the property (except the amounts lying in the banks) was effected on October 17, and the amounts lying with the banks were attached on the day following. The assets, stock-in-trade, cash and other articles were attached by the Sheriff Tinder Order XXI, Rule 43, by seizure. On November 16 the defendant was adjudicated an insolvent on the petition of a creditor. The act of insolvency on which the petition was founded was the continuance of attachment on his assets and moneys at the instance of the plaintiffs. After the defendant was adjudicated an insolvent, an application was made for the removal of attachment levied on October 17 and 18 respectively in respect of the assets and the moneys lying in the bank, and on December 20, 1950, an order was made directing the attachment to be removed. Thereafter another application was made on December 21 by the plaintiffs for delivery of the property in possession of the Sheriff to plaintiff 1 as receiver, but that application was not granted by the Court. On January 3, 1951 the plaintiffs filed another application for execution by sale of the property of the defendant without attachment and warrant of sale was issued on January 10, 1951. The Official Assignee has taken out this chamber summons to quash and set aside that warrant of sale, and for the relief's set out by me earlier.

(4) In support of the chamber summons it is argued by Mr. Desai on behalf of the Official Assignee that under Section 52(2) of the Presidency-towns Insolvency Act, all property as may belong to or be vested in the insolvent at the commencement of the insolvency, and property in his possession, order or disposition of which he is a reputed owner would on his adjudication pass into the possession of the Official Assignee, and the Official Assignee would be entitled to distribute that property amongst the creditors of the insolvent. Relying upon that provision, and specially upon the provision in Clause (c) of that sub-section, it is argued that the stock-in-trade and other articles of the defendant who was adjudicated an insolvent were at the commencement of the insolvency in the possession, order and disposition of the insolvent by the consent and permission of the plaintiffs and that he was the reputed owner of that properly and accordingly the property vested in the Official Assignee and is divisible amongst the creditors of the insolvent. Mr. Desai further submitted that the Sheriff was and had wrongfully remained in possession of the properties which were not the subject-matter of any charge created under the decree contrary to the right of the Official Assignee.

(5) It is true that under the terms of the decree a floating charge was created over the 'stock-in-trade and other articles and things belonging to the defendant in the course of the radio business from time to time and lying in the shop No. 75, Old Oriental Buildings, Mahatma Gandhi Road and/or in any other go down and/or at any other place or places 'wherein the said stock-in-trade, goods, articles and things are stored.' Obviously cash cannot toe included in the expression 'stock-in-trade, goods, articles and things' and no charge can toe deemed to have been created in respect of the cash or moneys lying in the bank. Iii so far as the plaintiffs applied for and obtained an order of attachment of property other than the property on which the floating charge was created by the consent decree on the adjudication of the defendant as an insolvent that order became infructuous, and the Official Assignee was entitled to exercise his right and claim to obtain possession of those properties. It is conceded on behalf of the plaintiffs that they are not entitled to have recourse to the properties other than those which have been specified in the consent decree as being subject to a floating charge for the satisfaction of their decree.

(6) It is submitted by Mr. Desai that the charge created by the decree was a mere floating charge which would operate only upon the property of the specified description given in the decree which was in existence at the date of the decree but not on property of that description which might come into existence at any date after the decree, and it was urged that in so far as the decree purported to create a floating charge on property which was not in existence at the date of the decree, plaintiffs can have no right to execute their decree by attachment and sale of that property. It was argued that the effect of the decree may be to create a personal obligation enforceable against the defendant under which he may be compelled by proper proceedings to hand over such property to the plaintiffs or to create a charge after such property came into existence, but Mr. Desai urged that the rule of English law that a charge on future property operates upon such property as soon as it comes into existence has no application under the Indian law.

(7) I am unable to accept Mr. Desai's argument. It is true that in India, the law does not recognise any distinction between legal estates and equitable estates, but the rule that a transfer of property which is to come into existence in future, operates upon the property when it comes into existence does not depend upon recognition of any distinction between legal and equitable estates. The rule is an illustration of a well known maxim 'that equity regards that as done which ought to be done'. The Courts in India are Courts which administer equity as well as law, and the maxim would be regarded as applicable in India. In several cases which have come before the Courts in India the rule has been accepted as applicable. As stated by Sir Dinshah Mulla in his Transfer of Property Act, 3rd edn., p.51:

'.........In English law as soon as the property comes into existence and is capable of being identified, equity taking as done that which ought to be done fastens upon the property, and the contract to assign thus becomes a complete equitable assignment; and so in a recent case, Viscount Cave said-- 'When a person executes a document purporting to assign property to be afterwards acquired by him, that property on its acquisition passes in equity to the assignee'. The Calcutta High Court has followed the English decisions...... and held that a transfer of non-existent or, as it is conveniently called, after acquired property, provided it is not of the nature contemplated in Section 6(a), is perfectly valid and is to be regarded in a Court as a contract to transfer after the vendor acquires the title and will fasten upon the property as soon as the vendor acquires it.'

