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Kanayalal (Died) and ors. Vs. Official Receiver Appointed by the Dist. and Sessions Court, Secunderabad (G.S. Purshotam) - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberA.A.O. No. 110/3 of 1955 with cross objections
Judge
Reported inAIR1960AP53
ActsProvincial Insolvency Act, 1920 - Sections 20, 28(7), 56 and 61(3); Code of Civil Procedure (CPC) , 1908 - Order 40, Rule 1; Bankruptcy Act
AppellantKanayalal (Died) and ors.
RespondentOfficial Receiver Appointed by the Dist. and Sessions Court, Secunderabad (G.S. Purshotam)
Appellant AdvocateM.K. Joshi and ;D.M. Deshmukh, Advs.
Respondent AdvocateS.Y. Rathan Raj, Adv.
DispositionAppeal dismissed
Excerpt:
.....or gross negligence, the court may direct his property to be attached and sold, and may apply the proceeds to make good any balance found to be due from him or any loss so occasioned by..........partly rejected. it is against the rejection of his claim for the rents of the period prior to the date of adjudication that the creditor no. 15 has now come up in appeal. the official receiver has filed cross-appeal challenging the order of the court below holding that the creditor no. 15 will get priority over other creditors in respect of rents that accrued after the date of adjudication.2. the sole point that falls for determination in this appeal is whether the appellant is entitled to priority over other creditors. in order to appreciate this point it is necessary at this stage to consider the facts of the case. one nathalal was occupying the malgi of creditor no. 15 as his tenant on a monthly rent of rs. 50. he submitted an insolvency petition in the month of january, 1953, and an.....
Judgment:

Manohar Pershad, J.

1. The C. M. A. 110/3/55 and the cross appeal arise out of a petition filed by the appellant as creditor No. 15 for recovery of Rs. 1,405-6-0 due from the Official Receiver in respect of rent for his malgi claiming priority over other creditors. The application of the creditor No. 15 was partly allowed by the court below and partly rejected. It is against the rejection of his claim for the rents of the period prior to the date of adjudication that the creditor No. 15 has now come up in appeal. The Official Receiver has filed cross-appeal challenging the order of the court below holding that the creditor No. 15 will get priority over other creditors in respect of rents that accrued after the date of adjudication.

2. The sole point that falls for determination in this appeal is whether the appellant is entitled to priority over other creditors. In order to appreciate this point it is necessary at this stage to consider the facts of the case. One Nathalal was occupying the malgi of creditor No. 15 as his tenant on a monthly rent of Rs. 50. He submitted an insolvency petition in the month of January, 1953, and an interim Receiver was appointed, who took possession of the said malgi and sealed it by the order of the court. Nathalal was adjudged an insolvent on 6-4-54 and on the representation of the appellant, who was the creditor No. 15 in the lower court, the possession of the malgi was restored to him in October, 1954.

On 12-5-1955 he filed an application stating that a sum of Rs. 1,405-6-0 was due from the Official Receiver in respect of rent for his malgi for the period it remained under Court's supervision and claiming priority for the said amount over other creditors of the insolvent. This application was dismissed by the District Judge on 10-6-1955 on the objection of the Official Receiver, On 11-6-1955 Creditor No. 15, that is, the appellant herein, filed a petition for setting aside the ex parte order dated 10-6-1955. In this petition he also stated that the was entitled to priority over other creditors. This petition was resisted by the Official Receiver.

The learned District Judge after hearing the arguments of the parties held that the petition for setting aside the previous order was maintainable. Adverting to the claim for preference the learned District Judge held that the appellant was entitled to preference over other creditors in respect of rents that accrued after the date of adjudication. As regards the rents for the period prior to the date of adjudication he found that the appellant was entitled to rateable distribution and not to any priority. Hence this appeal and the cross-appeal.

3. Sri Deshmukh, the learned counsel for the appellant, contends that the appellant is entitled to priority under Section 61(3) of the Provincial Insolvency Act. Section 61(3) reads:

'Subject to the retention of such sums, as may be necessary for the expenses of administration or otherwise, the debts specified in Sub-section (1) shall be discharged forthwith in so far as the property of the insolvent is sufficient to meet them.'

The learned counsel for the appellant relies on the words 'expenses of administration' used in this provision and contends that inasmuch as the Receiver took possession of the property, whatever rent incurred would amount to expenses of administration, and therefore the appellant was entitled to the statutory priority over other creditors. Section 61(3) reffers to expenses of administration. The words 'Expenses of administration' have not been defined anywhere in the Provincial Insolvency Act; but the question of expenses of administration only arises when the property vests in the Official Receiver and is bound up for purposes of paying the insolvent creditors Appointment of a Receiver is made under Section 56 of the said Act, which runs thus:

'Section 56: The court may, at the time of the order of adjudication, or at any time afterwards, appoint a receiver for the property of the insolvent, and such property shall thereupon vest in such receiver.

(2) Subject to such conditions as may be prescribed, the court may -

(a) require the receiver to give such security as it thinks fit duly to account for what he shall receive in respect of the property; and

(b) by general or special order, fix the amount to be paid as remuneration for the services of the receiver out of the assets of the insolvent.

(3) Where the court appoints a Receiver, it may remove the person in whose possession or custody any such property as aforesaid is from the possession or custody thereof;

Provided that nothing in this section shall be deemed to authorise the court to remove from the possession or custody of property any person whom the insolvent has not a present right so to remove.

