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Hamid Khan Vs. Official Receiver - Court Judgment

LegalCrystal Citation
SubjectProperty;Civil
CourtAllahabad High Court
Decided On
Case NumberCivil Revn. No. 611 of 1972
Judge
Reported inAIR1980All131
ActsProvincial Insolvency Act, 1920 - Sections 68, 75 and 75(1)
AppellantHamid Khan
RespondentOfficial Receiver
DispositionRevision allowed
Excerpt:
.....in the event of an adverse decision by the court on such an objection the insolvent does have a right of appeal to the district court under section 75(1) of the act and on his failure to obtain relief invoke the re-visional jurisdicton of this court under the proviso to that provision. official assignee (ante) which had placed strong reliance on the decision of this court in sakhawat all's case. in an elaborate and well reasoned judgment, the contention that on an adjudication, the property of the insolvent vests in the receiver and he ceases to have any interest, legal or equitable, therein, and had, therefore, no concern with the manner in which the property is managed, sold or realised or the proceeds thereof distributed by the receiver was repelled, it was urged before the learned..........to a district court but that makes no difference to the opinion expressed by us regarding the right ofappeal by an insolvent. according to section 2(b) 'debtor' includes a judgment-debtor'. this definition is comprehensive enough to embrace a debtor who has been adjudged an insolvent. by the mere fact of having been adjudged an insolvent a debtor does not cease to be one. this approach is strengthened by the language employed in section 69 which provides for offences by debtors 'whether before or after the making of an order of adjudication.....' thus section 75(1) authorisesan appeal against an adverse decision by the court at the instance of a debtor whether already adjudged an insolvent or not and so if on an application under section 68 of the act an insolvent fails to obtain.....
Judgment:

Yashoda Nandan, J.

1. The applicants were adjudged insolvents under the provisions of the Provincial Insolvency Act, 1920 (hereinafter referred to as the Act). The Official Receiver was appointed as receiver for the property of the applicants-insolvents. Their property, inter alia, consisted of certain Bhumidhari plots. On 24th October, 1971 the receiver (opposite party No. 1) held a public auction for sale of 12 1/2 bighas of Bhumidhari land that had vested in him as a result of his appointment as such. Counsel for none of the parties claimed that the land in question had been put to auction sale as a consequence of any order previously obtained from the court. The insolvents applied to the court for staying confirmation of the sale on the allegations, inter alia, that the market price of the property sold was more than Rs. 50,000/- but the receiver acting quite illegally and in collusion with the purchaser was selling it for the grossly inadequate amount of Rs. 21,000/- only. The court held that since the applicants had already been declared insolvents and the properety in dispute was in the custody of the re-ceiver, they had no locus standi to get confirmation of sale stayed. In this view of the matter the Court vacated the ex parte interim order that had earlier been passed by it and confirmed the sale. Against the order of the Insolvency Court, the insolvents preferred an appeal purporting to be under Section 75 of the Act. The learned District Judge held that 'it is well settled law that the Official Receiver appointed under Section 56 is the person on whom have devolved, by virtue of the appointment, the sum total of the rights and liabilities of the insolvent. From that moment it is he and not the insolvent that represents the estate. He is the legal owner of the property having power to sell it. On the basis of this well settled proposition of law it could be only the Official Receiver who could have filed an appeal for the insolvents, if he felt that any injustice was being done to the insolvents, but the insolvents could not have any locus standi to have done so.' The appeal was considered to be misconceived and was summarilyrejected. The view taken by the learned District Judge was in consonance with the Division Bench decision of this Court in Sakhawat Ali v. Radha Mohan (AIR 1919 All 284).

2. The insolvents preferred the instant revision in this Court and when it came up for hearing before one of us (Hon'ble the Chief Justice) reliance was placed before him by learned counsel for the applicants on the Full Bench decision of the Madras High Court in C. Narsimham v. Ramayya : AIR1950Mad492 in which, after considering the decision of this Court in Sakhawat Ali's case and various other cases of other Courts as well as one of its own earlier Full Bench decision, a contrary view was taken. It was also contended that a learned single Judge of this Court in Dwarika Prasad v. Damodar Swarup : AIR1967All520 had taken a view which is at variance with the aforesaid Division Bench decision of this Court. In the opinion of the learned Chief Justice the decision rendered in Sakhawat Ali's case needed reconsideration and accordingly this case was referred to a Full Bench and that is how it happens to be before us.

