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Khurshid Ali Vs. Lachman Singh and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad
Decided On
Reported inAIR1949All660
AppellantKhurshid Ali
RespondentLachman Singh and ors.
Excerpt:
.....as passing a good title to a purchaser is concerned. the subsection lays down that in all cases sales in good faith would bind the 'receiver. 12. there may be cases in which an absolute stranger to the insolvency proceedings might purchase the property after adjudication in good faith in utter ignorance of the insolvency proceedings. 13. if sub-section (3) of section 51, insolvency act is in the nature of an exception to the general rule laid down in sub-section (1) of section 51 the provisions of section 28 will not apply to the property which had already been sold and purchased in good faith. means that, although by reason of the sale being held after the admission of the petition, the decree-holder gets no right to the proceeds, the purchaser in good faith nevertheless acquires a..........case remain unaffected by the insolvency proceedings. the subsection lays down that in all cases sales in good faith would bind the 'receiver.' the receiver is appointed after adjudication. therefore, there appears to be no reason to confine the applicability of the sub-section to sales before adjudication.12. there may be cases in which an absolute stranger to the insolvency proceedings might purchase the property after adjudication in good faith in utter ignorance of the insolvency proceedings. there may also be cases of the property of the insolvent which might never have vested in the receiver. in the present case, nasir ali khan was said to have executed a sale deed of the property in suit in favour of his wife in lieu of lower debt. that sale was not questioned before the present.....
Judgment:

Bhargava, J.

1. This is a defendant's appeal against an order of remand, dated 22nd January 1946, made by the Additional Civil Judge of Aligarh, getting aside a decree, dated 16th February 1946, passed by the Munsiff of Havali of the same district. The plaintiff-respondent, Thakur Lachhman Singh, had instituted the suit which has given rise to this appeal against Khurshed Ali, the defendant-appellant, and his sisters to recover possession over certain landed property, which admittedly belonged to Nasir Ali Khan, father of the appellant. The suit was instituted in the following circumstances:

2. The plaintiff held a simple money decree against Nasir Ali Khan. It was granted on 16th September 1924 in Suit No. 203 of 1924. The decree was put in execution and the property in dispute was attached and sold on 21st December 1932. It was purchased by the plaintiff. Nasir Ali Khan died in the meantime and his son Khurshed Ali (defendant 1) and his daughters, Mt. Jafri Begum, Saliman and Masitulnisa (defendants 2 to 4) entered into possession of the property. Consequently, the plaintiff could not obtain possession over the property and instituted the suit for recovery of possession and mesne profits.

3. The suit was contested by Khurshed Ali alone on three grounds: (1) Nasir Ali Khan having, in the year 1924, sold the property in lieu of dower debt to his wife had no saleable interest therein on the date of sale in favour of the plaintiff; (2) Nasir Ali Khan having been adjudged an insolvent on 8th November 1924, the sale in plaintiff's favour which had taken place without the leave of the insolvency Court and without impleading the receiver was invalid; and (3) the suit was barred by time and the plaintiff was not entitled to recover any mesne profits.

4. The trial Court held that the alleged sale of the property in lieu of dower debt by Nasir Ali Khan in favour of his wife was not proved. This finding was not challenged in appeal and has become final between the parties. The trial Court did not enter into the question of limitation, nor did it determine the mesne profits or the liability of the defendant to pay the same. It found that Nasir Ali Khan was adjudged an insolvent on 8th November 1924, while the sale in favour of the plaintiff took place on 21st December 1932; that the entire property of the insolvent vested in the Court or the receiver appointed under the provisions of the insolvency Act and the property was sold without the leave of the insolvency Court and that, in the circumstances, the fact that the plaintiff had no notice of the adjudication was immaterial and the auction sale did not convey any title to the plaintiff in the property. The suit was, accordingly, dismissed.

5. The lower appellate Court relying upon the provisions of Sub-section (3) of Section 51 of the Insolvency Act came to the conclusion that the plaintiff having purchased the property in good faith had acquired good title thereto against the receiver as well as the defendants irrespective of the provisions of Sub-section (2) of Section 28 of the Act. Accordingly, the decree of the trial Court was set aside and the suit was remanded for disposal after recording findings on the issues remaining undecided.

