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Mutha Sarvarayudu and ors. Vs. Vammi Kondalarayudu and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 97 of 1952 and C.M.P. No. 1714 of 1957
Judge
Reported inAIR1961AP219
ActsProvincial Insolvency Act, 1920 - Sections 13(1), 22, 37, 43 and 69
AppellantMutha Sarvarayudu and ors.
RespondentVammi Kondalarayudu and ors.
Appellant AdvocateM.S. Ramachandra Rao and ;M. Krishna Rao, Advs.
Respondent AdvocateG. Balaparameswararao, Adv.
Disposition Appeal dismissed
Excerpt:
.....facie he has wilfully failed to perform the duties imposed on him by section 22 and concealed the property fraudulently with intent to prevent the same to be divided among his creditors and thereby committed an offence punishable under clauses (a) and (c) (ii) of section 69 of the provincial insolvency act. there are two well-recognised principles in english law; the irony of situation is that if the defendants had been the plaintiffs confederates in committing the fraud on his creditors and have taken possession of the property with that object, they would have been actually in a better position to resist this claim in the present suit and could have invoked the maxim of in pari delicto. ) but this is not a principle of universal application and is dealt with thus in broom's legal..........of his creditors though he was discharged; and that the plaintiff was estopped from claiming the suit property because he did not disclose it in the insolvency proceedings. 2. on a careful consideration of the entire evidence, the learned subordinate judge found that the whole of survey no. 640 fell to peethala appanna's share at the partition and passed on to the plaintiff under the settlement deed ex. a-3 dated 25-11-1926, that defendants 1 to 5 acquired no title to the property by the court sale as the mortgagor rajayya himself had no title, that the plaintiff and his father with his permission were in possession of the acs. 8-00 until the trespass on the side of the defendants in the year 1937 and that no question of the defendants having perfected their title by adverse possession.....
Judgment:

Krishna Rao, J.

1. This is an appeal by defendants 1 to 5 and arises out of a suit in ejectment which was decreed in favour of the 1st respondent-plaintiff by the court of the Subordinate Judge, Kakinada. The property in dispute is an extent of Acs. 8-0 of inam dry land, forming a portion of survey No. 640, which measures acs. 32-01 and is held under patta No. 6, in the village of Chebrolu in the Estate of Pit(SIC)

The plaintiff's case was that the entire survey No. 640 was one of the properties that fell to the share of his maternal grand-father, Peethala Appanna, at a partition between the latter and the latter's brother, Peethala Rajayya, that the said Appanna, having no sons, gave his properties before he died in 1928 to the plaintiff under a registered settlement deed Ex. A. 3 dated 25-11-1926 and that subsequently the plaintiff sold portions of survey No. 640 to different persons and retained possession of the remaining acs. 8-00.

He brought the suit on 2-2-1948 for a declaration of his title and for recovery of possession, on the allegation that the late Mutha Venkateswarlu, who was the undivided father of defendants 1 to 5, had forcibly ousted him from possession at the end of May 1937. The defendants' case was that the suit land belonged to Peethala Rajayya, who had mortgaged it along with other properties for Rs. 8,000/- to the Mutha people under Ex. B-7 dated 5-6-1917, that at the sale in execution on 2-7-1935 in enforcement of the mortgage, the late Mutha Venkateswarlu and his brother's son who were the decree-holders, purchased the property and that the defendants and their predecessors were in possession ever since delivery was obtained through Court on 2-2-1936.

By an amendment of the written statement, it was also contended by them that the Official Receiver is a necessary party to the suit as the plaintiff had been adjudicated insolvent in I. P. No. 9 of 1932 and his properties continued to vest in the Official Receiver for the benefit of his creditors though he was discharged; and that the plaintiff was estopped from claiming the suit property because he did not disclose it in the insolvency proceedings.

