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Bai Kashi Vs. Chunilal Hathising - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtMumbai
Decided On
Case NumberFirst Appeal No. 139 of 1926
Judge
Reported inAIR1930Bom11; (1929)31BOMLR1199
AppellantBai Kashi
RespondentChunilal Hathising
Excerpt:
.....827 referred to per patlar j. a receiver appointed under the provincial insolvency act 1920 is a public officer within the meaning of article 80 of the civil procedure code, 1908.;the receiver having unsuccessfully disputed the validity of the mortgage was ordered to pay the costs. - - justice davar in the court below, they held that sub-section (6) applied to suits as well as other forms of realization of the mortgage security, and that accordingly no notice was necessary before a mortgagee brought a suit to realize his security. 6. next turning to the question whether the suit is bad by reason of want of notice, that depends in the first place on whether this receiver is a public officer within the meaning of the section. 7. that being so, in my opinion, the section is clearly..........civil procedure code, inasmuch as defendant no. 3, the receiver in insolvency, is alleged to be a public officer within the meaning of that section and section 2(17) of the civil procedure code, the learned trial judge sustained both these objections. the plaintiffs now appeal.2. as regards section 28(2) the learned judge does not cite in his judgment section 28(6) which says: 'nothing in this section shall affect the power of any secured creditor to realize or otherwise deal with his security, in the same manner as he would have been entitled to realize or deal with it if this section had not been passed'. one possible construction of that section would be that the secured creditor could realize or deal with his security outside the court in accordance with his powers under the.....
Judgment:

Amberson Marten, Kt., C.J.

1. Two preliminary points arise on this appeal: (1) that the suit could not have been instituted without the leave of the Court under Section 28(2) of the Provincial Insolvency Act, and (2) that it could not be brought without notice under Section 80 of the Civil Procedure Code, inasmuch as defendant No. 3, the receiver in insolvency, is alleged to be a public officer within the meaning of that section and Section 2(17) of the Civil Procedure Code, The learned trial Judge sustained both these objections. The plaintiffs now appeal.

2. As regards Section 28(2) the learned Judge does not cite in his judgment Section 28(6) which says: 'Nothing in this section shall affect the power of any secured creditor to realize or otherwise deal with his security, in the same manner as he would have been entitled to realize or deal with it if this section had not been passed'. One possible construction of that section would be that the secured creditor could realize or deal with his security outside the Court in accordance with his powers under the mortgage. But if he wanted to bring a suit, he would nevertheless have to obtain leave under Section 28(2) just as one would if one wanted to take proceedings against a receiver appointed by the Court in an ordinary civil suit.

3. But as far as this Court is concerned, the matter has been the subject of express decision by Sir Basil Scott and Mr. Justice Batchelor in Lang v. Heptullabhai Ismailji I.L.R.(1913) 38 Bom.938. There, disagreeing with the decision of Mr. Justice Davar in the Court below, they held that Sub-section (6) applied to suits as well as other forms of realization of the mortgage security, and that accordingly no notice was necessary before a mortgagee brought a suit to realize his security. There is a reference in the judgment to certain English authorities which show that under similar circumstances a mortgagee may bring a suit in the Chancery Division to enforce his security. But curiously enough I do not see that the precise point of the necessity of obtaining leave is expressly dealt with. However that may be, as the above is a decision of our own Court-and I am not aware of any subsequent decision to the contrary-I would follow it.

4. That being so, the learned Judge's decision on the first point cannot be supported, and I would hold that the leave of the Court under Section 28(2) of the Act was not necessary.

5. In saying this, I do so on the footing that no formal proof in bankruptcy by the mortgagee has been adduced in evidence before us, If, for instance, under Section 47 he had proved for his whole debt, then it may be that under Section 47(2) it would be taken that he had relinquished his security for the benefit of his creditors, It is however conceded that he has not proved for his whole debt, and though we have been unable to ascertain exactly what the learned Judge refers to on p. 3 of his judgment as regards the application which the plaintiff is stated to have made in respect of his present mortgage, it can at most be that the plaintiff valued his security and proved for the balance of his debt. It may be that under these circumstances he would not be prevented from bringing a suit to enforce his security. The only difference then would be that under Section 47(5) the mortgage could be redeemed for the amount of the valuation instead of the amount of the principal mortgage debt. On the other hand it appears clear that the learned Judge ordered some form of enquiry in insolvency into this mortgage debt. And it may be that the Judge's reference is to the general claim of the plaintiff to rank as a secured creditor. In any event no point was raised In the Court below by reason of the want of any proof in insolvency, And in the absence of any such proof being shown to us, I propose to decide this case on the assumption that it does not exist, or that if it does, then in form it does not affect the plaintiffs' claim. When I speak of 'proof,' I am speaking in technical language of a formal claim in bankruptcy for the amount of the debt in accordance with the terms of the Act. No such claim is in fact before us.

