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Nooney Veeraraju Vs. Boda Venkataratnam - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 672 of 1950
Judge
Reported inAIR1955AP152
ActsProvincial Insolvency Act, 1920 - Sections 35, 37 and 47; Madras Agriculturists' Relief Act, 1938 - Sections 14; Code of Civil Procedure (CPC), 1908 - Order 2, Rule 2
AppellantNooney Veeraraju
RespondentBoda Venkataratnam
Appellant AdvocateG. Chandrasekhara Sastry, Adv.
Respondent AdvocateD. Narasaraju, Adv. General, ;V.V. Sastry and ;S.V. Kondapi, Advs.
Excerpt:
.....clearly of opinion that the present defendant is entitled to the benefits of the act and that the present suit launched on the basis that the defendant was an agriculturist and seeking a decree against the defendant for the difference between what is payable on the basis of the agriculturists' relief act and what is due independently of it, is not sustainable. (5) admits of the realisation by the mortgage of a high as well as a lower amount that what the property was valued at under sub-s. if the property could be sold for a higher price than for what it was assessed at, the mortgagee is clearly entitled to the advantage of the higher price obtained and the nett amount so relaised will then have to be substituted for the amount at which it was previously valued and the creditor can..........suit also, there was no controversy between them as to the applicability of the act to the suit mortgage. it is, therefore, impossible to hold that there was a decision in the previous litigation on the question now posed, namely, whether the effect of the annulment being to wipe out the insolvency altogether, the defendant is not entitled to say that the debt is liable to be scaled down under the asgriculturists' relief act.it is true that in the pasragraph cited above from the judgment of the high coiurt, there is a reference to defendant 7, but we have no doubt that it is as mistake, for, the 5th paragraph in the decree above cited makes it clear that the question did not fall to be decided in the partitioin suit from which that appeal arose. we are, therefore, clearly of.....
Judgment:

(1) The defendant is the appellant. The suit is rather of an unusual nature and as its maintainability is in question in this appeal, it is necessary to set out the circumstances which constitute its background. A simple mortgage bond dated 24th. March 1931, securing a sum of Rs.8,000/- in discharge of previous simple money debts was executed by the defendant for himself and as guardian of his undivided minor son, Suryanarayanamurthy. As aresult of a creditor's application, the defendant was adjudged insolvent on 23rd March 1933, in L. P. No. 19 of 1931. Pending the insolvency petition, the present plaintiff filed I. A. No. 18of 1939 on 9th February 1939, before the Official Receiver, valuing his security under S. 47, Provincial Insolvency Act at Rs. 8,500 and proved for the balance of the money due to him under the mortgage bond as an unsecured creditor, i.e., for a sum of Rs.11,518-11-6. During the insolvency an other son was born to the defendant. Suryanarayanamurhty, the elder son, filed, O. S. No. 4 of 1940 on the file of the Sub Court, Rajamundry, for partition of the joint familky properties impleading besdies his father and brother, the Official Receiver, the creditors of the familkty and alienees of some portioins of the family property. The plaintiff was thus made a party thereto and an issue was raised as to whether the present plaintiff's mortgage debt was binding on the plaintiff in that suit.

At about the same time, the present plaintiff filed O. S. No. 22 of 1941 in the same court against this defendant and his sons, a suit to enforce his mortgage. In the plaint therei, he stated that the mortgage debt was not liable to be scaled down under the terms of Act 4 of 1938 against this defendant for the reason that a dividend had already been declaredin the insolvency proceedings. He admitted that so far as defendants 2 and 3 in that suit (sons of the present defendant) are concerned, the amont was liable to be scaled down. He however limited the claim against all of them to the lesser amount stating that he did so without prejudice to his right 'to claim the entire amount under the terms of the bond as unscaled less the suit amount as now scaled down in the insolvency of defendant 1 in consonance with the valuation of the security made by' him before the Official Receiver. The partition suit and the mortgage suit were tried together and preliminary decrees were passed in both of them. There was no appeal taken against the preliminary mortgage decree, but there was an appeal filed to the High Court of Madras against the preliminary decree in the partition suit by the plaintiff therein. One of the creditors also filed an appeal against the latter decree. The present plaintiff obtained a final mortgage decree in the course, but before the sale which took place thereunder was confirmed, the Official Receiver deposited in court the entire decretal amount and thus satisfied the decree in toto.

