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N. Abdul Rahim Vs. Lingappa Vaijappa Angol - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberSecond Appeal No. 93 of 1942
Judge
Reported inAIR1943Bom273; (1943)45BOMLR534
AppellantN. Abdul Rahim
RespondentLingappa Vaijappa Angol
Excerpt:
.....with darkhast-whether non-prosecution of darkhast by such decree-holder a 'default' under rule 57-sale ordered by executing court whether a nullity-application to set aside sale on ground of irregularity-dismissal of such application as time-barred-whether it operates as bar to suit-appointment of receiver in administration suit-whether property wests in such receiver.;an administration suit is in essence a suit for an account and application of the estate of a deceased debtor for the satisfaction of the dues of all his creditors. the entire administration and settlement of the estate are assumed by the court. the assets are marshalled and a decree; is made for the benefit of all creditors.;it is only when the property under administration proves to be insufficient for the..........sub-rule has nothing to do with the vesting of the property in the receiver. in an administration suit the receiver's possession is the possession of the court which takes upon itself the management during the continuation of the litigation. the interest in the property is not thereby transferred either to the court or to the receiver. it is, however, the duty of the court to see that all the assets are realised and equitably distributed among all the creditors. hence, even though the suit be filed by a single creditor, as in the present case, the decree passed would be in favour of all the creditors, and even after the preliminary decree is passed, every creditor has a right to be joined as a party and to prove his claim. but no creditor will be allowed to steal a march over others by.....
Judgment:

Lokur, J.

1. The property with which this appeal is concerned comprises two houses in Belgaum which belonged to one Banghi Hayat Badasha. He died in June, 1929, and in 1930 defendant No. 1 filed suit No. 434 of 1930 to recover the debt due from him. On May 7, 1931, when that suit was pending in the Belgaum Court, one of the heirs of Banghi Hayat filed an administration suit in the High Court at Madras where he had left some property. In his Suit No. 434 of 1930 defendant No. 1 obtained a money decree on November 3, 1931. In the administration suit the plaintiff Herekar was appointee receiver of the Belgaum property about the end of 1931. On January 31 1932, defendant No. 1 filed darkhast No. 663 of 1931 to execute his money decree and got the Belgaum property attached. He was not then a party to the administration suit. The Madras High Court passed a preliminary decree in that suit on March 11, 1932. On May 9, 1933, Herekar was authorised to take charge of the Belgaum property and manage it, exhibit 33. In defendant No. l's darkhast the Belgaum property was proclaimed for sale, but, before the auction was held, the receiver Herekar made an application to the executing Court on September 21, 1933, requesting that, as he had been appointed receiver of the property, he should be made a party to the darkhast and that the auction sale should be stayed. It is not clear from the record whether his application was granted and he was impleaded in the darkhast, but the sale was postponed at his instance from time to time. He then applied to the Madras High Court and got defendant No. 1 impleaded as a party to the preliminary decree in the administration suit and had: him served with an interim injunction on January 19, 1934, restraining him, from bringing the Belgaum property to sale in execution of his money decree. The interim injunction was made absolute on March 23, 1934. The Belgaum Court was apprised of this by the receiver and the sale was further postponed from time to time. The darkhast was thus kept hanging for over three years and then the parties were called upon to state why it should be kept pending any longer. On November 11, 1937, defendant No. 1 put in a purshis, exhibit 31, to the following effect :-

The Madras High Court has passed orders restraining the plaintiff decree-holder from proceeding with the execution of the decree obtained against the defendant in regular Suit No. 434 of 1930. The plaintiff decree-holder has requested his advocate at Madras to move the Court there for permission to go on with the sale in this darkhast and deposit the sale proceeds in this Court until the proceedings in the Madras High Court are finally disposed of. In the meanwhile if this darkhast is disposed of, the plaintiff will be put to heavy loss as the attached property will be free from attachment and would be disposed of to the prejudice of the interests of the decree-holder.