The same appears to be the view taken by their Lordships of the Privy Council in - 'Vatsa-vaya Venkata Subhadrayyamma v. Poosapati Venkatapati', 52 Ind App 1, where a charge created upon fruits of litigation for moneys advanced during the pendency of litigation was held to operate upon property which was obtained as a result of the litigation. Following the view taken by the Calcutta High Court which is referred to by Sir Dinshah Mulla and the decision of the Privy Council I am of the view that the rule of English law as stated in -- 'Holroyd v. Marshall', (1861) 10 HLC 191 and-- 'Collyer v. Isaacs', (1881) 19 Ch D 342, applies to India.

(8) It is unnecessary in this case to ascertain the date on which the floating charge was crystallized. Before the date on which the defendant was adjudicated an insolvent an application for execution of the decree was filed by the plaintiffs and that application would in any case operate to crystallize the charge. Mr. Desai has submitted that in the application for execution filed on October 11, 1950, the plaintiffs applied not for enforcement of their charge but for enforcement of a money claim. Unless, however, there was anything in the application for execution indicating that the plaintiffs abandoned their charge, the charge in their favour which must be deemed to have been crystallized on the date of the attachment, did subsist.

(9) The property of the defendant including cash and the banking accounts were attached on October 17 and 18. The moveable property, passed by seizure into the possession of the Sheriff of this Court and the defendant was by reason of the provisions of Section 64 of the Code prohibited from dealing with the property to the prejudice of the plaintiffs. It could not be stated that the goods were after the attachment in the 'possession, order or disposition' of the defendant. It is true that under Section 64, Civil P. C.; private alienation of property attached is void only against claims enforceable under the attachment, and would, therefore, be good in so far as a private alienation does not affect the claims enforceable under the attachment;' still it cannot be said that the goods after the attachment remained in the possession, order or disposition of the defendant within the meaning of Section 52(2)(c) of. the Presidency-towns Insolvency Act. After attachment the goods were in fhe possession of the Sheriff and the defendant was prohibited by operation of law from dealing with the goods to the prejudice of the plaintiffs. It is again true that the Official Assignee has rights which are more extensive than the rights of the insolvent himself. Property in the possession of the insolvent which may belong to other persons, if it comprises goods in his trade or business, and if such goods have remained in his possession by consent and permission of the true owner, would on adjudication pass into the control of the Official Assignee, and the Official Assignee would be entitled to distribute the goods amongst the creditors of the insolvent notwithstanding the claims of the real owner. Though the defendant himself could not have claimed the goods as his own, the Official Assignee was entitled to claim them as goods of the insolvent, and for the benefit of the general body of creditors. That rule applies even in the case of a trader who mortgages his goods, but continues thereafter in possession of the mortgaged goods and before the due date becomes insolvent in which case the goods vest in the Official Assignee, and the mortgage would lose his security. See - 'Ginger, In re: London and Universal Bank, Ex parte', (1897) 2 QB 461. If, therefore, no attachment had been effected in the present case, it would have been open to the Official Assignee to take possession of the goods over which the charge was created in favour of the plaintiffs, but inasmuch as an attachment was effected on October 17, and the property passed into the possession of the Sheriff, the property could not be regarded as property in the possession of the insolvent or under his order or disposition.

(10) The doctrine of reputed ownership has been borrowed from the English law of bankruptcy. As stated in Williams on Bankruptcy, 16th edn., at page 308:

'Goods properly in the possession of the sheriff are thereby taken out of the possession of the bankrupt. A fortiori if the true owner demand the goods of the sheriff.'

But in -- 'Ex parte Edey; In re Cuthbertson'. (1875) 19 Eq 264, Bacon C. J. held that if the possession of the Sheriff be wrongful as against the true owner, the goods cannot be deemed to be taken out of the possession of the bankrupt. This view was taken on the authority of -- 'Barrow v. Bell', (1855) 5 E1 540, which really is not an authority for the proposition. It was held on facts in -- 'Barrow's case', that actual possession was with the insolvent and it was only decided that if the Sheriff is in the wrong he does not take constructive possession. Williams expresses an opinion that the case of - 'Ex parte Edey: In re Cuthberfson' went too far. It is true that in - 'Fletcher v. Manning', (1844) 12 M 571, the observation that the goods properly in the possession of the Sheriff are taken out of the possession of the bankrupt was strictly not necessary for the decision of the case, but that case follows previous decisions in which the same view was indicated.

(11) In a case decided by the Calcutta High Court in -- 'In the matter of R. Brown', 12 Cal 629, Wilson J. observed that where goods had been attached in execution of a decree and thereafter the debtor was adjudicated an insolvent, the goods could not be said to be in the possession, order or disposition of the insolvent. At page 641 the learned Judge observed:

'.........It is difficult to see any distinction between the position of goods so attached and that of goods seized by the sheriff under an English writ of 'fieri facias'. There is some difficulty in reconciling the English decisions upon the question, whether the seizure of goods in the possession of the debtor, taut of which another is the true owner, terminates the reputed ownership. The authorities in favour of the affirmative view are- 'Fletcher v. Manning', (1844) 12 M 571 & the judgment of Turner C. J. in - 'Ex Parte Foss; Re. Baldwin', (1858) 2 De 230.