Meanwhile the present defendant filed I. A. No. 15 of 1942 for annulment of his adjudication. Though that application was dismissed by the Insolvency Court, the District Court, East Godavari, on appeal, directed the annulment of the adjudication on 7th October 1944, while making an order at the same time that the properties of the defendant were to continue to vest in the Official Receiver under S. 37, Provincial Insolvency Act. A revision was taken against that order of the District Judge to the High Court of Madras in C. R. P. No. 1621 of 1944. That revision petition came on for hearing a few days before the two appeals above mentioned were disposed of and the High Court while confirming the order of annulemtn, set aside the direction of the District Court vesting the property in the official Receiver. On the appeals, the decree of the trial court was modified and it was declared 'that the 1/3rd share of the plaintiff and the 1/3rd of defendant 1 of the debts' except the mortgage debt in favour of the present plaintiff be scaled down under the Madras Agriculturists' Relief Act and that the plaintiff and defendant 3 be liable each to the 1/3rd share of the said debts as scaled down and that defendant 1 (father) be liable for a 1/3rd share of the said debts without the statutory reduction. The decree of the High Court further provided that the Official Receiver should continue as commissioner for carrying out the directions under the decree. In the present suiut, the plaintiff claims against the father the 1/3rd share of the debt due under the mortgage bond from the defendant without the statutory reductioin less the amoutn received from the Official Receiver as stated above.

(2) Three main cotnentions were raised on behalf of the defendant in the court below and they are repeated here. In the first place, it is contended tht the suit is barred under the provisions of O. 2, R. 2, Civil P. c. In the second place, it is urged placing reliance on -- 'Subbaiah Goundan v. Ramaswami Goundan', : AIR1954Mad604 (A), that because of the subsequent annulment of adjudication the right of the defedant to claim that he is an agriculturist is not lost and that he is entitled to claim in the present suit that the mortgage bond is liable to be scaled down. Thirdly, the late of interest is stated to be unconscionable and liable to be reduced under the Usurious Loans Act.

(3) We propose to deal with the second contention first. On the facts above stated, it is clear that the insolvent along with his sons would be an agriculturist within the meaning of the Madras Agriculturists Relief Act save for the order of adjudication and the consequential vesting of the properties in the Official Receiver. But the order of adjudication having been subsequently annulled, the question is what is the effect of the annulment as regards his claim to be treated as an agriculturist entitled to relief under that Act. This point is directly covered by an authority in favour of the appellant reported in 'Arunachalam Chettiary v. Narayanaswami Goundar', : AIR1951Mad63 (B), an authority which was not available to the learned Subordinate Judge at the time of his decision in this case. That decision has ruled that where an adjudication is annulled under S. 35 and no vesting order is made under S. 37, Provincial Insolvency Act (5 of 1920) the property does not merely revest in the insolvent but it reverts to him, that the effect of the annulment relates back to the date of adjudication and that therefore the insolvent must be deemed to have had a saleable interest in that property for the purpose of being treated as asn agriculturist entitled to the benefits of the Madras Agriculturists Relief Act. The view taken in the above Full Bench decision has since been affirmed in -- Subbaiah Goundan v. Ramaswamy Goundan', (A), another Full Bench decision of the same Court.

Applying that decision to the facts of this case, it is clear that the defendant would be entilted to claim that he was an agriculturist on the material dates. But, it is argued for the respondent that it is not open to the appellant to contend that he is an agriculturist as the matter is 'Res Judicata', having been decided against him in prior proceedings between the parties. The contention is that there was a decision in the earlier suits to which reference has already been made that the defendant was not an agriculturist. It has to be noticed that the mortgagee (present plaintiff) was defendant 7 in the partition suit and respondent 7 in A. S. No. 89 of 1943, one of the two appeals taken against the judgment in the partition suit to the High Court. The 5th paragraph of the decree of the High Court runs thus:

'Thus theone-third share of the plasintiff and the one-third share of defendant 3 of the debts described in plaint schedule B attached to the decree of the lowers court excepting the mortgage debt in favour of defendant 7 which has ripened into a decree in O. S. No. 22 of 1941 on the file of the lower court and which was already scaled down be 'scaled down under s. 14 of Madras Act (4 of 1938) and that the plaintiff and defendant 3 be liable each to one-third share of the said debts as scaled down and that defendant I be liable for one-third share of the said debts without the statutory reduction.'

This paragraph is founded on the following paragraph in the judgment:

'It only means to deal with the claim to relief under the Madras Agriculturists ' Relief Act 1938, in respect of the debts due to defendant 7 to 18. It is not disputed that the plaintiff and defendant 3 as well as their family are agriculturists within the meaning of the Act. Defendant 1 is not eligible for relief, as he was not an agriculturists at the commencement of the Act, his share in the family properties having remained vested in the Official Receiver till the annulment of his adjudication. It is has been held that S. 6 of the Act is inapplicable to joint families consisting only of a person and his descendants (vide -- 'Sundaram v. Subba Rao', AIR 1942 Mad 402 (C) ). It follows that under S.14 the plaintiff and defendant 3 will be liable respectively for one-third, of the liabilities as scaled down under the Act, and defendant I will be liable for one-third of the debts without the statutory reduction.'