2. On a careful consideration of the entire evidence, the learned Subordinate Judge found that the whole of survey No. 640 fell to Peethala Appanna's share at the partition and passed on to the plaintiff under the settlement deed Ex. A-3 dated 25-11-1926, that defendants 1 to 5 acquired no title to the property by the Court sale as the mortgagor Rajayya himself had no title, that the plaintiff and his father with his permission were in possession of the acs. 8-00 until the trespass on the side of the defendants in the year 1937 and that no question of the defendants having perfected their title by adverse possession arose because the suit was filed within 12 years from 2-2-1936, the date of the alleged delivery through Court. He also held that the Official Receiver was not a necessary party and that no question of estoppel arose and passed a decree in favour of the plaintiff.

3. The appellants applied to this court in. C. M. P. No. 1714 of 1957 for further amending their written statement so as to clarify the contentions raised by them in connection with the plaintiff's insolvency. We allowed the amendment and have received the findings of the lower court on the additional issue involved.

4. The only points urged by Sri M. S. Ramachandra Rao, the learned counsel for the appellants are:

(1) that the lower court erred in its appreciation. of the evidence and ought to have found against the plaintiff on the question of title to the suit property;

(2) that the plaintiff fraudulently concealed the suit property during the insolvency proceedings and is disentitled to relief as he cannot be allowed to take advantage of his own fraud;

(3) that the plaintiff's properties continued to vest in the Official Receiver and the suit is therefore not maintainable.

5-10. On the first point, the position taken before us an behalf of the appellants is that a part of survey No. 640 including the suit land fell to Rajayya's share at the partition between him and Appanna. There is no evidence to show how the different items of land covered by patta No. 6 were divided between the two brothers, but it is urged that the evidence of enjoyment after the partition unmistakably points to the conclusion that the suit land belonged to Rajayya's share.

(His Lordship then discussed the evidence and continued as follows :)

We see no reason to differ from his appreciation of the evidence on the whole and his conclusion that the suit land belonged to and was in the possession of the plaintiff and his father until the defendants trespassed upon it in 1937.

11. Turning to the second point, it is common ground that the plaintiff was adjudicated insolvent on his own petition in I. P. No. 9 of 1932 on 26-8-1932 and that he did not disclose the suit property in the insolvency proceedings. In the rejoinder filed by him after the written statement was amended under the order in C. M. P. No. 1714 of 1957, the explanation given by him is that as the property was in the possession and enjoyment of his father, he bona fide believed that it was not incumbent upon him to include the property in the schedule to I. P. No. 9 of 1932 and that the non-disclosure of the property was not with a view to defraud any of his creditors; nor were any of his creditors thereby defrauded.

The finding submitted by the lower court that the explanation cannot be accepted is manifestly right. The property disclosed by him was subject to two mortgages and its sale fetched only Rs. 105/-which was not sufficient even to pay off the Crown debt of Rs. 914-5-0. This is mentioned in column 6 of the report Ex. R-10 submitted by the Official Receiver in connection with the application (Ex. B-18) made on 29-8-1934 in I. A. No. 1024 of 1934 by the plaintiff for the discharge. At the end of Ex. B-16, the Official Receiver reported:

'The debtor may be given an order of discharge as there is no mala fide and the loss may be due to circumstances beyond his control.' The final order made in I. A.' No. 1024 of 1934 on 10-12-1934, has been marked as Ex. A-17. It shows that as the opposing creditors got nothing, the insolvency court suspended the operation of the order of discharge for a period of six months so as to afford an opportunity for the above creditors to take steps to set aside the alienations and be paid if possible. The plaintiff's ownership of the suit property was not known and it is not disputed that no steps were taken by the creditors nor any payment made towards their dues. The effect of the order in Ex. A-17 was that upon the expiry of the period of six months on 10-6-1935, the plaintiff obtained an absolute discharge -- Vide Muradally Shamji v. B. N. Lang, ILR 44 Bom 555: (AIR 1920 Bom 419) and Moolchand v. Dipchand, AIR 1935 All 272.