2. In spite of this Purshis the Court ordered execution to proceed. In due course the Belgaum property was sold by auction and was purchased by defendant No. 2 for Rs. 1,120 on January 9, 1938. On February 19, 1938, the receiver Herekar made an application to the executing Court to set aside the sale for various reasons set out in exhibit 40. It was registered as Miscellaneous Application No. 34 of 1938, but was rejected with costs as being time barred, on February 21, 1938. The sale was then confirmed on March 25, 1938. The sale proceeds were paid out to defendant No. 1 on his furnishing security. The receiver Herekar then made an application (No. 1888 of 1938) to the Madras High Court asking for directions and requesting that the auction sale should be set aside and necessary steps taken against defendant No. 1 for disobeying the orders of the Court. The High Court merely directed defendant No. 1 to pay the sale proceeds, Rs. 1,120, into Court, but did not set aside the sale or direct any further action to be taken against defendant No. 1. On June 4, 1938 defendant No. 2 applied to the executing Court that he should be put into possession of the Belgaum property which he had purchased at the auction. Two days thereafter, the receiver Herekar filed this suit without taking the previous permission of the Madras High 'Court to do so. After filing this suit he moved the Madras High Court either to permit him to continue the suit or to direct him, to give notice to defendant No. 1 to show cause why he should not be proceeded against for contempt of Court. That application was rejected on October 31, 1939, with a remark that the receiver might proceed with the suit if he had proper grounds to do so. The suit was dismissed, and when the appeal to the District, Court was pending, Herekar was removed from the receivership, and N. Abdul Rahim, who was appointed a receiver in his place, has presented this second appeal.

3. On his behalf the validity of the auction sale held by the Belgaum Court is assailed on three grounds, viz. that after the Madras High Court appointed a receiver in the administration suit no other Court had jurisdiction to deal with the property of the deceased, that after the defendant was served with an injunction he had no power to bring the property to sale and that after he gave a purshis that by reason of the injunction he could not go on with the suit, the executing Court was bound to dismiss the darkhast forthwith.

4. To appreciate the reasoning underlying these grounds it is necessary to define precisely the effect of the apointment of a receiver in an administration suit. As indicated in Order XX, Rule 13, of the Code of Civil Procedures 1908, an administration suit is in essence a suit for an account and application of the estate of a deceased debtor for the satisfaction of the dues of all his creditors. The entire administration and settlement of the estate are as sumed by the Court. The assets are marshalled and a decree is made lathe benefit of all the creditors. For this purpose the Court has to appoint a receiver, but that receiver will have no better status than that of a receive appointed under Order XL, Rule 1, of the Code of Civil Procedure. The property does not vest in him as it does in a receiver appointed in an insolvency proceeding. It is true that Order XX, Rule 13, Sub-rule (2) provides for the application of the rules and principles applicable in insolvency proceedings. But it is only when the property under administration proves to be insufficient for the payment in full of the debts and liabilities that those rules are to be observed, only as regards the respective rights of secured and unsecured creditors, the debts and liabilities and the valuation of annuities and future and contingent; liabilities. That sub-rule has nothing to do with the vesting of the property in the receiver. In an administration suit the receiver's possession is the possession of the Court which takes upon itself the management during the continuation of the litigation. The interest in the property is not thereby transferred either to the Court or to the receiver. It is, however, the duty of the Court to see that all the assets are realised and equitably distributed among all the creditors. Hence, even though the suit be filed by a single creditor, as in the present case, the decree passed would be in favour of all the creditors, and even after the preliminary decree is passed, every creditor has a right to be joined as a party and to prove his claim. But no creditor will be allowed to steal a march over others by obtaining a separate decree and recovering his dues by executing it. He cannot gain a priority even though he may have got the property attached before the appointment of the receiver in the administration suit (Gourgopal De Sarkar v. Kamalkalika Datta. I.L.R. (1933) Cal. 240 If such a creditor proceeds with the execution of his decree, four courses are open to the Court which has passed a preliminary decree in an administration suit : (1) it may stop the execution proceedings either by a stay order or an injunction served on the decree-holder, or (2) if the sale of the property has taken place, it may call for the sale proceeds for being included in the assets for distribution, or (3) it may take proper steps to have the sale set aside, or (4) it may call for the proceedings from the executing Court and include them in the administration proceedings. This last ] course was recognised in Benarasidas v. Anriga Debi. : AIR1934Cal33

