(1) This second appeal from an order arises out of an insolvency proceeding. The facts are these: Five persons, namely Amar Singh, Sughra, Atru, Kalia and Chetu, jointly sold the property in dispute for Rs. 1,000/- by a registered deed, dated 5th May 1953, in favour of Telu and Kehar Singh appellants. On 14th June 1954, Lachhman Singh and Hari Singh, the creditors, presented a petition of insolvency against Amar Singh and others, the vendors, alleging that the sale was fraudulent and effected with a view to defeat or delay the claims of the creditors and hence it amounted to an Act of insolvency. The application was dismissed in the first instance, but it was accepted by the District Judge on appeal.
Amar Singh and others were declared insolvents. The main dispute in the application was as regards the nature of the property sold. The District Judge found the property to be a vacant site and upset the decision of the Insolvency Judge that it was a house and hence immune from attachment and sale. A revision petition presented by the insolvents was dismissed by this Court on 20th October 1954.
(2) Thereafter, the receiver presented an application under section 53 of the Provincial Insolvency Act for annulment of the sale dated 5th May 1953 in favour of Telu and Kehar Singh appellants. The vendees resisted the application asserting that the property sold was a residential house and being immune from attachment and sale it did not vest in the receiver and also that they were bona fide purchasers for consideration. One of the issues raised was--
'Whether the alienation in dispute was made in order to defeat or delay the creditors or to give undue preference to the vendees.'
The Insolvency Judge decided this issue against the receiver and also held that the property sold was the only residential house of the insolvents and therefore, under the law, it did not vest in the receiver. The application was consequently dismissed. The receiver went in appeal to the District Judge. The learned District Judge acting upon the dictum laid down by their Lordships of the Privy Council in Mahomed Siddique Yousuf v. Official Assignee of Calcutta, AIR 1943 P. C. 130, held that the decision of the District Judge in the insolvency application declaring the sale to be fraudulent and amounting to an Act of insolvency was a judgment in rem and therefore binding on the vendees, even though they were not parties to those proceedings. The District Judge, without going into the merits, accepted the appeal and annulled the sale. It is against this order of the District Judge that the present appeal is preferred.
(3) On behalf of the appellants, it is contended that the Privy Council decision referred to above was given in a case under the Presidency-Towns Insolvency Act, the provisions of which are widely different from those of the Provincial Insolvency Act, and therefore the observations made therein would not be applicable to the facts of the present case. The contention, in my view, has much force and has to be accepted. The Principles laid down in Ex parte Learoyd; In re, Foulds (1878) 10 Ch. D. 3, a case decided under the Bankruptcy Act of England, were applied to a case under the Presidency-Towns Insolvency Act by their Lordships of the Privy Council in Mohamed Siddique's case AIR 1943 P. C. 130, because the relevant provisions of the two acts were found to be almost similar. The same, however, cannot be said with respect to the provisions contained in the Provincial Insolvency Act.
Under the Presidency-Towns Insolvency Act, the insolvency of the debtor shall be deemed to have relation back to and commences from the time of the commission of the Act of insolvency on which the order of adjudication is made against him. The effect of it is that the property of the insolvent vests in the receiver from the time of the commission of the Act of insolvency and the alienation's effected by the insolvent thereafter are void under the law. Section 28(7) of the Provincial Insolvency Act says:
'An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition on which it is made.'
The property of the insolvent vests in the receiver and becomes divisible among the creditors under this Act from the date of the presentation of the application.
(4) Again section 55 of the Presidency-Towns Insolvency Act lays down--
'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 within two years after the date of the transfer, be void against the official assignee.'
As against this, section 53 of the Provincial Insolvency Act provides--
'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.'
The sale in the one case is deemed to be ipso facto void, while in the other it is only voidable and requires to be annulled by an order of the Court.
(5) The matter has now been fully discussed and determined in two Full Bench decisions in India. In Official Receiver Guntur v. Gopalakrishniah AIR 1945 Mad. 66(F.B.), it was held that the Privy Council decision in AIR 1943 P. C. 130, which follows (1878) 10 Ch. D.3, applies to orders of adjudication under the Presidency Towns Insolvency Act alone and cannot be applied to orders of adjudication under the Provincial Insolvency Act, for the relevant provisions of the two acts are different. In D. G. Sahasrabudhe v. Kilachand Deochand and Co. AIR 1947 Nag. 161 the question referred to the Full Bench was--
'When an Act of insolvency which forms the basis of the order of adjudication consists of a certain transfer, can the transferee question the correctness of that order in the subsequent proceedings for annulment and contend that the transfer is good, when he was not a party to the adjudication proceedings?' By a majority decision (Bose J. dissenting) the question was answered in the affirmative and it was held that a transferee, Who was not a party to the adjudication proceedings, can contend in subsequent proceedings for annulment that his transfer was good notwithstanding that the order of adjudication was based on the alleged transfer as being an Act of insolvency.
(6) Mr. Atma Ram, learned counsel for the respondents, relies upon a Single Bench decision of the Allahabad High Court in Sheo Raj Bahadur Mathur v. Abdul Aziz, AIR 1956 All. 68, in which an opposite view was taken and the principle laid down by the Privy Council was applied to a case under the Provincial Insolvency Act. In the concluding portion of his judgment the learned Judge observes--
'I may here point out that although the decision of the Privy Council was given in a case that arose under the Presidency-Towns Insolvency Act, because even then the decision is equally applicable to a case arising under the Provincial Insolvency Act because the provisions of the Provincial Insolvency Act are similar to the provisions of the Presidency-Towns Insolvency Act.'
The significant difference in the relevant provisions of the two acts does not appear to have been pointed out to and discussed before the learned Judge, nor was his attention drawn to the two Full Bench decisions referred to above. With great respect, I do not find myself in agreement with the view expressed by him.
(7) In the result, the appeal is accepted, the order of the District Judge dated 18th May 1956 set aside and the case remitted to him for decision of the appeal in accordance with law. The parties, through their counsel are directed to appear in the Court of District Judge, Sangrur, on the 10th January, 1958. Costs shall follow the final result.
(8) Appeal allowed.