12. Under Clause (e) of Section 13(1) of the Provincial Insolvency Act, the petitioning debtor must give the amount and particulars of all his property in his insolvency petition. Under Section 22, after the petition is admitted he must give such inventory of his properties as may be prescribed. Admittedly, the plaintiff did not execute any conveyance of the suit property in favour of his father; but merely put it in his father's possession for being enjoyed for the latter's maintenance. He said as P. W. 1 in his cross-examination:

'I thus gave as I was selling portions of lands got from my grand father as I was going to become insolvent and so that my father might live on it.' The property is valued at Rs. 5250/- in the plaint schedule and if he had disclosed his ownership thereof in the insolvency proceedings, the property would have been sold and the creditors would have received some payment. Considering all the circumstances, the natural inference is that he concealed his ownership of the property with intent to defraud his creditors and the creditors were in fact defrauded. Prima facie he has wilfully failed to perform the duties imposed on him by Section 22 and concealed the property fraudulently with intent to prevent the same to be divided among his creditors and thereby committed an offence punishable under Clauses (a) and (c) (ii) of Section 69 of the Provincial Insolvency Act.

13. The question is whether these are the grounds available to the appellants for non-suiting the plaintiff. It is not the appellants' case that they or their predecessors-in-title were the creditors of the plaintiff or were in any way connected with or affected by the fraud. But Sri M. S. Ramachandra Rao contends that as a principle of public policy, no Court will assist a person whose claim is based upon an immoral or illegal act. He relies on Cuddappa v. Balaji, AIR 1941 Bom. 274 (FB), where Beaumont, C. J. said;

'No Court will allow itself to be used as an instrument of fraud, and no court, by the application of rules of evidence or procedure, can allow its eyes to be closed to the fact that it is being used as an instrument of fraud. The legal maxim is ex turpi causa non oritur actio. Once the Court finds that the plaintiff is seeking its assistance to enable him to get the benefit of what is a fraud, the Court refused to assist him.' In the same decision, Divatia, J., summarised the law on the subject thus:

'I. In all cases of unilateral or bilateral fraud which has not been successfully effected, either party can repudiate the fraudulent transaction and can recover or maintain his possession by proving his real title.

II. In cases where fraud is accomplished (1) where only one party acts fraudulently, he cannot be allowed, either as plaintiff or as defendant, to plead his fraud, on the principle that no man shall be heard to plead his own fraud; (2) where both parties were equally fraudulent, the courts will refuse to enforce the fraudulent transaction on the principles that where each party is equal in fault, the law favours him who is actually in possession and will give relief to neither and that a right of action cannot arise out of fraud with the result that (a) where the plaintiff seeks relief on the allegation and on the basis of doing fraud, his suit will be dismissed; and (b) where he seeks relief by suppressing the fraud, the defendant can plead and prove the common fraud to defeat the plaintiff's claim.'

Similarly in Venkataramayya v. Pullayya, 71 Mad L.J. 458. at p. 468 : (AIR 1936 Mad 717 at p. 718) (F. B.) the Full Bench said:

'There are two well-recognised principles in English Law;

(1) that no man can set up his own inquiry as a defence any more than as a cause of action. This principle was laid down in Doe D. Roberts v. Roberts, (1819) 2 B. and Ald. 367 : 106 E. R. 401, and (2) restitutio in integrum is excluded in respect of all acts of parties to contracts void for illegality. An exception is engrafted to this rule by allowing a locus paenitentiae to one or both of the parties in consideration of the fact that the illegal purpose of the contract has not yet been fulfilled. But where the illegal purpose has been partly fulfilled, no relief is given.'

14. The point to be noted is that both were cases where the question arose as between the parties to an allegedly fraudulent transaction or persons who claimed under them. The principle is expressed by the twin maxims: ex turpi causa non oritur actio and in pari delicto porior est conditio defendantis. But these belong to the domain of the law of contract and not to the law of acquisition or extinction of title to property. They can be invoked only when there is contractual nexus between the plaintiff and the defendant.

The learned counsel has been unable to cite any authority for his position that they may be availed of even by a third party to a fraudulent transaction. Here the plaintiff's cause of action is his title to his property and the trespass by the defendants. The title may be vulnerable as between him and his creditors. But the transactions between him and his creditors are in no way connected with the trespass by the defendants.

The irony of situation is that if the defendants had been the plaintiffs confederates in committing the fraud on his creditors and have taken possession of the property with that object, they would have been actually in a better position to resist this claim in the present suit and could have invoked the maxim of in pari delicto. But it is unnecessary to consider that aspect of the matter because the defendants have no such case.