3. The basic question which needs consideration is as to whether after a receiver has been appointed of the property of the insolvents and it has come to vest in him, an objection against an act of the receiver is maintainable at the instance of the insolvents under Section 68 of the Act and if so whether on allegations such as those on which the applicants challenged the auction sale held by the receiver. The further question is as to whether if such an objection is maintainable before the Court under Section 68 of the Act at the instance of the insolvents, they have a right to carry the matter in appeal before the District Court under Section 75(1) of the Act and thereafter in, revision to this Court under the proviso to that provision. Strong reliance was placed before the learned Chief Justice as well as before us by the learned counsel for the opposite parties on Sakhawat Ali's case wherein it was held that,

'As a matter of law, during the administration of an insolvent's estate, an insolvent has no legal interest in the property vested in the trustee, and no locus standi in the administration of the estate. Section 22, Provincial Insolvency Act, enables the insolvents to make an application to the insolvency Court against any act or decision of the receiver, 'if he is aggrieved' by such act or decision. Hecannot be aggrieved in the legal sense of the word in the sale of property in which he has no interest.'

It may be noted here that Section 22 of the Provincial Insolvency Act, 1907 (hereinafter referred to as the 1907 Act) which fell for consideration in Sakhawat Ali's case is in terms identical with Section 68 of the Act. For the conclusions arrived at by them, the learned Judges who decided Sakhawat Ali's case placed reliance on the observations contained in the decisions Ex parte Sheffield, In re Austin (1879) 10 Ch. D. 434 and In Re Leadbitter (1878) 10 Ch. D. 388. It was held that the insolvents in the case before this Court were not 'persons aggrieved' within the meaning of Sections 22 and 46 of the 1907 Act.

4. On a person being adjudged insolvent, the court has power under Section 56(1) of the Act to appoint a receiver for the property of the insolvent and such property thereupon vests in such receiver. The question is as to whether as a consequence of the property vesting in the receiver in terms of Section 56 of the Act the insolvent himself ceases to have any legal interest in the property. The word 'vest' has nuances resting on the context in which it occurs in the statute under consideration. This proposition is no longer open to question in view of the decision of the Supreme Court in The Fruits & Vegetable Merchants Union v. Delhi Improvement Trust : [1957]1SCR1 wherein it was held that,

'The word 'vest' has not got a fixed connotation, meaning in all cases that the property is owned by the person or the authority in whom it vests. It may vest in title, or it may vest in possession, or it may vest in a limited sense, as indicated in the context in which it may have been used in a particular piece of legislation.'

In the same decision it was held:

'that the word 'vest' is a word of variable import is shown by provisions of Indian statutes also. For example, Section 56 of the Provincial Insolvency Act (5 of 1920) empowers the Court at the time of the making of the order of adjudication or thereafter to appoint a receiver for the property of the insolvent and further provides that 'such property shall thereupon vest in such receiver.' The property vests in the receiver for the purpose of administering the estate of the insolvent for the payment of his debts after realising his assets. The property of the insolvent vests in the receiver not for all purposes but only for the purpose ofthe Insolvency Act and the receiver has no interest of his own in the property.'

5. In Maharaj Singh v. State of Uttar Pradesh : [1977]1SCR1072 the question arose as to whether the State Government in whom, by virtue of Section 4 of the U. P. Zamindari Abolition and Land Reforms Act, 1950, the right, title and interest of all intermediaries in every estate, including hats, bazars and melas had come to vest could be considered to be a 'person aggrieved' within the meaning of Section 96 of the Code of Civil Procedure, 1908, in respect of such properties as had subsequently vested in the Gaon Sabha by virtue of a notification under Section 117 (1) of U. P. Act No. 1 of 1951 and was consequently competent to carry on appeal against the dismissal of a suit filed by the Gaon Sabha. On a construction of the various provisions of U. P. Act No. 1 of 1951, the Supreme Court, upholding the judgment of this Court in State of U. P. v. Smt. Ram Sri : AIR1976All121 held that,

'.....'Vesting' is a word of slipperyimport and has many meanings. The context controls the text and the purpose and scheme project the particular semantic shade or nuance of meaning. That is why even definition clauses allow themselves to be modified by contextual compulsions. So the sense of the situation suggests that in Section 117 (1) of the Act 'vested in the State' carries a plenary connotation, while 'shall vest in the Gaon Sabha' imports a qualified disposition confined to the right to full possession and enjoyment so long as it lasts.'

It is pertinent to note that in various provisions of the Act even though a receiver may have been appointed for the property of the insolvent, such property which thus comes to vest in him is described as that of the insolvent (See Sections 28, 37, 56, 59, 60 and 61 of the Act). Under the circumstances and in view of the Supreme Court decision in The Fruit & Vegetable Merchants Union's case (supra), in our opinion even after a receiver has been appointed of the property of an insolvent during proceedings under the act and it has consequently come to vest in him the insolvent is not divested of all legal interest in such property and situations are conceivable in which the insolvent can have a legal grievance against the acts of the receiver taken in respect of such property. The two decisions of the Supreme Court noted above destroy the very basis of the reasoning on which the judgment in Sakhawat Ali's case was founded.

