1. This appeal arises under the Provincial Insolvency Act, 1920, hereinafter called the Act. The proceedings before the court below and the orders made disclose a total ignorance of the principles of the law of insolvency on the part of the District Judge, Sri S. B. Sawkar.
2. The 7th respondent K. V. Chari, hereinafter referred to as the Debtor, presented a petition on 6-6-1973 in the Court of the District Judge, Bangalore for adjudging him an insolvent. In Schedule B of the said petition, he gave the particulars of the assets held by him. On the presentation of the petition, the District Judge ordered Gazette publication and issue of notices to the respondents. On same day, on an application for the appointment of an interim Receiver fled by the Debtor the District Judge appointed the Official Receiver as Interim Receiver in respect of the assets shown in Schedule B of the Insolvency Petition. On 14-6-1973 the debtor put the Official Receiver in possession of the B Schedule assets. On 2-7-1973 respondent 2 in the appeal--M/s. National Radio Electronics Ltd.--filed an application (I. A. No. 4} for an order directing the Interim Receiver to take charge of the radio and electric equipments etc. situated in the shop premises of M/s. Radio and Television Corporation owned by the Debtor. On the said application, the District Judge made an order on 3-7-1973 which reads:
'Heard Counsel and Official Receiver, Read affidavit. The Official Receiver is directed to take charge of the moveables in M/s. Murphy House and the shop formerly belonging to petitioner at Gupta Market, forthwith.'
It is relevant to observe that in I. A. No. 4 there was no prayer for directing the Interim Receiver to take possession of the shop premises. Pursuant to the aforesaid order, the Interim Receiver took possession of the shop premises on 6-7-1973.
3. On 9-7-1973 the appellant before me M/s. Murphy House represented by Farook Yusuff filed I. A. No. 5 before the District Judge to direct the Interim Receiver to remove the lock and deliver possession of the shop premises. In the said application the appellant stated that the Debtor had surrendered possession of the premises in the Gupta Market to his landlord, M/s. B. S. Gupta and Co. on 1-6-1973 and the said landlord had let the premises to the appellant on lease and therefore the premises were not in the possession of the Debtor on the date of the presentation of the petition for adjudication as Insolvent and the Interim Receiver had no jurisdiction to take possession of the same. Objections were filed by the Interim Receiver and the creditor respondent 2. After hearing the parties the District Judge made the order under appeal dismissing I. A. 5. Aggrieved by the said order, the appellant has preferred the above appeal.
4. It was urged by Sri R. R. D. Karanth, learned Counsel for the appellant that the District Judge had no jurisdiction to make the order set out above as no adjudication order has been made and also as there was no application by the Official Receiver under Section 4 read with Section 54 of the Act to annul the surrender by the debtor of the shop premises. The contention urged by the learned Counsel, in my judgment, is well founded and the appeal has to be allowed. It is necessary to re-state the well established principles of the law of insolvency for the benefit of the Courts below.
(1) The properties of the Debtor do not vest in the Receiver before an order of adjudication is made. The Interim Receiver can only exercise such of the powers conferrable on a Receiver under Order 10. Rule 1, Civil Procedure Code as the Court may direct. Vide the Law of Insolvency in India by D. P. Mulla, Second Edition page 222.
(2) Where the Debtor alienates his properties such an alienation has to be annulled under Section 53 or Section 54 of the Act on an application made by the Official Receiver after the adjudication of the Debtor. Until the transfer is annulled, the transferee has all the rights in the property transferred. The property transferred does not vest in the Official Receiver till the annulment of the transfer -- vide Ramaswami v. Official Receiver : 1SCR616 .
(3) Under Section 20 of the Act the Interim Receiver has no authority to take possession of the properties which are not admitted to be the properties of the Debtor -- vide Gulab Chand v. Lachuman : AIR1955Pat413 .
(4) It is not open to the Insolvency Court to take proceedings under Section 4 before an order of adjudication is made -- vide Bibhuti Bhusan v. Bhirendra. AIR 1935 Cal 558.
(5) Under Section 56(3) of the Act the Court cannot make an order against persons who claim adversely to the insolvent. If a title, however flimsy, is set up by tile person in possession, the Court should not act under Section 56. The Court may, on a proper application being made under Section 4 of the Act, try the issue whether the insolvent is entitled to the property or not, but in order to enable the Court to do that a proper application ought to be made under Section 4, and the other side should be asked to plead thereto -- vide Chittammal v. Ponnuswamy. AIR 1926 Mad 363.
5. Sri S. P. Shankar, learned Counsel for respondent 2 submitted that this appeal is not competent. In my opinion, the order under appeal has to be construed as an order made under Section 4 read with Section 53 or Section 54 of the Act against which an appeal is competent. The effect of the order of the learned District Judge is one annulling the surrender of the shop premises. The substance of the matter is one that has to be looked into in deciding the question whether the appeal is competent or not. The Court below could not have made an order under Section 4 read with Section 53 or Section 54 before an order of adjudication.
6. For the reasons stated above, this appeal is allowed, the order made by the Court below is reversed and I. A. No. 5 filed by the appellant is allowed.
7. This order, however, will not prejudice the right of the Official Receiver to make an application for annulment ofthe surrender after an order of adjudication is made.
8. The appellant is entitled to his costs from the 2nd respondent.
9. Appeal allowed.