O. S. No. 22 of 1941 mentioned above is the other suit filed by the present plaintiff in which he scaled down the debt according to the provisions of the Act stating as has already been noticed, tht he did so iwthout prejudice to his right to claim against this defendant the entire amount under the terms of the bond. That being so, no issue was raised in that suit as between the present plaintiff and the present defendant as towhether the latter was or was not an agriculturist. In the petition suit also, there was no controversy between them as to the applicability of the Act to the suit mortgage. It is, therefore, impossible to hold that there was a decision in the previous litigation on the question now posed, namely, whether the effect of the annulment being to wipe out the insolvency altogether, the defendant is not entitled to say that the debt is liable to be scaled down under the ASgriculturists' Relief Act.

It is true that in the pasragraph cited above from the judgment of the High Coiurt, there is a reference to defendant 7, but we have no doubt that it is as mistake, for, the 5th paragraph in the decree above cited makes it clear that the question did not fall to be decided in the partitioin suit from which that appeal arose. We are, therefore, clearly of opinion that the present defendant is entitled to the benefits of the Act and that the present suit launched on the basis that the defendant was an agriculturist and seeking a decree against the defendant for the difference between what is payable on the basis of the Agriculturists' Relief Act and what is due independently of it, is not sustainable. The suit is therefore liable to be dismissed on the ground that nothing is due to the plasintiff because admittedly he has received whatever is due to him on thebasis of the applicability of the Madras Agriculturists' Relief Act for the mortgage debt.

(3a) As the point has been argued by both sides at some length, we propose to deal also with the first of the contentions raised by the appellant. In order to appreciate the arguments, it is necessary to quote the relevant portions of O. 2, R. 2, Civil P. C., and S. 47, Provincial Insolvency Act. Order 2, R. 2, Civil P. C., in so far as it has any bearing on the present discussion, is as follows:

'(1) Every suit shall include the whole of the claim which the plaintiff is entitled to make in respect of the cause of action ....................

(2) Where a plaintiff omits to sue in respect of, or intentionally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished.'

(4) The material portioin of S. 47, Provincial Insolvency Act runs thus:

'(3) Where a secured creditor does not either realise or relinquish his security, he shall, before being entilted to have his debt entered in the schedule, state in his proof the particulars of his security and the value at which he assesses it, and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed.

(4) Where a security is so valued, the court may at any time before realisation redeem it on payment to or creditor of the assessed value.

(5) Where a creditor, after having valued his security, subsequently rfealises it, the nett amount realised shall be substituted for the amount of any vlauation previously made by the creditor and shall be treated in all respects as an amended valuation made by the creditor.

(6) Where a secured creditor does not comply with the provisions of this section, he shall be excluded from all share in any dividend.'

It is contended for the appellant that the valuation of his security by the creditor under sub-s. 3 of the above section does not disentitle him from filing a suit for the whole of the amount in respect of the debt and that the present suit for the whole of the amount due in respect of the debt and that the present plasintiff having limited his claim in the mortgage suit, O. S. No. 22 of 1941, to a sum of Rs.8,133-6-0 is precluded under O. 2, R. 2, Civil P. C. from suing for the relief sought by him in the present suuit. On the other hand, the learned Advocate General argues for the respondent that when a creditor has valued his security at a certain amount there is a statutory bar against his claiming any amount in excess of that valuation in a suit filed by him, to enforce the debt while the insolvency is pending.

We are unable to accept the latter contention. If the learned Advocate General is right, the nett amount realised should always only be lesser than the amount of the original valuation and in no case greater than that amount. That wording of sub-s. (5) would have been different if the intention of the legislature as expressed in the earlier sub-section was to restrict the mortgagee's right of realisation to the amount at which he valued his security. As it stands, sub-s. (5) admits of the realisation by the mortgage of a high as well as a lower amount that what the property was valued at under sub-s. (3). The mere vlauationof security at a particular price, a price which the court may pay, if it thinks fit, to redeem the security, does not, in our opinion, compel the mortgagee to limit the relief sought for by him in a mortgage action to the assessed value of the security. If the property could be sold for a higher price than for what it was assessed at, the mortgagee is clearly entitled to the advantage of the higher price obtained and the nett amount so relaised will then have to be substituted for the amount at which it was previously valued and the creditor can claim a dividend only in respect of the balance due to him after deducting the value as so amended. It may be more or it may be less.