15. The principle really invoked by Sri M. S. Ramachandra Rao is expressed in the maxim 'nemo allegans suam turpetidinem est audiendus.' (No one alleging his own baseness ought to be heard.) But this is not a principle of universal application and is dealt with thus in Broom's Legal Maxims, Tenth Edition, 1939, at page 133:

'Although the law on this point can hardly be said to be completely settled, yet it is well established that the rule, if any,' only obtains in actions against the felon by his immediate victim; and does not extend to actions in respect of events consequent upon the felony, but brought against any person other than the felon; nor does if extend to actions by any person other than the person on or against whom the felony was committed.'

16. Forfeiture or extinction of the insolvent'stitle is not one of the penalties mentioned in theProvincial Insolvency Act for an offence under Section 69. The possession of the property by thedefendants is adverse both to the plaintiff and tohis creditors in the insolvency proceedings. It isnot necessary for the purpose of the suit to decidewhether and in what manner the creditors would be entitled to proceed against the property after the plaintiff recovers possession of it.

But it is clear that neither the express provisions nor the policy of the Provincial Insolvency Act are a bar to the grant of relief in the suit to the plaintiff on account of his fraud. We have therefore no hesitation in finding that the fraud committed by the plaintiff on his creditors in the insolvency proceedings does not in any way disentitle him to relief.

17. The only point remaining for consideration is whether the suit property vests in the Official Receiver and the suit is not maintainable as the Official Receiver has not been impleaded as a party. Sri M. S. Ramachandra Rao has a two-fold contention in this respect. His first submission is that subsequent to the order in Ex. A-11, the insolvency court made an order on 26-10-1937 vesting the plaintiff's property in the Official Receiver. This appears from an entry in the Insolvency Register, Ex. B-l. In column 16, relating to whether the adjudication was annulled under Sections 35, 89 and 43 of the Provincial Insolvency Act, it is stated:

'26-10-1937, annulled as no steps taken but properties do continue to vest in O. R. for benefit of creditors.'

His second submission is that the order Ex. A-11 did not automatically operate to revest the properties in the insolvent upon the expiry of the six months and that in the absence of such an order the plaintiffs properties continued to vest in the Official Receiver on the date of the present suit.

18. The answer given by the plaintiff in his rejoinder was that he is not aware of the subsequent order dated 26-10-1937 and that even if such an order was made, it is illegal and void. A copy of the same has not been produced by the appellants and it is not known whether it was passed after notice to the insolvent. As the entry in column 16 in Ex. B-l mentions that no steps were taken and presumably refers to default on the part of the plaintiff, it has to be inferred that the annulment was ordered under Section 43 for his failure to apply again for an order of discharge.

But as we have already indicated the effect of Ex. A-1l was to give the plaintiff an absolute discharge upon the expiry of six months. No fresh application by him for the purpose was necessary and in this view the order of 26-10-1937 cannot be supported. Nevertheless, it cannot be said that the insolvency Court had absolutely no jurisdiction after Ex. A-11 to annul the adjudication and vest the plaintiffs properties in the Official Receiver. The order dated 26-10-1937 is therefore not a nullity and is binding on the plaintiff until it is set aside.

19. Moreover, an order of discharge docs not as such terminate the insolvency proceedings. It means to the insolvent that he is thereafter released from all the debts provable in insolvency and to the creditors, that the debts proved by them are payable only from the assets vested in the Official Receiver. This is subject to any conditions that may have been imposed under Section 41(2)(c) as regards after acquired property. The discharge does not by itself operate to divest the Official Receiver of the insolvent's estate or to make the insolvency court functus officio Jubilee Bank Ltd. v. Santimoyee Debi, : AIR1950Cal487 .

20. In Subbaraya Chettiar v. Papathi Animal, 7 Mad LW 516 : (AIR 1918 Mad 294) a Division Bench of the Madras High Court observed;

'When the property becomes vested in the Official Receiver the insolvent must ipso facto be divested of the same, and can have no vested interest in the property until it is restored to him after administration.'