6. Next turning to the question whether the suit is bad by reason of want of notice, that depends in the first place on whether this receiver is a public officer within the meaning of the section. We are told that he is not a permanent Government officer, but is a pleader who has been appointed by the Insolvency Court ad hoc in this particular case. In the ordinary sense, therefore, he would not, I think, be a public officer. But there is a definition of public officer in Section 2, Sub-section (17)(d), of the Code, which is no doubt in wide terms. It includes 'every officer of a Court of Justice whose duty it is, as such officer, to investigate or report on any matter of law or fact, or to make, authenticate or keep any document or to take charge or dispose of any property, or to execute any judicial process, or to administer any oath, or to interpret, or to preserve order, in the Court, and every person especially authorized by a Court of Justice to perform any of such duties.' It may be then that the section is wide enough to include the receiver in the present case. Accordingly, without expressing any opinion of my own on the point, I will assume for the purposes of the present case that the decisions to that effect in many authorities are correct.

7. That being so, in my opinion, the section is clearly limited as regards a public officer to a suit in respect of any act purporting to be done by such public officer in his official capacity. Now the present suit is a mortgage suit to enforce a mortgage. Stopping there, a suit to enforce a mortgage is not a suit in respect of any act done by this receiver in his capacity as receiver. He never executed the mortgage : he merely succeeded to the interest of the mortgagor by reason of operation of law, viz, under the Court's order appointing him receiver of the estate of the insolvent. In this respect it is perhaps important to observe that the original translation of prayer (1) is incorrect. There is no personal order for payment asked against the receiver.

8. It is, however, strongly urged that the suit is one in respect of an official act of the receiver, because the plaint alleged in para, 2 that although there had been an order directing that the possession of the plaintiffs should not be disturbed, yet the receiver illegally sealed the house on January 5, 1924, and hence the plaintiffs could not recover the rent for the same : and that from that date the interest on the sum advanced amounted to Es, 2,250 : and that in all Rs. 9,250 were due to the plaintiffs from the defendants.

9. Now if the plaint had gone on to ask for damages against the receiver for taking illegal possession of the house, then I can understand that such a claim might well fall within Section 80. But prima facie a claim of that sort for damages could hardly be brought along with a suit to enforce a mortgage. Even if the suit had been one claiming these moneys from the defendants personally in some way, even that might have made the case different. But as I read the prayer, the claim is to have the mortgaged property sold, and the amount of the mortgage moneys awarded to the plaintiffs. Of course one knows that in fact the receiver could not be personally liable to pay the mortgage debt or the interest, That would be a liability on the person who has entered into the personal covenants, and not on any mere assignee by operation of law or otherwise of the mortgagor.

10. Next, it was said that the suit was one operating as an in junction against the receiver, and stopping his right of sale and so on under the Act, and that therefore the suit was one in respect of an act purporting to be done by a public officer. That, again, to my mind, is a confusion of thought, The receiver here was a necessary party as representing the equity of redemption, and so far as the relief claimed in the suit is concerned, the suit as I have already said, has nothing to do with any act done by him in his public capacity. In other words, this allegation about his having illegally gone into possession might just well have been omitted from the plaint, and in fact had much better have been omitted.

11. In this respect I would like to refer to a decision of their Lordships of the Privy Council in Kala Chand Banerjee v. Jagan v. nath Marwari : (1927)29BOMLR882 where the Calcutta High Court under the old Act of 1907 under the section corresponding to the present Section 28(2) held that the receiver was not a necessary party to a mortgage suit brought to enforce a mortgage. The Privy Council held that the moment the property devolved on the insolvent it vested in the receiver already appointed and he alone was entitled to deal with the equity of redemption, and that accordingly a decree for foreclosure in favour of the mortgagee in a suit to which the receiver has not been made a party was not res judicata against him.

12. Therefore what was said in Skippers and Company, Limited v. E.V. David I.L.R(1926) . All. 821 that under Section 28(6) of the present Act of 1920, the plaintiff was not bound to make the official receiver a party, is not correct qua a mortgage suit, The suit would be defective unless the person representing the equity of redemption was before the Court. On the other hand, that case is an authority for showing that a mortgage suit like the present one brought against the receiver in insolvency is not governed by Section 80, In this respect the Allahabad High Court distinguished its own previous decision in Murari Lal v. E.V. David I.L.R.(1924) All. 291 where it had held that on the facts of that particular case the official receiver was a public officer, and that notice was requisite.