5. In the present case the Madras High Court, at the instance of the receiver, added defendant No. 1 as a party to the preliminary decree in the administration suit and served an injunction upon him not to proceed with his darkhast in the Belgaum Court. The receiver was not a party to that darkhast and his application to be made a party to the darkhast proceedings does not appear to have been granted. But, as held in Hanmant v. Jainapur : AIR1938Bom458 he was not a necessary party and the omission to join him as a party does not vitiate the darkhast proceedings. The receiver, however, did intervene in the darkhast and got it postponed from time to time and in the meantime he succeeded in getting an injunction served on the decree-holder. But unfortunately the object of that injunction was frustrated by the irregularity of the executing Court at Belgaum. After putting off the darkhast from time to time for three years, if it thought it not proper to keep it pending for an indefinite period, it should have called upon the decree-holder to proceed with the darkhast. Obviously he could not do so as he had been restrained by the injunction of the Madras High Court, and if he said so, the darkhast should have been dismissed under Order XXI, Rule 57 of the Civil Procedure Code. Mr. Thakor urges that the executing Court had no power to proceed with the darkhast and that the sale held in contravention of that rule is a nullity. But the rule does not refer to the inability of the decree-holder to go on with the darkhast, but the inability of the Court to proceed further with the application for execution by reason of his default. In this case defendant No. 1 was called upon to state why the darkhast should be kept pending and he stated in his purshis, exhibit 31, that he had been restrained by the decree-holder from proceeding with the execution of the decree and that if the darkhast be dismissed he would be put to a heavy loss. Mr. Thakor urges that this amounted to a default on the part of the decree-holder, according to the ruling in Baba v. Kisan. : AIR1938Bom18 In that case Divatia J. observed that the word 'default' in Order XXI, Rule 57, of the Civil Procedure Code, in so far as it applies to the decree-holder, means default not merely in the sense of non-appearance or non-payment of process fees, etc., but includes the case of non-prosecution as well. But the default must be such as would render the executing Court unable to proceed with the execution. In fact the Belgaum Court did not find itself unable to proceed with the darkhast. In spite of the purshis, exhibit 31, it ordered the darkhast to proceed and at no stage of the proceedings did it find itself unable to go on. The decree-holder presumably paid the necessary process fees and the tom-tom fees and the sale was eventually held. Even a decree-holder restrained by an injunction may choose to be rash enough to flout the order of injunction and face the consequences. In that case he might be hauled up for contempt of Court or proceeded against under Order XXXIX, Rule 2, Sub-rule (3), of the Code of Civil Procedure. But the executing Court will not be bound to dismiss the darkhast under Order XXI, Rule 57, and the sale held in due course would not be a nullity merely because the decree-holder had been restrained by an injunction from proceeding with the darkhast.

6. It is true that even without any injunction, no decree-holder or creditor can proceed against property for which a receiver is appointed by Court and of which he' has taken possession, without leave of that Court. If he does so, he will be guilty of contempt of Court. Mr. Jahagirdar for the respondents points out that this would be so only if the receiver has taken possession, and that it is not clear from the evidence in this case that Herekar had taken possession of the Belgaum property before the auction sale took place. In his deposition, exhibit 66, Herekar himself admits that he obtained a rent note of the Belgaum house about a year previously, that is to say about February, 1939, nearly a year after the auction sale. It is true that in Kanai Lal Jalan v. Manoo Bibi 23 C.W.N. 952 and Jagadish Chandra v. Bhubaneswar Mitra A.I.R. [1923] Cal. 121 it is laid down that the rule that possession of the receiver may not be disturbed without leave, does not apply, so far as third parties are concerned, until a receiver has been actually appointed and is in actual possession. The mere order of the appointment of a receiver may not affect third parties until the appointment is perfected and possession is actually taken by the receiver. But defendant No. 1 is not a third person. He was made a party to the preliminary decree in the administration suit before the property was put up for sale. So he was bound by that decree and was aware of the receiver's appointment. He should, therefore, have taken the leave of the Madras High. Court before proceeding to have the property sold by another Court in execution of his own decree. But his omission to do so is held in the two Calcutta cases cited above as only an irregularity and does not render the auction sale. null and void (see also Mangtulal v. Daya Shanker : AIR1936Pat572 . In-Karimunnesa Khatun v. Fazal Karim : AIR1924Cal1055 Richardson J. observed that an execution sale of the judgment debtor's property in the hands of a receiver, without the permission of the Court, is not void, but at the most an irregularity and cannot be set aside where the judgment-debtor has not been prejudiced thereby. In this case the receiver Herekar did apply to the Belgaum Court to have the sale set aside under Order XXI, Rule 90, of the Civil Procedure Code, but it was dismissed as time barred.

