1. These appeals arise out of proceedings under Section 4 of the Provincial Insolvency Act.
2. One Parametmuni Seshachalam settled his lands and house in favour of his sister's son, Nimmaraju Seetaramachandrarao, by a registered deed dated 12-6-58. janakiramarao, the brother of the settle and another creditor of Seshachalam moved the Subordinate Judge, Ongole, in I. P. 21/58 for the adjudication of Seshachalam as an insolvent treating the settlement made by him in favour of Setaramachandrarao as an act of insolvency. Seshachalam was adjudged insolvent on 29-9-59. On 17-3-60. Paramatmuni Hanumantharao purchased from Seetharamachandrasrao the lands which the insolvent settled on him, for Rs. 600/- under a registered sale deed, Ex. A-1. On the same day, Seetharamachandrarao sold the house, which is the only other item of property that was settled on him by the insolvent, to Appala Parameswarudu under Ex. A-2. On 17-12-62, the Official Receiver, in whom the estate of Seshachalam vested consequent on his adjudication as insolvent, filed I. A. 351/62 for annulment of the settlement made by the insolvent in favour of Seetharamachandrarao, under Section 53 of the Provincial Insolvency Act.
He did not however impaled the vendees under Exs. A-1 and A-2 as parties to his application though they purchased the properties from Seetharamchandrarao more than two years before then. This application was allowed and the settlement effected by Seshachalam in favour of his nephew was anulled on 17-12-63. When the Official Receiver thereafter commenced to take steps for bringing to sale, the properties which were the subject matter of the settlement in favour of Seetharamachandrarao, the vendees under Exts. A-1 and A-2 moved the Subordinate Judge, Ongole, under S. 4 of the Provincial Insolvency Act, in I. A. Nos. 1597 and 1599 of 1964 for declaration of their title to the properties and also for in injunction restraining the Official Receiver from interfering with their peaceful possession and enjoyment of the same. These petitions were opposed by the Official Receiver who contended inter alia that the petitioners were bound by the order of annulment passed in I. A. 351/62 and that the transfers which they obtained under Exs. A-1 and A-2 from Seetaramachandrarao, being only voidablem will continue to be valid till they are set aside and accordingly allowed I. A. Nos. 1957 and 1599 of 64 observing at the same time that 'The Official Receiver is at liberty to file a petition under Section 53 or Section 4 of the Provincial Insolvency Act challenging these alilenations in favour of the petitioners.' On appeal by the Official Receiver, the learned Additional District Judge, Guntur, held that the settlement effected by the insolvent in favour of Seetharamchandrarao was void and that the petitioners are therefore bound by the order which the Official Receiver obtained in I. A. 351/62 though they were not eo nomine parties to that application. He accordingly allowed the appeals and dismissed I. A. Nos. 1597 and 1599 of 64. Aggrieved by this decision, the petitioners in I. S. Nos. 1597 and 1599 of 64 have preferred these Civil Miscellaneous Second Appeals as, according to them, the finding arrived at by the lower appellate Court that the settlement effected by Seshachalam in favour of their transferor was void and that they are consequently bound by the order made in I. A. 351/62 notwithstanding their not having been impleaded as parties thereto, is contrary to law.
3. The points that therefore arise for consideration in these appeals are (1) whether the annulment of the transfer in favour of Seetahramachandrarao, in I. A. 351/62, is binding on the appellants and (2) if not, whether they are entitled to the relief of declaration and injunction sought by them.
4. The answer to point No. 1 turns on the question as to whether the settlement by Seshachalam in favour of Seetharamachandrasrao from whom the petitioners purchased the properties is void or only voidable. If it should transpire that the transfer is avoid, the appellants would necessarily be bound by the order of annulment made in I. A. 351/62 as they cannot get better rights than what their transferor himself had in the properties and as a void transfer is no transfer at all in the eye of law. If, on the other hand, the finding should be that the transfer was only voidable, implying that it is valid till it is avoided, the annulment order, which the Official Receiver obtained in I. A. 351/62, would normally not bind the appellants who were admittedly not parties to it.
5. Great reliance is placed for the appellants on Ramaswami v. Official Receiver, : 1SCR616 , in support of their contention that the transfer effected by the insolvent in favour of Seetharamachardrarao was only voidable and not void and that in this view, the order of annulment, which the Official Receiver obtained without impleading them as parties, cannot be considered to be binding on them. In the decision cited, it was held:
'Assuming that when an order is made under S. 54 of the Provincial Insolvency Act annulling a transfer (transfer of a decree in this case), the transfer stands annulled as from the date it was made, even so, the transfer stands till it is annulled and therefore, till then, the transferee has all the rights in the property transferred. So long as the transferee has such rights he is competent to exercise them and such exercise would be legal and fully in accordance with law.'