6. Section 68 of the Act is in the following terms:--

'68. Appeal to Court against Receiver--If the insolvent or any of the creditors or any 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 .....'

This section in terms authorises an insolvent to move the court if he is aggrieved by any act or decision of the receiver. This provision itself consequently envisages that there may be situations when in respect of property which has vested in the receiver in only a qualified sense the insolvent may have a legal grievance against an act of his and move the court to ventilate such grievance under Section 68. Where the property of an insolvent which has come to vest in the receiver is alleged by the insolvent to have been sold for an unconscionable price by him in collusion with the purchaser as was the basis of the application made by the insolvent in the instant case, it is in our opinion impossible to hold that he has no legal grievance against such an act of the receiver. Under Section 67 of the Act the insolvent is entitled to any surplus remaining after payment in 'full of his creditors with interest as provided by this Act and of the expenses of the proceedings taken thereunder.' It thus appears axiomatic to us that if by an illegitimate action the receiver diminishes or destroys such reasonable surplus during the course of administration of the property that has vested in him for a limited purpose, the insolvent can have a legal grievance and has a right to seek redress from the Court under Section 68 of the Act against such act of his. We are further of the opinion that in the event of an adverse decision by the Court on such an objection the insolvent does have a right of appeal to the District Court under Section 75(1) of the Act and on his failure to obtain relief invoke the re-visional jurisdicton of this Court under the proviso to that provision. It is true that while Section 68 gives a right to apply to the Court to the insolvent aggrieved by any act or decision of the receiver, Section 75(1) does not use the word 'insolvent' but gives a right of appeal inter alia to the 'debtor' aggrieved by a decision come to or an order made in the ex-ercise of insolvency jurisdiction by a Court subordinate to a District Court but that makes no difference to the opinion expressed by us regarding the right ofappeal by an insolvent. According to Section 2(b) 'debtor' includes a judgment-debtor'. This definition is comprehensive enough to embrace a debtor who has been adjudged an insolvent. By the mere fact of having been adjudged an insolvent a debtor does not cease to be one. This approach is strengthened by the language employed in Section 69 which provides for offences by debtors 'whether before or after the making of an order of adjudication.....' Thus Section 75(1) authorisesan appeal against an adverse decision by the Court at the instance of a debtor whether already adjudged an insolvent or not and so if on an application under Section 68 of the Act an insolvent fails to obtain relief he has a right, in our opinion, to appeal against the decision of the Court under Section 75(1) and if he is still aggrieved by the order of the District Court to invoke the revisional jurisdiction of this Court. The decision of this Court in Sakhawat Ali's case was rendered under Section 46 of the 1907 Act but it has been followed in interpreting the scope of Sections 68 and 75 of the Act in various subsequent decisions by courts including a Full Bench of the Madras High Court consisting of three Judges in Harirao v. Official Assignee : AIR1926Mad556 . A Division Bench of this Court in Kripa Nath v, Ganga Prasad : AIR1962All256 observed that,

'The word 'vesting' has not been defined in the Provincial Insolvency Act. But the effect of vesting has been the subject-matter of judicial consideration. In all the cases which have been brought to our notice on this point it has been held consistently that vesting of a property in the Court or the receiver not only gives the Court or the receiver the right to take possession of the property and deal with it in a certain manner but amounts to a legal transfer of the right, title and interest of the insolvent in the Court or the receiver as the case may be and as a result of the vesting, the property for the purposes of the Insolvency Court becomes the property of the Court or the receiver and ceases to be the property of the insolvent.'

These observations, as already held do not correctly state the law in view of the decisions of the Supreme Court cited by us in an earlier part of this judgment.

7. The scope of Sections 68 and 75 of the Act came up for consideration before a Pull Bench of five Judges of the Madras High Court presided over by Raja-mannar, C. J. in C. Narsimhan's case (supra). The occasion for this Full Benchdecision arose because of reference made for reconsideration of the Full Bench decision of the same Court in Harirao v. Official Assignee (ante) which had placed strong reliance on the decision of this Court in Sakhawat All's case. The question for consideration before the Full Bench mentioned above related to the right of a debtor, adjudicated an insolvent, to prefer an appeal to that Court from an order of the District Court, passed in the exercise of its insolvency jurisdiction. In an elaborate and well reasoned judgment, the contention that on an adjudication, the property of the insolvent vests in the receiver and he ceases to have any interest, legal or equitable, therein, and had, therefore, no concern with the manner in which the property is managed, sold or realised or the proceeds thereof distributed by the receiver was repelled, It was urged before the learned Judges of the Madras High Court in the abovementioned case that,

'The same disability which stands in the way of an application to the Court under Section 68 also bars an appeal by the insolvent under Section 75 of the Act. The insolvent having no legal rights, can have no legal grievances and cannot, therefore, be deemed to be a , person aggrieved within the meaning of Sections 68 and 75 of the Act.'

