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Dwarika Prasad Bhatnagar Vs. Damodar Swarup, Official Receiver and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad High Court
Decided On
Case NumberSecond Appeal No. 15 of 1961
Judge
Reported inAIR1967All520
ActsProvincial Insolvency Act, 1920 - Sections 4, 4(1), 4(2), 28, 28(2), 28(5), 59 and 68; Code of Civil Procedure (CPC) , 1908 - Sections 60 and 151
AppellantDwarika Prasad Bhatnagar
RespondentDamodar Swarup, Official Receiver and anr.
Appellant AdvocateNarendra Kumar, Adv.
Respondent AdvocateR.L. Gulati, Adv. and ;Santosh Kumar, SC
DispositionAppeal allowed
Excerpt:
.....act does not contain any provision regarding requiring or empowering the receiver to attach the property of insolvent - when order of adjudication is made under section 28(2) - entire property automatically vests in the receiver - question of adjudication of any property by him does not arise. - - 68. if the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just: provided that no application under this section shall be entertained after the expiration of twenty-one days from the date of the act or decision complained of. krishnier air1964mad501 .but in all these cases the question before..........under section 28(2) because they are exempt under section 28(5) must always be decided by the receiver. counsel contended that under section 28(2) 'the whole of the property of the insolvent shall vest in the court' and therefore it is for the person claiming exemption or exception under sub-section (5) to prove that they are of the nature of the properties specified therein. the argument of counsel for the parties covered a wide ground and a large number of authorities were cited before me in support of their respective contention. but in my opinion this appeal can be disposed on a short point. section 68 provincial insolvency act provides.'68. if the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the.....
Judgment:

S.S. Dhavan, J.

1. This is an insolvent's, second appeal from an order of the Additional District Judge Meerut confirming in appeal the order of the insolvency court dismissing as time barred his objection that certain properties are not liable to be attached and sold. A petition was filed before the Insolvency Court at Meerut for adjudging the appellant Dwarka Prasad Bhatnagar as insolvent He resisted and filed an objection which was dismissed on 6th January 1659. The creditors filed an appeal before the District Judge During the pendency of this appeal the appellant filed an application conceding that he was unable to pay off his debts and praying that the appeal be allowed and he be adjudged as insolvent, and also praying for the appointment of an official receiver to take possession of all his properties and dealing with them according to law. This application was made by agreement with the creditors. As a result the court allowed the appeal and adjudged the appellant insolvent and appointed the official receiver to take possession of all the properties of the appellant. This order was passed on 18th April 1959. On 9th July 1960 the appellant made the application which led to the present appeal. It purported to be one under Section, 60 and 151 C.P.C. The appellant alleged that he was an agriculturist and his only source of livelihood was agriculture. He further alleged that his agricultural and residential properties had been attached by the official receiver'. Particulars of these properties were given at the end of the application. The appellant contended that these properties were exempt from attachment and sale, and prayed for their release from attachment and for an order directing a certain Magistrate not to put them for sale. The appellant alleged that the sale had been fixed on 18th 1960 (sic). It is not clear from this application how the Magistrate had been put in charge of the business of selling these properties. Neither the counsel for the appellant nor for the receiver was able to explain this.

2. The insolvency Court treated this objection as one under Section 68 of the Provincial Insolvency Act. The official receiver raised a preliminary objection that the objection was time barred as it had been moved after more than 21 days from the alleged attachment by the receiver. This objection was upheld by th' court and the appellant's objection dismissed with costs. This, decision was confirmed on appeal by the Additional District Judge Meerut and the appellant has come here in second appeal.

3. Mr. Narendra Kumar for the appellant argued that the view of the courts below that the application was time barred under Section 68 of the Act is erroneous. Counsel argued that the limitation under that section applies only to an objection against an act or decision of the receiver, but not to an objection against an act or decision which manifestly is without jurisdiction. Learned counsel relied on Sub-section (6) of Section 28 which provides in effect that certain properties of the insolvent which are exempted by the Code of Civil Procedure or by any other law from attachment and sale in execution of a decree do not vest in the court or the receiver and are not divisible among the creditors. Counsel pointed out that the appellant had in his objection claimed that the properties in dispute were exempt from attachment and sale under Section 60 C.P.C. and therefore could not vest in the receiver and were not divisible among the creditors Learned counsel argued that the attachment of these properties by the receiver was an act beyond his jurisdiction, whereas Section 68 contemplates only those acts which are within his jurisdiction.