6. This decision was considered inapplicable to the case by the learned Additional District Judge as, according to him, the question that arose fro consideration there was whether or not execution petitions filed by the transferee of a decree from the insolvent, prior to the date of annulment of that transfer, would serve as steps in aid of execution to save the petition for execution, filed by the Official Receiver after annulment of the transfer, from the bar of limitation. in that case, one Venkatachelam Chettiar transferred a decree held by him, in favour of his mother, Meenakshi Atchi on 3-2-36, treating the transfer of the decree by him in favour of his mother as an act of insolvency. The said transfer was annulled by an order dated 9-4-43 in an application made by the Official Receiver under Section 54 of the Provincial Insolvency Act. The Official Receiver thereafter applied for execution of the decree on 27-9-43. This petition was resisted by the judgment-debtors on the ground that it was barred by limitation. The Official Receiver sought to rely upon two earlier applications for execution filed by Meenakshi Atchi, the assignee prior to the date of the annulment of that transfer as steps in aid of execution for the purpose of saving limitation. Having held, as already stated, that the transfer stands till it is annulled, their lordships of the Supreme Court ruled that till it is annulled, the transferee has all the rights in the property transferred that so long as the transferee has such rights, he is competent to exercise them and such exercise would be legal and fully in accordance with law, that sub-section (2) and (7) of S. 28 cannot have the effect of vesting the property in the receiver till its transfer has been annulled and that in this view, the assignee had the right to execute the decree and that the execution petitions which Meenakshi Atchi filed prior to the date of the annulment of the transfer were in order and could be availed of by the Official Receiver as steps in aid of execution to save the subsequent petition filed by him for execution of the decree from the bar of limitation. These facts would clearly show that it was necessary for their Lordships to determine whether the transfer was void or simply voidable for the purpose of arriving at a decision on the question as to whether the execution petitions filed by the assignee, prior to the date of the annulment of the transfer, are valid and could be availed of a by the official Receiver as steps in aid of execution for the purpose of limitation. The principle enunciated in that decision is therefore undoubtedly of direct application here.
7. The lower appellate Court placed reliance on Sheo Raj v. Adbual Aziz, : AIR1956All68 in coming to the conclusion that 'since the settlement deed in favour of N. Seetharamachandrarao was treated as an act of insolvency and the insolvent was adjudged insolvent on that basis, it is not open to the transferee or his transferees to question the same at a later stage and the remedy of Seetharamachandrarao, if at all was only by way of an appeal against the order adjudicating Seshachalam as an insolvent'. The learned Judge who rendered the decision in : AIR1956All68 seems to have based it on a decision of the Privy Council in Md. Siddique V. Official Assignee, Calcutta, AIR 1943 PC 130. But AIR 1943 PC 130 was a case that arose out of the Presidency-towns Insolvency Act. This decision was in fact referred in and explained by their Lordships of the Supreme Court in : 1SCR616 as can be seen from the following passage extracted from their judgment:
'It is therefore abundantly clear that all that the Judicial Committee held in Mohamed Siddique yousuf's case, 70 Ind. App. 93 = Air 1943 P. C. 130 was that in a case under the Presidency-towns Insolvency Act, when the act of insolvency upon which an order of adjudication is founded is a transfer amounting to a fraudulent preference, the transferee cannot, so long as the order of adjudication stands, question that finding, namely, that the transfer was a fraudulent preference and that, therefore, in an application by the Official assignee to have that transfer annulled on the ground that it was a fraudulent preference, the order of adjudication is conclusive proof that the transfer was by way of a fraudulent preference to lead evidence to prove that the transfer was not a fraudulent preference. In such a case, therefore, the order of annulment had to be made as a matter of course on proof of the order of adjudication XX XX XX'.
It will be useful to notice the relevant provisions of the presidency-towns Insolvency Act and the provincial Insolvency Act in this context. Section 55 of the Presidency-towns Insolvency Act lays down:
'Any transfer of property, not being a transfer made before and in consideration of a marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee.'
Section 53 of the Provincial Insolvency Act is, on the other hand, to the following effect:
'Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court'.
It can clearly be seen from the provisions of the relevant sections extracted above that under section 55 of the Presidency-towns Insolvency Act the transfer is void against the official assignee whereas it is only voidable as against the Official Receiver under the corresponding S. 53 of the Provincial Insolvency Act.
That the decision of the Privy Council in AIR 1943 PC 130 is applicable to cases arising under the Presidency-towns Insolvency Act alone and not to orders of adjudication under the provincial Insolvency Act and that the relevant provision of the two Acts are different can also be seen from a decision of the Punjab High Court in Kehar Singh v. Raghbir Singh, . The learned Additional District Judge was therefore not right in relying upon : AIR1956All68 which, as already pointed out, was based on AIR 1943 PC 130, a case that arose under the Presidency-towns Insolvency Act, for the purpose of concluding that the transfer in favour of the appellants' vendor by Seshachalam was void. I must likewise agree with the learned counsel for the appellants that the lower Court erred in thinking that the principle laid down by their Lord-ships of the Supreme Court in : 1SCR616 , has no application to the facts of this case.