6. The learned Counsel for the appellant has contended that the plaintiff having purchased the property, after Nasir Ali Khan had been adjudged an insolvent and his property had ve3ted in the Court or the receiver, without the leave of the insolvency Court, and the provisions of Sub-section (3) of Section 51, Insolvency Act, being inapplicable to sales after adjudication, the plain-tiff did not acquire any title to the property in suit and the decision of the lower appellate Court was wrong. He relied upon a ruling of the Madras High Court reported in Bachu Mallikarjuna Rao v. Official Receiver, Kistna A.I.R. (25) 1938 Mad. 449. In that case one of the judgment-debtors had been adjudged an insolvent on 17th October 1935 and the order for the sale of his property, which had been attached earlier, was passed on 21st October 1985. On 19th November 1935, one of the creditors of the insolvent informed the executing Court of the adjudication, but the Court refused to stay the sale. On 4th December 1935, the official receiver was impleaded in the execution case and he requested the executing Court to hand over the property of the insolvent to him. The Court, however, allowed the sale to proceed and the property of the insolvent was sold. The official receiver then applied under Section 47 and Order 21, Rule 90, Civil P.C. to have the sale set aside, on the ground that the Court had no jurisdiction to sell the insolvent's property and that the holding of the sale after the adjudication amounted to a material irregularity in the conduct of the sale. The Court held that the sale was invalid on the ground that the property of the insolvent had vested in the official receiver under Section 28 (2), Insolvency Act and the Court had, therefore, no power to sell the property. The auction purchaser preferred an appeal and on his behalf 'reliance was placed upon Section 51 (3) of the Act and it was held by Burn and Mockett, JJ. that Section 51 (3) did not apply to cases of sale held after adjudication.

7. Burn J., who delivered the leading judgment in the case recognised 'the all embracing character of the words in Section 51 (3) of the Provincial Insolvency Act' and pointed out at p. 1066:

It does expressly say that a person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title against the Receiver.

8. He, however, held Section 51 (3) to be inapplicable for two reasons : (1) as Section 51 comes under the heading 'Effect of insolvency on antecedent transactions' it follows that 'S. 51 can only govern transactions prior to insolvency, i.e., prior to adjudications,' and (2)

section 51 (3) deals with purchase of the 'property of a debtor'. Now upon adjudication the property of an insolvent vests immediately in the official receiver, i.e., the property passes to the official receiver, and in so far as the judgment-debtor is concerned, there is no property of his which can be sold by the executing Court.

9. Mockett J. laid stress upon the word 'debtor' in Section 51 (3) and observed at p. 1078:

The words 'the property of a debtor' in Section 51 (3) read with the heading can only mean the property of a person which has been sold previous to adjudication, the 'transaction' being the sale. This leads to a reasonable result, namely, that all sales both before and after the presentation of a petition but before adjudication by the Court are protected so far as passing a good title to a purchaser is concerned. It would have the effect of overriding in such cases the relation back,' Section 28, Sub-section (7). To hold that Section 51 (3) applies to sales by the Court after adjudication would lead to a most anomalous position.

10. We have examined the language of the whole Section 51 and considered it in the light of the entire scheme of the Insolvency Act and, with due deference to the opinion of the learned Judges, we find no justification for limiting the application of Sub-section (3) of Section 51 of the Act to sales held before adjudication. Sub-section (1) of Section 51 provides 'restriction of rights of creditor under execution' and, in our opinion, Sub-sections (2) and (3) mention the cases in which those restrictions will not apply. Therefore, the heading may have some bearing on Sub-section (1), but certainly it does not cover the transactions referred to in Sub-sections (2) and (3). Apart from it, as pointed out in Motilal Dhannalal v. Nathu Ganpati Kalar and Ors. , where the language of a section is plain it is not necessary to have recourse to the general heading.

11. The language of Sub-section (3) of Section 51 is also indicative of its general nature. The sales which had taken place before the filing of the petition of insolvency were obviously not contemplated because they would in any case remain unaffected by the insolvency proceedings. The subsection lays down that in all cases sales in good faith would bind the 'receiver.' The receiver is appointed after adjudication. Therefore, there appears to be no reason to confine the applicability of the sub-section to sales before adjudication.

12. There may be cases in which an absolute stranger to the insolvency proceedings might purchase the property after adjudication in good faith in utter ignorance of the insolvency proceedings. There may also be cases of the property of the insolvent which might never have vested in the receiver. In the present case, Nasir Ali Khan was said to have executed a sale deed of the property in suit in favour of his wife in lieu of lower debt. That sale was not questioned before the present suit. Consequently, in the insolvency proceedings the property might not have been dealt with as the insolvent's property and it might never have vested in the receiver. The alleged sale in lieu of dower has now been found to be invalid and if the property never vested in the Court or the receiver the rights of a bona fide purchaser would not be affected. The Legislature evidently had such cases in contemplation while enacting Section 51 (3), Insolvency Act.