Those in favour of the other view are - Barrows v. Bell', 1855-5 El 540 and - Ex parte Edey', 1375 19 Eq 4. But the only ground suggested in any of those cases for saying that an actual seizure by the sheriff does not put an end to the reputed ownership is that the sheriff is in such a case a mere wrong doer; his only authority being to seize the sizable goods of the judgment-debtor, and goods under mortgage, in which his interest is only equitable, not being liable to seizure under a 'fieri facias'. In this country there is no distinction between legal and equitable titles for the purpose of execution, and the officer executing process by seizure is not a mere wrongdoer in a case like the present. The considerations therefore upon which it has been thought in England that seizure by the sheriff does not take the goods out of the order and. disposition of the judgment-debtor, do not seem to apply in this country.'

(12) As observed, however, by Wilson J. it was not necessary in that case also to decide the question on which the opinion was expressed. However, the grounds given by the-learned Judge are, with respect, unexceptionable, and I adopt the same. Following the view expressed in --- 'Fletcher v. Manning', 1844 12 M&W; 571, which appears to have been accepted in England for a considerable time: and also in India, I hold that the attachment' of the property of the description specified in Section 52(2)(c), Presidency-towns Insolvency Act, removes it from the possession and power of the insolvent.

(13) It must, therefore, be held that by reason of attachment by the Sheriff on October 17, 1950, all the stock-in-trade and other articles, goods and things belonging to the defendant ceased to be in the possession, order or disposition of the defendant, who was subsequently adjudicated an insolvent. Mr. Desai has relied upon the fact that even if the goods were not in possession, order or disposition of the defendant on the date on which he was adjudicated an insolvent, they reverted to his order and disposition by reason, firstly, on the removal of attachment, and, secondly, by the abandonment of the execution application filed on October 11, 1950. It is true that the plaintiffs themselves applied for removal of attachment and that order was granted. It is also true that the previous application for execution was abandoned by the plaintiffs, but that in my judgment has not the effect of vesting the property in the Official Assignee. Un-der Section 17 all the property of the insolvent wherever situated vests in the Official Assignee on the making of the order of adjudication and it becomes divisible amongst his creditors. By reason of Section 52 the property of the insolvent which is divisible amongst the creditors includes property of which the insolvent is though not the real owner, the reputed owner. But before the property of which the insolvent, is the reputed owner can be availed by the Official Assignee it must be established that it was in the possession, order or disposition of the insolvent at 'the commencement of the insolvency.' If, therefore, at the commencement of the insolvency the property of which it is claimed that the insolvent was a reputed owner' was not in the possession or disposition of the insolvent, then such property cannot be divisible under the provisions of Section 52. Under Section 52(2)(a) all property of the insolvent which is vested in him at the commencement of the insolvency as well as property which devolves on him before the adjudication becomes vested in the Official Assignee, but the property of which the insolvent appears to be a reputed wner can be sold by the Official Assignee only if it was at the commencement of the insolvency in the possession, order or disposition of the insolvent. It may be that by reason of the withdrawal of the order of attachment the property was restored to the order or disposition of the defendant and may even appear to be of the reputed ownership of the insolvent, but unless it was at the date of the commencement of the insolvency in the possession, order or disposition of the insolvent the provisions of Section 52(2)(c) do not come into operation. The right of the Official Assignee to take possession of property of the specified description can arise only by reason of Section 17 or Section 52 and not otherwise. Notwithstanding, therefore, the withdrawal of the attachment I am of the view that the plaintiffs-decree-holders were entitled to make the application for sale of the property charged in their favour.

(14) It has been argued by Mr. Desai that the warrant issued under Order XXI, Rule 64, was not a proper warrant under which the property could be sold. The plaintiffs appear to have applied for execution of the decree without attachment, i.e. on the footing that the property stands charged in their favour. A warrant under Order XXI, Rule 64, can only be issued after the property is attached and an order for sale is passed and not before. It may be that the warrant which has been issued is not a proper warrant under which the property can be sold, but I express no opinion on that argument. But assuming that the warrant is irregular, the Official Assignee cannot obtain possession of the property which he is not entitled to merely because an irregular warrant is issued.

(15) In the view that I have taken the summons taken out by the Official Assignee willbe dismissed with regard to the stock-in-trade,and all goods, articles and things belonging tothe defendant in the course of the said radiobusiness from time to time and lying in theshop at 75, Old Oriental Building, MahatmaGandhi Road, and/or in any go down, and/orat any other place or places wherein the saidstock-in-trade, goods, articles or things arestored, and will be made absolute with regardto cash and moneys lying in the banking account, and all other goods, articles and thingswhich are not covered by the charge createdin favour of the plaintiffs. In view of the divided success the parties will bear and pay theirown costs.

(16)Order accordingly.


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