13. Then as regards our own Court there are also two cases which at first sight seem to be somewhat inconsistent. In Datnodar v. Govindji (1923) 25 L.R. 378 which was a suit for possession, the Court held that the suit could be maintained without notice under Section 80. There Sir Norman Macleod cited with approval a statement from Mulla's Civil Procedure Code that 'the only class of suits in which it is necessary to give notice to a public officer is where the suit is founded upon tort, in other words, where the suit is for damages for some wrong inadvertently committed by him in the discharge of his official duties, and no notice is necessary if the suit is founded upon contract or any other cause of action.' In that particular case the Court held that the plaintiff was suing for a declaration of his title to get possession of the land, and that he could do so without giving notice under Section 80.

14. But in DeSilva v. Govind Balvant I.L.R.(1920) 44 Bom. 895. Sir Norman Macleod and Mr. Justice Heaton held that, as soon as a receiver was appointed under the Provincial Insolvency Act, he became a public officer, and that notice was requisite before a suit could be brought for a declaration that a certain property belonged to the plaintiff. On the other hand in that case it does not appear to have been expressly argued that the effect of Section 80 must be confined to suits in respect of acts done by the receiver.

15. However that may be, I think it clear that we cannot ignore the most important words of the section, and in my judgment a mortgage suit is not generally speaking one against the Official Assignee or receiver in respect of any act done by him. I would, therefore, hold that, so far as the relief claimed in the present suit is concerned, there is no relief claimed against the receiver in insolvency for any act done by him as a public officer.

16. I would, accordingly, hold that on this point too the learned Judge's decision cannot be supported, and that the action is maintainable.

17. I wish to add that the decision of Mr. Justice Cunningham in Shahebsadee Shahunshah Begum v. Fergusson I.L.R.(1881) Cal. 499 and that of Sir Charles Sargent in Bhau Balapa v. Nana I.L.R. 13 Bom. 343 both support the view that Section 80 of the Civil Procedure Code must be confined to suite against an officer for acts done in his official capacity. Both suits were in effect for enforcing a trust, the one against the official trustee, and the other against the Collector; and in the absence of any allegation against either of these officers, it was held that no notice under the old Act was necessary,

Patkar, J.

18. Two preliminary points arise in this case for determination, first, whether the suit is maintainable under Clause (2) of Section 28 of the Provincial Insolvency Act V of 1920 without the leave of the Court, and, secondly, whether the suit is maintainable without notice under Section 80 of the Civil Procedure Code. On both these points the lower Court has decided against the plaintiff.

19. On the first point the learned Judge has not considered Clause (6) of b. 28 of Act V of 1920 which would save a suit brought without leave by a secured creditor to realize his security according to the decision of this Court in Lang v. Heptullabhai Ismailji (1913) 38 Bom. 359 which related to Section 17 of the Presidency-towns Insolvency Act.

It was held by Seott C.J. as follows (p. 369):-

It is argued that the saving proviso to Section 17 does not cover the present suit because the power of a secured creditor to realise his security does not include a suit for enforcement of his rights. We are unable to accept this view. A suit is one of the recognised methods of realisation of mortgage securities. The expression realise his security' is quite an appropriate and well-recognised term to include all the remedies of the mortgagee.

Reliance was placed in that judgment on the case of White v. Simmons (1871) L.R. 6Ch, 555 and the view of Davar J. in Lal chand. V. Bal-krishna I.L.R.(1912) 38 Bom. 364 n was dissented from.

20. Section 28, Clause (6), embodies the principle that the property of a secured creditor is secured to the extent of the value of his security, and is no longer the debtor's property, but his own, and the secured creditor has a right to deal with it as he thinks best. Having regard to the decision of this Court, to which I have referred, the view of the lower Court is incorrect, and a suit by a secured creditor to realise his security is maintainable without the leave of the Court.

21. On the second point the question arises whether the receiver appointed under Act V of 1920 is a public officer, and whether the suit is in respect of an act done by such officer in his official capacity. The decisions in the cases of DeSilva v. Govind Balvant I.L.R(1920) . 44 Bom. 895 and Murari Lai v. E.V. David I.L.R.(1924) All. 291 support the view that a receiver appointed under Act V of 1920 is a public officer. Clause 17 (d) of Section 2 of the Civil Procedure Code defines a public officer as:

Every officer of a Court of Justice whose duty it) is, as such officer, to investigate or report on any matter of law or fact... or to take charge or dispose of any property... and every person especially authorised by a Court of Justice to perform any of such duties.