13. If Sub-section (3) of Section 51, Insolvency Act is in the nature of an exception to the general rule laid down in Sub-section (1) of Section 51 the provisions of Section 28 will not apply to the property which had already been sold and purchased in good faith. The case reported in Raghunath Das v. Sundar Das Khetri A.I.R. (1) 1914 P.C. 129 was decided when there was no section in the Insolvency Act then in force corresponding to Section 51 (3) of the Act now in force. Consequently, that case cannot help us in determining the point involved in this case.

14. The words 'debtor' and 'insolvent' have been so loosely used in the Insolvency Act that no inference can be drawn from the use of either of these words in any particular section, To quote one instance: In Section 48 the word used is ''debtor' while it refers to the case of a person who has already been adjudged an insolvent. Even in Section 51 if we substitute the word 'insolvent' for 'debtor' it would not affect the meaning of the section. In fact the insolvent remains a debtor even after he had been adjudged an insolvent. In the Nagpur case cited above it was pointed out that it was doubtful whether the word 'debtor' was meant to apply only to a person before he was adjudged an insolvent and that nothing turned on the distinction between 'debtor' and 'insolvent.'

15. In an earlier decision of the Madras High Court reported in Muthan Chettiar v. Venkituswami Naicken A.I.R. (23) 1936 Mad. 819 it was pointed out that Sub-section (3) of Section 51, Insolvency Act:

means that, although by reason of the sale being held after the admission of the petition, the decree-holder gets no right to the proceeds, the purchaser in good faith nevertheless acquires a good title to the property. As a matter of construction (although this point does not now arise) it would follow that, even in regard to a sale held after the date of adjudication, a bona fide purchaser would under this sub-section be protected.

16. In Dinesh Chandra Roy Choudhry v. Munshi Jahanali Biswas and Ors. : AIR1935Cal503 it was held that 'a bona fide purchaser in good faith of are insolvent's property at an execution sale held after the order of adjudication acquires a good title against the Receiver-In-insolvency, even though such purchaser may be the decree-holder himself.'

At p. 428 of the Report it was observed:.the provision contained in Section 28, Sub-section (2), Provincial Insolvency Act, is controlled by the later provision contained in Section 51, Sub-section (3) of the Act, and effectively secures the title of a purchaser of an insolvent's property at a sale in execution, in case of good faith being established on the part of the purchaser.

17. In the Nagpur case already cited, Motilal Dhannalal v. Nathu Ganpati it was held:

The purcha3er in good faith acquires a good title 'in all cases.' If this was not meant to apply to cases after adjudication it would have been easy for the Legislature to insert words indicating the distinction.... The weight of authority seems to me to be in favour of not restricting the wide language used in Section 51 (3)....

18. Lastly we may refer to a case of this Court reported in Brij Behari v. Budh Sen A.I.R. (29) 1942 ALL. 263. While dealing with the effect of the provisions of Section 51, Insolvency Act, on the rights of the receiver in whom the property had vested under Section 28, Insolvency Act, Allsop and Verma JJ. observed:

It seems to us that the only adverse effects which Section 51 has on the rights of the receiver in whom the property vests with effect from the date of the presentation of the petition are, firstly, that if any asset3 have been realised, in execution of a decree, before the date of the admission of the petition, the receiver will have no right to prevent the decree-holder from getting the benefit of those assets even if such assets are in the hands of the Court and have not been paid over to the decree-holder before the date of the admission by the Insolvency Court of the petition; and, secondly, that an auction-purchaser who can establish good faith can acquire a good title to the property against the receiver.

19. In that case the judgment-debtor had presented the insolvency petition after the attachment of the property but before its sale. The order of adjudication was passed on the same day on which the sale of the property was confirmed.

20. We are, therefore, of opinion that Clause (3) of Section 51, Insolvency Act, covers cases of sales in execution ' irrespective of the fact whether they have taken place before or after a debtor is adjudged an insolvent. The contention urged on behalf of the appellant must, therefore, be] rejected.

21. The finding recorded by the lower appellate Court that the plaintiff had purchased the property in good faith and without notice of the insolvency proceedings is supported by the facts and circumstances of the case and we uphold it. The plaintiff had, therefore, acquired good title to the property in dispute. The order passed by the lower appellate Court remanding the suit for disposal after deciding the issues of limitation and mesne profits is, therefore, correct. The appeal is, therefore, dismissed with costs.


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