Unless there are directions in this respect in the order of discharge all that can be presumed is that the status quo was not immediately altered. As there were no directions in Ex. A-11 on the question of the administration of the plaintiffs property and as the creditors had not been fully paid, the effect of Ex. A-1l was to continue the vesting of the property in the Official Receiver and the administration thereof, although the plaintiff became entitled to an absolute discharge upon the expiry of six months.

That the insolvency proceedings were not treated as closed after 10-6-1935 is also indicated by an entry in the Official Receiver's Register (Ex. B-15). In column 16 which relates to the annulment of adjudication, the entry is 'vide. Dis No. 2703 dated 4-11-37.' The paper mentioned in the entry has not been produced. But it is probably connected with the annulment and vesting order mentioned in Ex. B-1.

21. As a result of the foregoing discussion our conclusions on this part of the case are:

(i) The order made by the Insolvency Court on 26-10-1937 vesting the plaintiff's properties in the Official Receiver for the benefit of the creditors is not void and is binding on the plaintiff unless set aside by appropriate proceedings.

(ii) The order dated 10-12-1934 suspending the operation of the discharge for six months did not have the effect of divesting the Official Receiver before he closed his administration nor of restoring the properties to the plaintiff immediately after the expiry of the six months.

22. However, the main object of vesting the insolvent's property in the insolvency Court or a receiver is to realise the assets and distribute the proceeds among the creditors -- See Section 28. If an Official Receiver closes or abandons the administration and no creditor opposes such a course, the vesting order must be deemed to have worked itself out and the residue of the estate would naturally revert to the insolvent even without a specific order reverting it.

In any event, the recovery of his property by the insolvent from the wrongdoer would not be against the policy of the Act and the doctrine that the vesting order divested the insolvent of all properties would not be a just ground for refusing the recovery. In Desikachari v. Official Receiver, Chingleput, 1942-2 Mad LJ 714: (AIR 1943 Mad 26) the facts were that no creditor proved his debt before the Official Receiver nor took any interest in the insolvency proceedings, and the order granting absolute discharge in 1932 did riot in terms provide for any future administration of the insolvent's properties.

It was held that the administration came to an end in 1932 and that a creditor of the insolvent could not 7 years later claim to get some of the insolvent's property sold by the Official Receiver. It was pointed out that

'The whole purpose of the Insolvency Act is that proceedings in insolvency shall be dealt with as expeditiously as possible, that the creditors shall be satisfied as expeditiously as possible from the property of the insolvent, and that the insolvent shall then be free to start life again unburdened by his debts.'

23. The case illustrates that all the surrounding facts and circumstances may be taken into consideration in construing the effect of proceedings and orders of insolvency Court, where they are obscure.

24. In the present case, nothing is heard of any act of administration of the insolvent's property after 1937. The plaintiff has remained ex parte at the further enquiry in the Court below after the additional issues were framed in C. M. P. No. 1714 of 1957. Subsequently, he died 011 4-11-1958. The appellants marked a number of certified copies of documents, Exs. B-13 to B-19, relating to the insolvency proceedings, but none suggesting that administration continued after 1937.

Most of them were certified copies applied for and obtained in 1953 and some (Exs. B-15 and B-16) even in 1958. Forms 9 and 10 prescribed in the Madras State and this State for the use of insolvency Courts and official receivers prescribe half-yearly reports as to pending insolvency petitions and the administration of each estate. The lower court itself was the insolvency court for I. P. No. 9 of 1932.

In the particular circumstances, we are of opinion that the proper inference, from the complete absence of all evidence about any administration of the plaintiff's estate by the Official Receiver after 1937, is that administration must have been closed shortly after 1937. Sri M. S. Ramachandra Rao says that it was the duty of the plaintiff to prove that the administration was closed and that the Official Receiver was divested of the estate. But the true question is what is the effect of the evidence on record as a whole.

As we are of opinion that the administration was either abandoned or closed by the Official Receiver long prior to the suit and the vesting order was allowed to work itself out, we are unable to give effect to the appellant's contention that the suit is not maintainable without impleading the Official Receiver. In our judgment, the Official Receiver would only be a proper party and not a necessary party and the object of the insolvency proceedings would be sufficiently served by the lower Court, intimating the Official Receiver the result of this litigation.

25. The appeal fails and is dismissed with costs.


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