8. It was no doubt held in Hla Gyaw U v. U Tun Kyaw Sen, AIR 1937 Rang 369, which is another decision that was referred to by the learned Additional District Judge, that the purchaser from the transferee is bound by the finding that the transfer in favour of the original transferee is void, although he was not a party to the application but in the face of the clear and authoritative pronouncement of their Lordships of the Supreme Court in : 1SCR616 , it has to be said that the settlement in favour of Seetharamachandrarao was only voidable and not void and that he was competent to exercise all the rights which the owner of a property is entitled to exercise, including the right to further alienate the same, till the transfer is annulled.
9. It is true that the transfer in favour of Seetharamachandrarao has since been annulled but it cannot be said that the appellants are bound by that order as they purchased the property from Seetharamachandrarao long before then and at a time when he had the right and power to deal with the property as he pleased. The mere fact that the appellants claim from Seetharamachandrarao does not justify the contention that they are bound by the order of annulment when their transferor ceased to have any interest whatsoever in the property long before the date on which I. A. 351/62 was filed. it is true that the Court has power to deal with transfers by the insolvent alone under Section 53 of the Act and not with transfers by the transferee of the insolvent but this did not in any way prevent the Official Receiver from taking such other steps as are available to him in law for the purpose of avoiding the transfer which the insolvent's transferee made in favour of the appellants.
Chidambaram v. Subramainia AIR 1932 Mad 513, is an auhtority for the position that the Official Receiver can invoke to his aid S. 4 of the provincial insolvency Act for the purpose of avoiding a transfer made by the transferee of the insolvent. it was clearly indicated in this decision that the power of the Court under Section 4 to decide all questions arising in insolvency is undoubted. It was held in Cheriyan of Poothikottu v. Mathan Chacko : AIR1964Ker183 , that the transferee from a transferee of the insolvent is not affected by an order of annulment obtained by the Official Receiver without impleading him as a party to his application. Learned Additional District Judge tried to a distinguish this decision on the ground that the particular transfer did not constitute an act of insolvency and that the petition for adjudication was not grounded on that transfer. But it was clearly indicated by their Lordships or the Supreme Court in : 1SCR616 that even where the order of adjudication is based on an act of insolvency constituted by a transfer of property found to be a fraudlent preference, the transfer stands till it is set aside and that a separate order annulling the transfer would be necessary even in such a case. I have, therefore, no doubt that the transfer of the property by Seshachalma in favour of Seetharamchandrarao, was only voidable and not void and that the appellants are not bound by the order of annulment made in I. A. 351/62 to which they were not parties.
10. The finding recorded above does not however entitle the appellants is straightway walk home with an order declaring their title to the property and also granting them an injunction restraining the Official Receiver from interfering with their possession thereof. it was argued for the appellants that they are entitled to remain in possession of the property till the transfer in their favour is avoided by the Official Receiver in a properly constituted action under the relevant provisions of law abut that he cannot raise a defence in an application filed by them for the purpose of protecting their present possession. It is on the other hand contended for the respondent that the question as to whether the transfer obtained by the appellants from Seetharamachandrarao is valid and binding on the Official Receiver has to be gone into in this proceeding itself as if is initiated under Section 4 of the Provincial Insolvency Act and that the appellant cannot automatically get the relief of declaration and injunction for the simple reason that no separate petition is brought by the official Receivers to avoid the transfer obtained by them.
Section 4 of the Act confers on the insolvency Court very wide powers to decide all questions whether of title or priority or of any nature whatsoever and whether involving matters of law or of fact which may arise in any case of insolvency coming within the cognisance of the Court or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. It is therefore not only within the competence of the insolvency Court to decide the question but it is also necessary that it should decide it in the same proceedings, out of which these appeals arose, for the purpose of doing complete justice and making complete distribution of the property of the insolvent amongst his creditors. In this view, it becomes necessary to remit the matter to the Court of first instance viz. Subordinate Judge, Ongole for enquiring into and deciding the question as to whether the sales covered by Extras A-1 and A-2 are valid and binding on the Official Receiver after receiving such evidence as the parties might desire to adduce in support of their respective contentions in this regard.
11. The appeals are accordingly allowed and the judgment of the lower Appellate Court, dismissing I. A. Nos. 1597 and 1599 of 1964, is set aside. The petitions will be remitted to the Subordinate Judge, Ongole for final disposal after deciding the question as to whether the transfers obtained by the appellants under Exs. A-1 and A-2 are valid and binding on the Official Receiver. The costs of these appeals will abide the ultimate result and will be provided for the revised order of the learned Subordinate Judge. No leave.
12. Appeals allowed.