Skip to content


Kalamallah Babakka and anr. Vs. Official Receiver, Cuddapah and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtAndhra Pradesh High Court
Decided On
Case NumberL.P.A. No. 108 of 1972
Judge
Reported inAIR1973AP312
ActsProvicial Insolvency Act, 1920 - Sections 28
AppellantKalamallah Babakka and anr.
RespondentOfficial Receiver, Cuddapah and anr.
Appellant AdvocateR. Prasad, Adv.
Respondent AdvocateM.N. Narasimha Reddy, Adv. for ;K. Jayachandra Reddy, Adv.
Excerpt:
property - insolvency - section 28 of provincial insolvency act, 1920 - whether on date of decree no adjudication and official receiver not party to suit made any difference in view of fiction created under section 28 (7) of act - insolvent could not have rights in properties that vested in court to convey his rights or interest to any other person - adjudication divests insolvents of all rights in properties till possessed by him - properties of insolvent vested in official receiver with effect from date of presentation of petition - held, sale by insolvent by virtue of title to properties conferred upon him could not be challenged under section 28 (7) of act. - .....act which makes the vesting of the properties of the insolvent also either in the court or in the official receiver to date back to the date of the presentation of the application.2. to determine the question raised by the learned counsel, it is necessary to set out the relevant facts. the first and the 2nd plaintiffs are the wife and son respectively of the insolvent hussainappa. as hussainappa had taken a second wife, the plaintiff ( appellants ) demanded maintenance from him and at the suggestion of some elders, hussainappa executed an agreement dated 25-6-1962 in favour of the plaintiffs by and under which he agreed to convey his rights, interest and title to the suit lands. as he did not deliver possession of the property in terms of the agreement, the plaintiff filed a suit, o. s......
Judgment:

Obul Reddi, J.

1. In this Letters Patent Appeal preferred by the plaintiffs the question raised by Mr. R. Subba Rao, the learned counsel appearing for them, is that while an order of adjudication relates back to, under sub-section (7) of S. 28 of the Provincial Insolvency Act, and takes effect from, the date of the presentation of the petition on which the adjudication is made, there is no provision in the Act which makes the vesting of the properties of the insolvent also either in the Court or in the Official Receiver to date back to the date of the presentation of the application.

2. To determine the question raised by the learned counsel, it is necessary to set out the relevant facts. The first and the 2nd plaintiffs are the wife and son respectively of the insolvent Hussainappa. As Hussainappa had taken a second wife, the plaintiff ( appellants ) demanded maintenance from him and at the suggestion of some elders, Hussainappa executed an agreement dated 25-6-1962 in favour of the plaintiffs by and under which he agreed to convey his rights, interest and title to the suit lands. As he did not deliver possession of the property in terms of the agreement, the plaintiff filed a suit, O. S. No. 48/62 in the Sub-Court, Cuddapah, for specific performance in terms of the agreement and obtained a decree against Hussainappa on 7-2-1964. Meanwhile three days prior to the date of the decree, Hussainappa himself had filed an application on 4-2-1964 under Sections 6 and 10 of the Provincial Insolvency Act for adjudicating him as an insolvent. The plaintiffs ( apellants ) got themselves impleaded as parties to the insolvency proceedings. The adjudication of Hussainappa as insolvent was on 14-8-1964. The Official Receiver, in whom the properties were vested on the date of the adjudication itself, brought the properties of the insolvent, Hussainappa, to sale and were sold to the 2nd defendant ( 2nd respondent herein ) under Ex. B-5 dated 4-1-65. Possession also was delivered to the purchaser on 27-9-65. It is after that sale and delivery of possession of the properties to the 2nd defendant that the present suit O. S. No. 52/68 was filed by the plaintiffs for declaration of their title to the properties sold to the 2nd defendant and for the permanent injunction against the 2nd defendant on the footing that they are in possession of the suit property. The defence of the 2nd defendant was that the insolvency proceedings are binding upon the plaintiffs and that he is a bona fide purchaser for value and therefore the plaintiffs are not entitled to the reliefs prayed for.

3. The Court of first instance dismissed the suit as all the issues were found against the plaintiffs and that decree was confirmed in the appeal preferred by the plaintiffs by the Additional District Judge, Cuddapah. A second appeal 694/70 was preferred against that decree and our learned brother Madhava Reddy, J. Dismissed the Second Appeal but however granted leave and that is how the Letters Patent Appeal is before us.

4. The contention of the learned counsel before our learned brother was that it cannot be expected of the appellants to make the Official Receiver a party to the suit O. S. No. 48/62 for specific performance as the adjudication was subsequent to the date of the decree and, therefore, the decree in their favour had become final and it cannot be disturbed by subsequent vesting of the properties of the insolvent in the Official Receiver. This contention was negatived by our learned brother in view of sub-section (7) of S. 28.