22. Section 59 of Act V of 1920 which defines the duties which a receiver has to perform under the Act, would make him a person especially authorised by a Court of Justice to perform any of such duties as are specified in Section 2, Clause (17)(d), of the Civil Procedure Code. I am inclined to hold that a receiver appointed under Act V of 1920 is a public officer within the meaning of Section 80 of the Civil Procedure Code.

23. The next question is whether the present suit is in respect of any act done by such public officer in his official capacity. The suit is to recover the mortgage security, and would not, therefore, be a suit in respect of any act done by the receiver appointed under Act V of 1920. The only act to which our attention has been drawn is specified in para, 2 of the plaint, viz,, that defendant No. 3 illegally sealed the house on January 5, 1924, and hence the plaintiffs could not recover the rent for the same. No damages are claimed in respect of this alleged illegal action on the part of the receiver. The plaintiffs sue to recover money due on the mortgage passed in their favour by sale of the mortgaged property.

24. According to the view in Bhau Balapa v. Nana I.L.R.(1888) 13 Bom. 343 there must be a distinct act which is complained of in order to entitle a public officer to notice under Section 80 of the Civil Procedure Code. The decision in Skippers and Company, Limited v. E.V. David I.L.R.(1926) All 821 supports the view that no notice to the receiver, under Section 80 of the Civil Procedure Code, is necessary in a suit to recover money by a secured creditor to realize his security. The decision, however, in the same case at p. 827 that the plaintiff is not bound to make the official receiver a party to the suit seems to be incorrect, having regard to the view of the Privy Council in Kala Ghand Banerjee v. Jagannath Marwari : (1927)29BOMLR882

25. I think, therefore, that the present suit is maintainable without notice under Section 80 of the Civil Procedure Code.

Marten C.J.

26. We have already disposed of two preliminary points (1) under Section 28(2) of the Provincial Insolvency Act, and (2) under Section 80 of the Civil Procedure Code. I would only add that as regards the former point, the learned Judge's view that 'it is only after a creditor has proved in insolvency that he is a secured creditor, that the provisions of Article 28 (6) of the Act apply' is clearly erroneous, A secured creditor owes this position to his security obtained prior to the debtor's insolvency, and not necessarily to any proof in insolvency for his debt.

27. Next, turning to another objection, the learned Judge held that the suit was time- barred as against the receiver. That decision the learned Counsel for the respondents is unable to support, and we think it must be overruled.

28. [The Court then went into the merits of the case and overruled the decision of the trial Judge that the mortgage was invalid and decided the question of costs and passed a decree as follows.]

Amberson Marten, Kt., C.J.

29. [on costs]. As regards the question of costs, in an ordinary case where a mortgagee brings his suit to enforce his security, the order as to costs may be to give him liberty 'to add his costs to his security. But if on the other hand the defendant chooses to dispute the validity of the mortgage, then it follows, I think, in a case like this, that there must be an order for payment of costs against such disputing defendants.

30. Accordingly, in this case there must be an order against defendant No. 3 to pay the plaintiffs' costs of the suit throughout. That of course will be without prejudice to any claim defendant No. 3 may have to have those costs repaid out of the surplus assets (if any) of the estate he represents. Presumably before this suit was ever defended, he was provided with a proper indemnity or was satisfied that the estate had sufficient assets for the costs of an unsuccessful defence. But we do not give any orders that his costs be paid out of his estate, because we are not administering the insolvent's estate. That will be a matter for the Judge in Insolvency, On the other band we think that there should be liberty to the plaintiffs to add their costs to their security. If the security is sufficient for the whole mortgage debt, the plaintiffs' costs of the suit will be paid in the ordinary way out of the proceeds of sale. Defendants Nos. 1 and 2 must bear their own costs throughout.

31. Appeal allowed. Decree set aside. Declare as to the validity of the mortgage. Direct usual mortgage decree for accounts and sale. Apply sale proceeds in payment of the mortgage debt to the plaintiff's, and of the balance, if any, to defendant No. 3. Defendant No. 3 to pay the costs of the plaintiffs of the suit throughout. Liberty to the plaintiffs to add such costs to their security, if necessary, Defendants Nos. 1 and 2 to bear their own costs throughout.


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