4. On the other hand Mr. Santosh Kumar who holds the brief of Mr. Anitab Banerji, as counsel for the receiver, contends that the question whether certain properties do not vest in the receiver under Section 28(2) because they are exempt under Section 28(5) must always be decided by the receiver. Counsel contended that under Section 28(2) 'the whole of the property of the insolvent shall vest in the court' and therefore it is for the person claiming exemption or exception under Sub-section (5) to prove that they are of the nature of the properties specified therein. The argument of counsel for the parties covered a wide ground and a large number of authorities were cited before me in support of their respective contention. But in my opinion this appeal can be disposed on a short point. Section 68 Provincial Insolvency Act provides.

'68. If the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the Court, and the Court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just: Provided that no application under this section shall be entertained after the expiration of twenty-one days from the date of the act or decision complained of.'

Under this section any act or decision of the receiver may be challenged by the person aggrieved by means of application to the insolvency court. But to avail of this right, that person must show that there has been some act or decision of the receiver. If there has been none the remedy under Section 68 will not lie.

But this does not mean that the Act provides for no other relief after an order of adjudication has resulted in the whole of the property of the insolvent vesting in the court or the receiver as the case may be. Section 4 of the Act provides.

'4 (1) Subject to the provisions of this Act, the Court shall have full power 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 cognizance 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.

(2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the debtors' estate and, on the other hand, all claimants against him or it and all persons claiming through or under them, or any of them

(3) Where the Court does not deem it expedient or necessary to decide any question of the nature referred to in Sub-section (1), but has reason to believe that the debtor has a saleable interest in any property, the Court may without further inquiry sell such interest in such manner and subject to such conditions as it may think fit.'

In my opinion, an insolvent who claims that certain properties belonging to him do not vest in the court of the receiver under Section 28(2) because they are of the nature of properties specified in Section 28(5) can apply to the court under Section 4 and the latter has the power to decide whether his claim is established. Learned counsel for the receiver contended that the right to move the court under Section 4 vests exclusively in the receiver and he cited a number of authorities in support of his contention. Sankari Debi v. Co-operative Urban Bank, Serajganj : AIR1942Cal584 ; Sadhu Ram v. Kishori Lal, AIR 1938 Lah 490; Saraswati v. Krishnier : AIR1964Mad501 . But in all these cases the question before the court was whether an individual creditor could move the court under Section 4 when there was a duly appointed receiver who represented the entire body of the creditors as well as the insolvent's estate The court in all these cases held in effect that an individual creditor could not, so to speak, short-circuit the receiver who represented all the creditors, but in none of them there was any question whether the insolvent was entitled to move the court for relief on the ground that a particular properly did not vest in the receiver because it was of the nature of property specified in Section 28(5).

Moreover there is nothing in the language of Section 4 which prevents an insolvent (or debtor) from moving the court for this relief. Sub-section (1) says that the court shall have full power to decide all questions whether of title or priority or of any nature whatsoever, and whether involving matters of law and fact which may arise in any case of insolvency coming within the cognizance of the court. The powers of the court have been described in the widest possible terms and it can decide questions 'of any nature', provided such questions 'arise in any case of insolvency'. A claim by a debtor that his property is not liable to attachment because of the exemption under Section 28(5) is one which arises in insolvency.

Further more, Sub-section (2) of Section 4 provides that the decision shall be final and binding on 'the debtor and debtor's estate' and also on all claimants against the debtor. Thus a distinction is made between the debtor's estate and the debtor and it is impliedly recognized that here may be a dispute between the two. The debtor's estate is of course represented by the receiver, but the debtor in his individual capacity is not. If the debtor claims that certain properties do not vest in the receiver because they are exempt under Section 28(5), the receiver may oppose this claim as representing the debtor's estate and also the creditors But in that event there will be a dispute between the debtor and the debtor's estate involving a substantial question of title which the court has power to decide under Section 4. I am supported in this view by a decision of the Bombay High Court in K. U. Kulkarni v. Ganpat Hiraji AIR 1942 Bom 191, in which it was held that the question whether the earnings of an insolvent would or would not vest in the receiver under Section 28(5) has to be decided by insolvency court

5. In my opinion the objection of the appellant, though wrongly described as 'under Section 60' and 151 C.P.C., was really under Section 28(5) read with Section 4 of the insolvency Act. It could not be under Section 60 C. P C. which does not provide for any remedy in insolvency proceeding. That section merely provides a guide or standard by which the insolvency court can decide whether any particular property does not vest in the receiver under Section 28(2) because it is exempt under Section 28(5). In other words, Section 60 may be the law applicable to a claim under Section 28(5) but provides for no remedy under the insolvency proceedings. The only remedy is under Section 28(5) read with Section 4 of the Insolvency Act.

