1. One Bastimal filed a petitionthat Eswara Rao who is indebted to him shouldbe declared an insolvent.
In the course of the proceedings the Official Receiver was appointed an interim Receiver on 26-3-1949 in I. C. 19 of 48-49 on the file of the Subordinate Judge, Bangalore. He was directed to take charge of the properties of the first respondent (debtor). Accordingly the Receiver took possession of some machinery belonging to - the debtor kept in a rented house belonging to the appellant, locked it and sealed the premises on 29-3-1949. He was thus in possession of the premises from that date till the articles were sold.
2. It has to be observed that the order of adjudication was passed on 24-8-51. The first respondent in this Court claimed that the moveables had been mortgaged to him under a registered document. He however agreed that they may be sold free of the encumbrance provided that the net proceeds were to be paid towards the adjustment of what was due to him as a secured creditor.
He also agreed to take interest at 6 per cent though according to the mortgage deed he was entitled to interest at Rs. 1-4-0 per cent per mensem. The contention of the first respondent is that the appellant is not entitled to recover rent from the amount realised by the sale of these moveables, as according to the agreement his secured debt should first be discharged out of the proceeds of the sale.
This contention found favour with the learned Judge of the first appellate Court. He has therefore set aside the order of the learned Subordinate Judge, who had directed that the rent should be paid to the appellant out of the sale proceeds and it is against this order of 1st appellate Court that this second appeal has been filed.
3. It is urged in this Court on the authority of the decision in -- 'Official Trustee of Bengal v. Kissen Gopal : AIR1930Cal459 that rent due to the appellant after the date of adjudication alone has to be deducted and not the rent due up to that date and for this the creditor should be treated as an ordinary creditor.
A careful reading of the decision will show that the order of adjudication in that case was passed on 17-8-1926. But before that, an interim receiver had been appointed. The proceedings made it clear that the appointment of an interim receiver was more or less for purposes of doing certain preliminary investigations and that he was not directed to take possession of any property as he might have been under Section 20, Insolvency Act, as observed by the learned Judges.
It was also clear from the proceedings in that case that from the date on which the order of adjudication was passed the interim receiver was ordered to continue as receiver, that the insolvent's property vested in him under Section 28(2) and that from the date of order of adjudication the Receiver was in possession in the eye of law. It is evidently so because the interim receiver had been appointed only for purpose of doing certain preliminary investigation and was not directed to take possession and could not be regarded to be in possession even in the eye of law, the rent due up to the date of order of adjudication was not regarded as expenses of administration and that he was treated as an ordinary debtor.
In this case as already pointed out the interim receiver appointed even before the order of adjudication, was directed then alone to take possession of the property. The result is that the rent due from the date on which the interim receiver took possession of the moveables and; locked and sealed the premises, up to the date of sale of the moveables has to be treated as 'expenses of administration or otherwise' within the meaning of Section 61, Sub-clause (3), Insolvency Act.
No distinction can be made in this case between the rent due from the date he took possession of the premises up to the date of order of adjudication and the rent due from the date of the order of adjudication up to the date of sale of the articles as the receiver was in possession of the house during both the periods and he had authorities to do so. If a distinction was made in the Calcutta case referred to above and the rent due up to the date of order of adjudication was not treated as 'expenses of administration or otherwise' within the meaning of Section 61, Sub-clause (3), it was because, as already observed, the Receiver was not authorised to be in possession of the premises and he could not have been deemed to be in possession in the eye of law, as no order had been passed till the date of adjudication vesting the insolvent's property in him in that case.
4. It was contended that under the agreement the first respondent is entitled to get the amount due to him out of the realisations of sale of the machinery and it is particularly so as he agreed to take interest at only 6 per cent. This is the view taken by the first appellate Court also.
The learned Judge of the first appellate Court should have noticed that according to the agreement the secured debt due to the first respondent had to be paid out of the net proceeds and not out of the gross realisations. In fact it is not contended that the expenses of sale and other incidental expenses should not be deducted out of the gross realisations. The Receiver was in possession of the premises in order to keep the machinery in safe custody and he is bound to pay the rent. Rent and other incidental expenses have to be deducted out of the gross proceeds of the sale in order to arrive at the net proceeds. The rent due to the appellant should, therefore, have been paid out of the amount realised by the sale as even according to the agreement of respondent he is entitled only to the net proceeds.
5. The appellant is entitled to get out of the sale proceeds, rent due to him from the date on which the official receiver took possession of the property even prior to the date of order of adjudication up-to the date of sale of the machinery out of the sale proceeds.
6. The appeal is, therefore, allowed the orderof the learned District Judge is set aside andthat of the learned Subordinate Judge restored.Parties will bear their own costs in this Court.
7. Appeal allowed.