(4) Where a receiver appointed under this Section -

(a) fails to submit his accounts at such, periods and in such forma as the court directs, or

(b) fails to pay the balance due from him thereon as the court directs, or

(c) occasions loss to the property by his wilful default or gross negligence,

the court may direct his property to be attached and sold, and may apply the proceeds to make good any balance found to be due from him or any loss so occasioned by him.

(5) The provisions of this section shall apply, so far as may be, to interim receivers appointed under section 20.'

There is also a provision in the Provincial Insolvency Act for appointment of interim receivers, and that is Section 20, which reads:

'The court when making an order 'admitting the petition may, and where the debtor is the petitioner ordinarily shall, appoint an interim receiver of the property of the debtor or of any part thereof, and may direct him to take immediate possession thereof or of any part thereof, and the interim receiver shall thereupon have such of the powers conferrable on a receiver appointed under the Code of Civil Procedure, 1908, as the court may direct. If an interim receiver is not so appointed, the court may make such appointment at any subsequent time before adjudication, and the provisions of this section shall apply accordingly.'

4. The question arises as to what are the powers of a Receiver appointed under Section 20 and Section 56 of the Provincial Insolvency Act. In the case of Receiver appointed under Section 56 the property vests in the Receiver, whereas in the case of Receiver appointed under Section 20 the property does not vest in him. The interim Receiver appointed under Section 20 has powers similar to the powers of Receiver appointed under the Code of Civil Procedure, 1908. In the instant case also the respondent was appointed as interim receiver under Section 20. The contention of the learned counsel for the appellant is that inasmuch as the order of adjudication relates hack and takes effect from the date of the presentation of the petition, there cannot be any difference between the powers of Interim Receiver appointed under Section 20 and the one appointed under Section 56. In this connection the learned counsel drew our attention to Section 28(7) and Section 56(5) of the Provincial Insolvency Act.

5. Section 28(7) runs thus:

'An order of adjudication shall relate back to, and take effect from the date of the presentation of the petition on which it is made.'

Section 56(5) reads:

'The provisions of this section shall apply, so far as may be, to interim receivers appointed under section 20.'

It is no doubt true that under Section 28(7) an order of adjudication relates back and takes effect from the date of the presentation of the petition, hut the question arises whether by the theory of relation back the amount of rents payable by the receiver appointed under Section 20 of the Provincial Insolvency Act, in whom the property had not vested by application of the said provision, would come under the category of 'expenses of administration'. The scheme of the Provincial Insolvency Act is to vest the insolvent's property in the court or the receiver upon the order of adjudication being made and to make it divisible amongst the creditors, and that is provided in Section 28(1). The creditors are to tender the proof of their respective debts provable under the Act on which a schedule is framed as provided in Section 33(1) of the said Act. Section 34 states what debts are provable under the Act excepting those which come under Sub-section (1) of that section and Sub-section (2) says that:

'all debts and liabilities present, future, certain or contingent to which the debtor is subject when he Is adjudged insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable under the Act.'

6. The debt to be provable therefore must accrue before adjudication, but if it accrues after adjudication and before discharge, it is provable only if the obligation giving rise to the debt was incurred before adjudication. In the instant case the appellant wants to fix the liability of the Receiver to pay the rent to him prior to the date of adjudication on the ground of administrative expenses or the basis of the theory of relation back. Even though on the theory of relation back the order of adjudication may take effect from the date of the presentation, still the question arises whether the expenses incurred by the interim Receiver can be treated as expenses of administration under the Insolvency Act.

We think that such expenses having been covered by Order 40 Rule 1 of the Code of Civil Procedure are not meant to be covered by Section 61(3) of the said Act, for the authorisation to invest is not conferred on the Official Receiver under the Bankruptcy Act. As stated earlier, the property had not vested in the Receiver though he had taken possession of the property. His powers were limited and were covered under Order 40 Rule 1 C. P. C., and they would be governed by the said provision. The Receiver was in possession of the property, but that alone cannot confer any property.

The appellant could only succeed if he can bring his case under Section 61(3) of the Provincial Insolvency Act. As discussed above, the interim Receiver in this case was appointed under Order 40 Rule 1 and his liabilities and powers would be governed by the said provision. An identical question had arisen in the case of Official Trustee of Bengal v. Kissen Gopal, AIR 1930 Cal 459. It was held therein that the debt to be provable under Section 34 must accrue before adjudication, but if it accrues after adjudication and before discharge, it is provable only if the obligation giving rise to the debt was incurred before adjudication.

The case of Tejmal Marwari v. (Firm) Jokiram Surajmal, AIR 1936 Pat 112 no doubt deals with the question of the relation back and it has been held therein that an order of adjudication under Clause (7) of Section 28 relates back to the date when the petition for insolvency was admitted by the court, but there was no discussion in this authority as to the powers of an interim Receiver appointed under Order 40 Rule 1 and of one appointed under Section 56. There is also no discussion in this case as to what is meant by administrative expenses. This ruling may be taken as an authority for the proposition that under Section 28(7) an order of adjudication relates back.

7. In this view of the matter we do not see anything wrong in the order at the court below. Appeal is therefore dismissed. Having regard to the facts of the case we do not wish to pass any orders regarding costs of this court.


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