6. Counsel for the receiver argued that theappellant's objection, on the face of it, showsthat it was one against an act committed bythe receiver. He relied on the statement ofparagraph 2 of the objection 'that after beingdeclared insolvent, the objector's property,agricultural and residential, was attachedby the receiver'. But I think this statement, as it stands, was meaningless andmade under a misconception of the insolvency law The Insolvency Act containsno provision requiring or empowering the receiver to attach the property of the insolvent.Learned counsel for the receiver, on a questionfrom me, conceded that there was no provision.Under Section 28(2). 'on the making of an orderof adjudication, the whole of the properly of theInsolvent shall vest in the court or in a receiverTherefore the moment an orderof adjudication is made the entire property ofthe insolvent automatically vests in the receiver and the question of adjudication of any property by him does not arise. The duties and thepowers of the receiver are mentioned in Section 59 which enjoins that 'the receiver shallwith all convenient speed, realise the propertyof the debtor and distribute dividends amongthe creditors.....' Thereforeafter the property has vested in him under theautomatic effect of an order of adjudication,he has to perform various acts which may include taking possession of the property and selling it and realising its value But every actdone by the receiver in the performance ofhis duties under Section 59 is a distinct act;and not an act attaching the property of the insolvent. The insolvent or any other person aggrieved may challenge such an act by applyingto the court under Section 68 of the InsolvencyAct within 21 days. But there can be no question for applying to the court against an actof attachment by the receiver for the simplereason that there can be no such act after theproperty has vested in him under Section 28(2).I am supported in this view by a judgment ofNiamattullah J. in Sardar v. Navin Chandra, : AIR1937All226 . I have in fact borrowed theactual phrases used by the learned Judge.

7. It appears to me that the objector, as well as both the courts below were under a misapprehension that the receiver had committed an act which they describe as attachment of the property of the insolvent. As I have explained, the property had automatically vested in the receiver and there could be no act of attachment, as such, by the receiver. Of course he could have proceeded to take charge of the property and perform any other act which could he challenged under Section 68, but no such act has been mentioned either in the appellant's objection or in the order of the court dismissing it as time barred. The Insolvency Court described the objection as one 'against the attachment of his properly on 8-12-59'. What happened on 8-12-69 has not been specified in the order and none of the learned counsel appearing before me was able to explain the precise nature of the so called act of attachment. Mr. R.K. Gulati, who holds the brief for the counsel of the Income Tax Department, referred to an application made by the receiver before the Insolvency Judge that he had attached certain properties of the insolvent. But this carries us no further than the statement of the objector and of the Court that his property had been attached by the receiver, and the receiver's statement merely shows that he shared the misapprehension of the law with the objector and the court.

8. Learned counsel for the receiver I hen contended that even assuming that the insolvent g application was under Section 4 of the Act, it was subject to the time limit prescribed under Section 68. Counsel relied on a decision of the Lahore High Court in Jai Kishan Dass v. Chiragh Din, AIR 1986 Lah. 60, in which it was held that even an application under Section 4 should be made within 21 days, if it is one to set aside an order of the Official Receiver. The short answer to this argument is that the limitation prescribed by Section 68 will apply to an objection against any act or order of the receiver, but not to an application under Section 4 which is not directed against any act or order of the Receiver but claims that certain properties do not vest in the Receiver under Section 28(2) because they are of the nature specified in Section 28(6). Such an application invokes the powers of the Court under Section 4 anti seeks relief from the automatic effect of the court's order of adjudication which Is to vest all the property of the insolvent in the Receiver. In the present case there was no act or order of the Receiver against which the appellant's objection was directed. It is true that it purports to be an objection against the attachment of the insolvents property by the Receiver, but as explained above, there could be no such act of attachment and this statement in the objection can he ignored

9. Lastly counsel for the Receiver contended that the application is premature because no sale has yet taken place. Counsel referred to the observation of this Court in : AIR1937All226 that 'It is open to the insolvent to apply within 21 days after the Receiver decides to sell the property which the insolvent alleges cannot be sold. That may be true. But the Court did not hold in that case that the insolvent cannot seek relief from the Court under Section 4 before the Receiver proceeds to sell the properly. I think the insolvent is entitled to avail of the remedy under Section 4 and asks for a declaration that certain properties belonging to him do not vest in the Receiver, and he need not wait till the Receiver has decided to sell them. The authentic effect of the adjudication order gives him r cause of action.

10. For these reasons I allow this appeal and set aside the orders of both the court, below and remand the case to the Insolvency Court with a direction that the appellant's objection dated 9-7-1960 should be heard as an application under Section 4 of the Insolvency Act for a declaration and direction by the Court that the properties mentioned in the objection do not vest in the Receiver and are' not liable to sale and decide it on merits. The costs of this appeal shall abide the decision of the Insolvency Court.


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