7. The trial Court has rightly held that, by reason of the dismissal of that application, the present suit is barred under Order XXI, Rule 92, Sub-rule (3), of the Civil Procedure Code. From the language of Order XXI, Rule 90, it is clear that any person (whether a party to the suit or execution proceedings, or not), whose interests are affected by the sale, is entitled to apply to set aside the sale. The receiver, who is charged with the management of the property, is a person whose interests are affected by the sale. But Mr. Thakor argues that the application was not entertained, as it was made beyond the period of limitation. But Order XXI, Rule 90, Sub-rule (1), says that where any immoveable property has been sold in execution of a decree, the decree-holder, or any person entitled to share in a rateable distribution of assets, or whose interests are affected by the sale, may apply to the Court to set aside the sale on the ground of a material irregularity or fraud in publishing and conducting it. And Order XXI, Rule 92, provides that where such an application is made and disallowed, the Court shall make an order confirming the sale, and no suit to set aside an order made under this rule shall be brought by any person against whom such order is made.

8. As observed in Radhi v. Buta Mal A.I.R. [1929] Lah. 618 the expression 'any person' in Sub-rule (3) is so wide and all embracing that no person who could make an application under Rule 90, and did make one, can remain outside its scope. The receiver Herekar was not bound to make an application under Rule 90. Not being a party to the execution proceedings, he might have straightaway filed a suit to have the sale set aside. But he elected to seek the speedy remedy of an application under Rule 90. He made an application and it was disallowed. His application was entertained and registered and he was given an opportunity of showing how it was in time. The reason for disallowing the application is immaterial The bar of a suit under Order XXI, Rule 92, Sub-rule (3), does not require that the application should have been heard on merits and disallowed. The present suit is therefore not competent and must fail on this ground.

9. The Madras High Court having passed a preliminary decree in the administration suit and appointed a receiver of the properties of the deceased, the auction sale of one of the properties, at the instance of a party to the decree, was voidable at its option and it might have repudiated it. But it did not. On the other hand, it indirectly ratified it and got the sale proceeds produced before it for being included in the assets of the deceased. Both the application under Order XXI, Rule 90, of the Civil Procedure Code, and the suit were filed by the receiver unauthorisedly without the previous permission of the Court which appointed him. After his application under Order XXI, Rule 90, was dismissed as time barred and this suit was filed, he made an application (No. 1888 of 1938) to the Madras High Court requesting that the sale should be set aside and steps should be taken against defendant No. 1 for disobeying the injunction. The application was heard by Gentle J. who did not grant either request, but ordered defendant No. 1 to produce Rs. 1,120 realised by the auction sale. Defendant No. 1 has put in a purshis stating that in accordance with that order he deposited Rs. 1,120 in the Madras High Court. After the voidable sale was thus ratified by the High Court, the receiver made another application (No. 1921 of 1939) to the High Court praying for permission to continue this suit which he had already unauthorisedly filed, or, in the alternative, for direction to him to give notice to defendant No. 1 to show cause why he should not be proceeded against fox contempt of Court. That application was heard by Somayya J. and referring to the receiver's previous application the learned Judge said :-

An application was filed in this Court No. 1888 of 1938, asking, for directions. On that application Gentle, J., directed Angol (present defendant No. 1) to pay a sum of Rs. 1,120 into Court. That application was filed to set aside the sale and to take necessary steps against Angol for disobeying the orders of this Court. Though the learned Judge was asked by the Judge's summons to take steps against: Angol for disobeying the injunction, he did not pass any order beyond asking Angol to bring in the sum of Rs. 1,120. All the facts which are now placed before me were placed before Gentle, J., and it is clear that Gentle, J. did not think it proper under the circumstances of this case to do more than what he did, that is, asking Angol to bring Rs. 1,120 into Court.

10. Somayya J. then rejected the aplication after making a remark that the receiver might proceed with the suit filed by him for the purpose of setting aside the execution sale, 'if he had proper grounds for doing so' (exhibit 63). This conditional order, after reminding the receiver of the order already passed by Gentle J., shows that if in spite of the ratification of the viodable sale, and the dismissal of the application under Order XXI, Rule 90, of the Civil Procedure Code, the receiver thought that he could avoid the sale, then and then only he was allowed to proceed with the suit. The receiver's plaint in this suit shows that his contention is that the sale is null and void, so that it cannot be validated by ratification. It is on that mistaken notion that he proceeded with the prosecution of the suit in spite of the order passed by Gentle J. and the rejection of his application by Somayya J. But as the sale was voidable and not void, and his request to repudiate it was rejected by the Court that appointed him, it is no longer open to him to challenge its validity.

11. The appeal is therefore dismissed, with costs in one set.


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