Vishwanatha Sastri, J. rendering the opinion of the Court examined and analysed in detail the observations of the English decisions relied upon by this Court in Sakhawat Ali's case and held that,

'There is no warrant in the decisions of the English Courts for the extreme position taken by the respondent that the insolvent has no right whatever to complain to the Court about the mal-administration or misfeasance of the receiver and that he is reduced to the position of an impotent spectator of the administration of his estate.'

In this case the Madras High Court overruled its earlier Full Bench decision in Harirao v. Official Assignee (supra) and disapproved the judgment of the Bombay High Court in Sidram v. Mahallaya (AIR 1941 Bom 415) and various other High Courts which had followed Sakhawat Ali's case. Though Sakhawat Ali's case was not noticed in it a learned single Judge of this Court in Dwarika Prasad v. Damodar Swarup : AIR1967All520 took a contrary view. In Ahmad Mohammad Paruk v. Mohan Gopal Jew (1940) 44 Cal WN 665 also a contrary view prevailed. Similarly the Lahore High Court inKunda Singh v. Official Receiver (AIR 1939 Lah 499), Tekchand, J. held that an insolvent had a right to apply to the Court under Section 68 of the Act to set aside the sale effected by the receiver. After considering the scope of Sections 68 and 75 of the Act, the opinion was expressed in C. Narsimhan's case that,

'In view of the explicit and all embracing language of Sections 68 and 75 of Act V (5) of 1920 it cannot be maintained that the insolvent can never apply to the Court under Section 68 questioning the acts of the Official Receiver or appeal under Section 75 from an adverse order of the Court passed on such application .....The argumentum ab inconvenientiwhich loomed large in English decisions does not justify us in departing from the plain language of Sections 68 and 75. Further, the decisions of the English Courts do not speak with one voice, nor do they proceed on the same line of reasoning. Where the law as expounded by the English Court is left in a state of doubt, with varying statements by different learned Judges, it is open to us to choose that opinion or that line of reasoning which is in consonance with logic and the language of our own enactments.'

The Full Bench went on to hold that,

'If there is a flagrant case of sale by the receiver for a gross under-value if a sale or lease is granted secretly and without public notice for a wholly inadequate price or rental or if a sale or lease is granted in favour of a benamidar or a person in whom the receiver is personally interested without disclosing that fact to the Court, if property on which there is no subsisting encumbrance is sold for an undervalue as if it were subject to prior encumbrances, if there is a concealment of material facts or, a misrepresentation of such facts so as to prevent purchasers from having a fair idea of the real value of the property sold, if the property sold is so incorrectly described as to mislead purchasers into thinking that its value is negligible when in fact it is valuable, in cases like these, the insolvent is an 'aggrieved person' and would, in our opinion, have a remedy by way of an application to the Court under Section 68 and an appeal under Section 75, Provincial Insolvency Act. In such cases the Insolvent's rights to the surplus estate or the proceeds of the estate after paying off the debts and to obtain an annulment of the adjudication or an absolute discharge under Sections 41 and 42 of Act V (5) of 1920 by payment of eight annas in the rupee, is prejudiced and theinsolvent is an 'aggrieved person' '

We are in complete agreement with the line of reasoning adopted in C. Nar-simhan's case and the conclusions arrived at there in regard to the scope of Sections 68 and 75 of the Act. We, hold, with due respects to the learned Judges who decided Sakhawat Ali's case, that it does not lay down the correct law.

8. In the instant case, the insolvents had challenged the sale effected by the Official Receiver on the allegations that the property had been sold for an unconscionable and inadequate price in collusion with the purchaser. On an allegation such as this, the applicants were evidently persons legally aggrieved against the act of the receiver. Under Section 68(1)(a) of the Act, a receiver appointed by the Court is empowered to sell all or any part of the property of the insolvent, The auction sale of the Bhumi-dhari property of the applicants consequently clearly was an act of the receiver within the meaning of Section 68 of the Act.

9. For the reasons given above, in our opinion the learned District Judge as well as the Insolvency Court wrongly declin-to exercise jurisdiction vested in them by rejecting the application and the appeal of the insolvents made under Sections 68 and 75 of the Act.

10. We consequently allow this revision, set aside the orders of the courts below and direct the Insolvency Court to decide the application of the applicants challenging the auction sale effected by the receiver in accordance with law and the observations contained in this judgment. In the circumstances of the case, we direct that the parties shall bear their own costs.


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