In our judgment, the valuation by the creditor is not made, so to say, at his risk. It is only a provisional and not a final valuation. The Court may accept the valuation and offer to redeem the property on that basis, in which case the creditor may be bound to receive the sum and release the security. He can then prove for the balance as an unsecured creditor. If, on the other hand, the court does not redeem it, he is free to sue for the whole of the sum due to him and, after getting the property sold claim a dividend in respect of the balance due. If a dividend had already been paid to him on the basis of a vluation different from that for which the property is ultimately sold, the actual figures will be substituted for the provisional one and necessary adjustments will be made so has to see that dividend is paid to him only for the amount of difference between what he is entitled to and what he had realised. Rules 9 to 16 of the second schedule to the Presidency Towns Insolvency Act embody similar provisios. Rule 15 corresponds to sub-s (5) of s. 47 of the Act under discussion. The position of a secured creditorunder that Act also seems to us to be the same as under the Provincial Act.

(5) The English Law on the subject may also be usefully referred to. It is stated in Ss. 998 and 995 of the second volume of Lord Simons' Third Edition of Halsbury's Laws of England.

'If he (secured creditor) neither realises nor surrenders his security, he must before ranking for dividend, state in his proof the particulars of his security, the date when it was given and the value at which he assesses it, and he will be entilted to receive a dividend only in respect of the balance remaining after deduction of the assessed value. Again, if after valuation of a security the creditor realises it, or it is realised at the instance of the trustee, the nett amount realised is to be substituted for the valuation and treated in all respects as an amended valuation made by the creditor.'

It is further stated:

'On the amendment of a vlauation, the creditor must forthwith repay any dividend which he may have received in excess of that to which he would have been entitled on the amended valuation. He will be entitled tobe paid out of any money, for the time being avilable for dividend, any dividend or share of dividend which he may have failed to receive by reason of the inaccuracy of the original valuation, before that money is made applicable to the payment of any future dividend; but he is not entitled to disturb the distribution of any dividend declared before the date of the amendment.'

The above extracts make it clear that in England the right of secured creditor to realise the security in accordance with the terms of the bond in his favour is not affected in any manner whatsoever by the valuation which he puts upon his security. We can see no warrant in the language of S. 47 to support the contention that the law in India is different. In this view, a secured creditor is clearly entitled to make a claim in respect of the whole of the amount due under the security despite the valuation made by him of his security at a lesser figures. It therefore folows that the present plaintiff was bound to have instituted his former suit not only for the amount claimed therein but for the whole of the amount as unscaled down. After obtaining a decree for sale for the whole of such amount he should have sold the property for what it fetched and thereafter if the insolvency continued he could have claimed a dividend for the balance, and if, as has happened, in the present case, the insolvency was annulled, he could have applied for a personal decree for the balance under the provisions of O. 34, R. 6 Civil P. C.

(6) No decided cases directly in point have been cited tous, but the learned Advocate General has referred to two cases in support of his argument. The first of them is -- 'Haveli Shah v. Mt. Hussaina Jan', AIR 1938 Lah 217 (D)). All that decision decides is that where a creditor who had a mortgage decree against the insolvent realised his security before the order ofdischarge is passed but had not valued his security and proved for the balance in the insolvency, the order of discharge released the insolvent from personal liability under the mortgage because that was a debt provable under the Act and under S. 44(2) of the Act an insolvent is released from all such debts. It is argued that in so far as the debt is provable in insolvency, no section could be laid 'pro tanto' to enforce the security. One cannot see how the ratio in this decision applies to the present case. There can be no doubt whatsoever that the claim against the insolvent's estate after the security has been realised is one to be made in insolvency, and if not so made, it is extinguished after an order of discharge. This case clarly does not deal with the question as to whether, when a mortgage suit is instituted, after valuation of the security, the suit should be restricted only to the amount at which the security was valued.

(7) The next decision to which reference was made is -- 'Khupchand Nathmal v. Rajeshwar Shankar', AIR 1940 Nag 252 (E). This decision has ruled that where a secured creditor instead of taking any of the courses prescribed by S. 47, Provincial Insolvency Act ignores the Insolvency Court altogether and realises his security, he must be content with the proceeds and will be debarred from claiming any dividend should the proceeds prove insufficient. This against does not in our opinion, support the contention of the learned Advocate General that a court hasno power to grant and the secured creditor has no right to claim a relief for more than the amount at which he has valued his security. In the view we have taken on the first two points raised on behalf of the appellant, it is not necessary for us to go into the question of the applicability of the Usurious Loans Act. The appellant is entitled to succeed on either of the points discussed above.The result, therefore, is that this appeal is allowed and the plainiff's suit dismissed with costs throughout.

(8) D.R.R.Appeal allowed.


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