5. The question, therefore, is whether the fact that on the date of the decree in O. S. 48/62 there was no adjudication and that the Official Receiver was not a party to the suit O. S. 48/62 makes any difference in view of the fiction created by sub-section (7) of S. 28 of the Act. Section 28 of the Provincial Insolvency Act, to the extent material, is in these terms :

' 28 (2) On the making of an order of adjudication the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Court, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceedings, except with the leave of the Court and on such terms as the Court may impose. '

xx xx xx xx xx xx xx xx xx (7) An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition which is made. '

The scope of the combined effect of the two sub-sections, according to Mr. Subbarao, is that while adjudication dates back to the date of the presentation of the petition for adjudication, the vesting of the properties of the insolvent will not date back to the presentation of the petition as the word ' vesting ' is not there in sub-section (&). We are unable to read sub-sections (2) and (7) in the manner sought to be construed or read by the learned counsel for the appellants. Section 28 deals with the effect of an order of adjudication. The result of such an order is made the whole of the property of the insolvent will vest in the Court or in a receiver subject to the other provisions of the Act. There is no purpose in making an order of adjudication if it is not to divest the insolvent of his rights, interest in and title to the whole of his properties as the object and purpose of adjudication is to make the estate of the insolvent available for division among the creditors. Whatever rights the insolvent possessed in the properties prior to the adjudication is completely divested of all his rights by the operation of Section 28 and the properties vest in the Court, whether a receiver is appointed or not by the Court. We cannot understand what rights the insolvent can have thereafter in the properties that vested in the Court to convey his rights or interest to any other person. Sub-section (4) of S. 28 further provides that all property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provision of sub-section (2) shall apply in respect thereof. This provision makes it absolutely clear that not only he loses whatever rights he had in the whole of his properties the moment an adjudication order is made out but also that any property that is acquired by him or devolves upon him subsequent to the date of the adjudication and before his discharge shall forthwith vest in the Court or receiver and such vesting is again made subject to the provisions of sub-section (2) of S. 28. Thus, the effect of adjudication therefore is that it divests the insolvent of all rights in the properties till then held or possession by him. When sub-section (2) is read along with sub-section (7) the effect of such adjudication relates back to, and takes effect from, the date of the presentation of the petition. No separate order of vesting is contemplated so far as the Court is concerned for, the vesting is automatic the moment the adjudication order is made. It is open to the Court to simultaneously under the same order vest the properties of the insolvent in the receiver or make an order subsequently vesting the properties in him. Once an order of adjudication is made, no creditor to whom the insolvent is indebted, whatever may be nature of debt, can seek remedy against the property of the insolvent by way of suit or other proceedings except with the leave of the Court. In the instant case, the plaintiffs got themselves impleaded as parties to the insolvency proceedings. The fact that a decree was passed subsequent to the date of the presentation of the petition will not amount to saying that there is no vesting of the properties in the receiver or the Court unless an order to that effect was made prior to the date of the decree. Some of the adjudication dates back to the date of the presentation of the petition, the vesting also relates back to the date of the presentation, for that is the effect of the fiction introduced by sub-section (7) of S. 28. The devolution of the rights of he insolvent to the properties on the Court is by operation of law and is not dependent upon any order other than an order of adjudication. The following decisions amply bear out the view expressed by us :

6. The Privy Council in Ragunath Das v. Sundar Das Khetri, AIR 1914 PC 129 explained the effect of vesting order under the Insolvent Debtors Act of 1848, and an order for sale though it binds the parties does not confer title. '

In Anantharama Iyer v. Kuttimalu Kovilama, AIR 1917 Mad 924, a Division Bench of the Madras High Court consisting of Sadasiva Aiyar and Moore, JJ., dealing with a case of sale in execution of a decree after notice to Court of adjudication of judgment-debtor observed :

' A sale held in execution of a decree after notice to the Court that the Judgment-debtor was adjudged insolvent is irregular and confers no title on the auction-purchaser, the property being already vested in the receiver of the insolvent's estate. '

Pandurang Row, J., in Henry Merieu v. Official Receiver, Madurai, AIR 1935 Mad 907 likewise held :

' Where the property of judgment-debtor is sold by the decree-holder after the judgment-debtor has applied for insolvency, without notice in the Official Receiver, the sale is nullity as the adjudication of the insolvent relates back to the date of his petition and the Official Receiver is entitled to all the properties of judgment-debtor from that date. '

Venkataramana Rao, J., in Venkata Sivayya v. Suryanarayana, AIR 1938 Mad 906 stated :

' But, for this provision ( Section 51 ) it will be open to the Official Receiver to contend that the creditor is not entitled to the sale proceeds because by virtue of the provisions of Section 28(7) of the Act, the property must be deemed to have vested in him from the date of the presentation of the petition and hence by virtue of the Statutory title thus conferred on him he will be the person entitled to the sale proceeds of the property which in law belong to him. '

Govinda Menon, J., sitting with Basheer Ahmed Sayeed, J., dealt with the combined effect of Section 28 (2) and (7) of the Provincial Insolvency Act in Official Receiver v. Jessasingh, : AIR1951Mad687 and held :

' By the operation of Section 28(7) the insolvency of the insolvent relates back to the date of the filing of the application for insolvency and a decree, in a suit for specific performance of an agreement to execute a mortgage filed against him before the application for insolvency, passed during the pendency of the application is not binding on the Official Receiver if he is not made a party to such suit even though the Official Receiver is bound by the equities of the insolvent and cannot be executed against him. The Official Receiver is not a legal representative of the insolvent. The devolution in favour of the Official Receiver under Section 28(2) being a devolution by law, Section 52 T. P. Act has no application.'

To the same effect is the view expressed by the Division Bench of the Patna High Court in Tejmal v. ( firm ) Jokiram Surajmal, AIR 1936 Pat 112 that :

' An order of adjudication under Cl. (7) of Section 28 relates back to the date when the petition for insolvency is admitted by the Court. The effect of clause (2) and clause (7) Section 28 is that the properties of the insolvent, wherever they may have been and whoever may have been in their possession, automatically vest in the Court. It is immaterial whether there was at that time any Receiver appointed by the Court or not. The vesting of the property of the insolvent in the Court is not dependant upon there being a Receiver. '

The view expressed by the Privy Council and the Madras High Court in the cases referred to above is binding upon this Court and we respectfully follow the view taken by the learned Judges in those cases.

7. The two cases Sriramamurthi v. Official Receiver, AIR 1957 Andh Pra 692 and Rama Raju v. Official Receiver, : AIR1964AP299 do not render any assistance to the argument advanced by the learned counsel for the appellants. In AIR 1957 Andh Pra 692, Viswanatha Sastri, J., sitting with Krishn Rao, J. referred to the decision of the Madras High Court in : AIR1951Mad687 ( Supra ) and there is nothing to suggest that any different note was struck by him. The facts of the case before the learned Judges there, were totally different and on those facts, the learned Judges observed :--

' There may be some ambiguity in the word ' thereafter ' as used in Section 28(2) but having regard to the explicit reference to the order of adjudication to which the word thereafter is related in the same clause and to the anomalous results flowing from a different interpretation it must be held that doctrine of relation back in Section 28(7) applies to the first part of Section 28(2) and not to the second part and that a suit instituted after the filing of an insolvency petition and before adjudication does not become incompetent or unsustainable by reason of want of leave of the insolvency Court. '

The question here is not whether the suit has become incompetent or unsustainable by reason of want of leave of the insolvency Court, but as to the effect of adjudication viz., whether the adjudication, in its wake, takes in vesting also so as to relate back vesting to the date of the presentation of the petition by the insolvent. The other case : AIR1964AP299 ( supra ) has no relevance to the question involved in this case. There, the question was whether after the annulment of the adjudication the Official Receiver can initiate proceedings under Sections 53 and 54 of the Provincial Insolvency Act. In that context, Satyanarayana Raju, J., ( as he then was ) sitting with Ananathanarayana Ayyar, J., held that whatever may be the powers conferred on an interim Receiver, the property of the debtor does not vest in him as it does in a receiver appointed after adjudication under Section 56 of the Act. In other words, his appointment of an Official Receiver after adjudication. Even there, there is nothing which supports the construction sought to be placed by the learned counsel on sub-section (2) and (7) of Section 28. The learned Judges drew distinction between the appointment of an interim Receiver under Section 56 and the appointment of a receiver after adjudication. In the words of Satyanarayana Raju, J.

' Whatever may be the powers conferred on an interim Receiver, the property of the debtor does not vest in him as it does in a Receiver appointed after adjudication under Section 56 of the Act ; in other words his appointment has not the same effect as the effect of the appointment of a Official Receiver after adjudication. It is only after adjudication that an insolvent can be said to have been divested of his property and it is only then and not otherwise that the property would vest in the Receiver. But before adjudication , the debtor continues to be the ( legal ) owner of the property. '

The above distinction drawn by the learned Judges should dispel whatever lingering doubt there may be regarding the vesting of the insolvent's properties consequent upon adjudication. We have, therefore, no hesitation in holding that, by virtue of the provisions of Section 28(7) of the Act, the properties of insolvent must be deemed to have vested in the Official Receiver with effect from the date of the presentation of the petition and hence, by virtue of his title to the properties, conferred upon him by the statute, the validity of the sales held by him of the properties in question is not liable to be challenged.

8. We, therefore, find no merits in this Letters Patent Appeal and dismiss it with costs.

9. Appeal dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //