1. This suit for declaration has been filed by the creditors of the insolvent, defendant No.1, purporting to be for and on behalf of all the creditors (presumably under Section 53 of the Transfer of Property Act) for a declaration that the partition decree in Suit No.680 of 1967 is a nullity an does no bind the plaintiffs as it had been obtained fraudulently and collusively with intent to defraud the creditors and defeat their claims.
2. The brief facts of the case, as disclosed on the record, are that defendant No.1, who is father of defendants 2, 3 and 4 and a son of defendant No.5, who is his mother, was carrying on business under the name and style of M/s. Dhoomimal Dharamdas. On 14th April, 1967, a petition for adjudging the present defendant as insolvent was filed in the Insolvency Court by another creditor named Chander Bal Kakkar under Section 9 of the Insolvency Act which was followed by a petition of the plaintiffs before me filed on 6th June, 1967. An interim Receiver was appointed by the Insolvency Court on 7th June, 1967 and finally by order dated 16th January, 1969 (Exhibit P.16) defendant No.1 as well as his firm have been adjudged insolvents and the Official Receiver had been appointed to take charge of the estate of the insolvent. I am informed that the appeal against the said order failed before the District Judge on 2nd June, 1969. It has been alleged by the plaintiffs that on 14th August, 1967, while the insolvency petition was pending the present defendants 2,3 and 4, who are minors as well as defendant No.5, instituted a suit (copy of the plaint Exhibit P.10) against defendant No.1 for partition of the property situated in Dhoomimal Street, Churiwalan, Delhi. The suit was filed in the Court of the subordinate Judge and was transferred to the High Court and the claim in the suit was admitted by the present defendant No.1 in his written statement (copy Exhibit P.11) and the statement on oath (Exhibit P.12) on 6th December, 1967 and on the same day a preliminary partition decree was passed by this court (Om Parkash. J) which was followed by a final decree dated 3rd April, 1968 (Exhibit P.14) by which decree the parties to the suit had been allotted one-fifth share each in the said property. The plaintiffs have brought the suit on the allegations that the said partition decree is fraudulent and collusive and has been suffered by the insolvent during the insolvency proceedings in order to defraud the creditors and since the insolvency proceedings are pending the decree does not bind the creditors and is a nullity.
3. The suit had been contested on behalf of defendant No.1 who filed a written statement as well as by defendants Nos.2 to 5 who have filed a joint written statement. Defendant No.6 is the Official Receiver of the insolvent's estate who has not filed any written statement and the proceedings against him have been ex parte under orders of this Court dated 20th May, 1969. A replication to the written statement had also been filed on behalf of the plaintiffs. During the pendency of the proceedings, the plaintiffs also obtained leave of this Court under Order 1, Rule 8 of the Code of Civil Procedure by order of Parkash Narain, J., dated 20th May, 1969 passed in I.A. 281 of 1969.
4. On 30th October, 1969, the following preliminary issues were framed:
'1. Whether the plaintiffs have locus standi to file present suit? O.P.Ps.
2. Whether the suit is not properly valued for purposes of court-fee? O.P.Ds. Nos.1 to 5.
3. Whether the suit is not maintainable without the leave of the Insolvency Court? O.P.Ds. Nos.2 to 5.
4. Whether the suit is not maintainable by virtue of the provisions of S. 34 of the Specific Relief Act? O.P.Ds. No.1 to 5.
5. Whether the plain has not been properly verified?'
The plaintiffs have led oral and documentary evidence in support of the issues while the defendants have not led any evidence. I have heard the learned counsel for the parties.
5. The fact that the plaintiffs are creditors is admitted on behalf of the contesting defendants. This is also otherwise established by the documents on the file Exhibits P.1 to P.6. the plaintiffs have further given a list of the alleged creditors of the defendants in paragraph 7 of the plain which has not been denied specifically by the defendants. There is, thereforee, no doubt that the plaintiffs are the creditors of defendant No.1 who are entitled to institute the suit.
6. The suit has been instituted under Section 53 of the Transfer of Property Act for avoiding the transfer of the property in dispute and the suit had been instituted on behalf of and for the benefit of all the creditors. The counsel for the defendants have urged that the plaint does not conform to the form prescribed in Appendix A attached with the Code of Civil Procedure and, thereforee and suit is not maintainable. I do find that the heading of the plaint does not indicate that the suit has been instituted for and on behalf of all the creditors, but in the body of the plaint, particularly in paragraph 7 towards the end, it is specifically mentioned, after giving the names of 13 creditors, that the suit is filed in a representative capacity and there are several other creditors whose names and addresses are not known to the plaintiffs and who are also creditors of defendant No.1 and are interested in the subject-matter of the suit. It has further been mentioned in paragraphs 15 and 16 that the plaintiffs claim that the decree for portion in dispute is a nullity so far as the plaintiffs and other creditors are concerned and the same does not bind them and so the plaintiffs and the creditors can recover their debts from the property in dispute. This shows that in substance the suit has been instituted under Section 53 of the Transfer of Property Act and it satisfies its requirements with regard to the locus standi of the plaintiffs. The issue is, thereforee, decided in favor of the plaintiffs.
7. No arguments have been addressed on issue No.2, the burden of which lay on the defendants. The issue is, thereforee, decided against them.
8. This is the issue which has been most strongly contested on behalf of the defendants and they have urged that in the absence of the leave, neither the suit is maintainable, nor the plaintiffs have locus standi to institute it. The counsel for the defendants have relied upon the provisions of Sections 28, 4 and 53 of the Provincial Insolvency Act, 1920 to advance the argument that on the one hand, the jurisdiction has been conferred upon the Insolvency Court, (which is the Court of exclusive jurisdiction) under Section 4 of the Act to determine all questions, whether of title or property of any nature whatsoever which may arise in any case of insolvency which the Court may deem it expedient or necessary to decide and also to a pass an order under Section 53 of the Act annulling the transfer of any property made within two years of the presentation of the insolvency petition and on the other hand Section 28 prohibits all creditors from proceeding against the property of the insolvent in respect of the debt or commencing any suit or other legal proceedings and it is also urged that the entire estate of the insolvent has, upon adjudication, vested in this Official Receiver and the remedy of the creditor is to prove his debt in the Insolvency Court and move and Receiver or the Insolvency Court for Appropriate remedy and the scheme of the Insolvency Act is to confer exclusive jurisdiction upon the Insolvency Court in all matters pertaining to the insolvent's property and ordinarily, the jurisdiction of the ordinary civil Court to entertain the said suit is barred either expressly the said suit is barred either expressly or by necessary intendment and the present suit it not maintainable.
The counsel relies on sub-section (2) of S. 28 of the Insolvency Act in support of the bar which reads as follows:--
'On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose.'
9. An analysis of the section shows that after an order of adjudication has been made, the property of the insolvent vests in the Court or in a receiver and that no creditor of the insolvent shall, during the pendency of the insolvency proceeding, have any remedy against the property of the insolvent in respect of the debt and he is also debarred from commencing any suit or legal proceeding except with the leave of the Court and on such terms as the Court may impose.
10. The plaintiffs, unfortunately, failed to apply for or obtain leave of the Insolvency court and this has complicated matter raised in this issue. The question, however, arising for determination is whether the present suit is the kind of suit which is barred by any provisions of the Insolvency Act. The object behind Section 28 of the Insolvency Act is that after the adjudication of a person as insolvent, all his assets vest in the receiver and become available for pro rata division amongst his creditors in accordance with the provisions of law and the bar of Section 28 has been created so that any section of individual creditor does not prejudice the availability of the said property in pro rata distribution to all the creditors and the Insolvency Court is enabled to exercise complete and exclusive jurisdiction over the insolvent and his estate. However, the property which has been transferred by the Insolvent, either before or after insolvency petition, prima facie raises a legal title in the transferee and unless and until the same is annulled, the said property cannot be said to belong to the insolvent and vest in the receiver. The suit under Section 53 of the Transfer of Property Act is in substance directed against the transferee of the insolvent and is intended to remove the legal hurdle created by the transfer and is calculated to bring the said property into the common hotchpotch for the benefit of the creditors. Such a suit, thereforee, does not have the effect of diminishing the insolvent's estate or prejudicially affecting the general body of creditors or the insolvency proceedings. This kind of suit is again not a direct remedy of the creditor-plaintiff for Realizing his debt and recovering the same by ignoring the insolvency proceedings or other creditors as the suit has, under the law, to be instituted on behalf of and for the benefit of all the creditors only for declaration and the plaintiff-creditors would still have to approach Insolvency Court for pro rata payment of their debts along with other creditors in accordance with the provisions of the insolvency law after the insolvency pool has been augmented by annulment of the transfer effected by the insolvent. The suit is in my opinion, not covered by the bar of Section 28 or any other provision of the Insolvency Act.
11. In my view, I am supported by a Full Bench authority of the High Court of Madras in Chidambaram v. Sellakumara, Sir 1941 Mad 903 where Chief Justice Leach, speaking for the Court observed as follows:--
'* * * * a suit under Section 53, Transfer of Property Act, is not a suit in respect of the property of the insolvent, but is a suit in respect of property which had been the property of the insolvent and which he had transferred in fraud of his creditors. Such a suit does not fall within the prohibition of the Insolvency Act. Moreover, the very definite right given by Section 53. Transfer of Property Act, to a creditor cannot be taken away without an express provision by the Legislature to this effect and there is nothing in the Presidency Towns Insolvency Act or in the Provincial Insolvency Act which can be read as taking away his right.'
In this judgment, their Lordships expressly overruled Vasudeva Kamath v. Lakshminarayana Rao, 2nd 42 Mad 684 :AIR 1919 Mad 167 and they approved their later decision in Subramaniam v. Narasimham Air 1929 Mad 323. I am in respectful agreement with the aforesaid views of the Full Bench of the High Court of Madras. The same judgment had been followed by a Division Bench of the same High Court in Thiruvengada Mudaliar v. T.Narayana Reddiar : AIR1959Mad141 .
12. The learned counsel for the defendants has strongly relied upon Vasudeva Kamath v. Lakshminarayana Rao, 2nd 42 Mad 684 : AIR 1919 Mad 167: Sarju Prasad Bhagwati Prasad v. Rajendra Prasad, 2nd 1936 All 344 and Ganpatrao Ramji Patil v. Jehangir Navroji Air 1938 Bom 469, in support of his contentions that the suit is not maintainable without the leave of the Court. I have gone through the said authorities. I am with respect unable to agree with the reasonable adopted in Vasudeva Kamath's case which had expressly been overruled in the later Full Bench authority in Chidambaram's case. Air 1941 Mad 903 and for the same reason I am unable to follow the authorities of the High Court of Bombay in Ganpatrao Ramji Patil's case and of the Allahabd High Court in Sarju Prasad Bhagwati Prasad's case, which in substance follow Vasudeva Kamath's case.
13. As a result, I hold that the suit is maintainable as framed. The Official Receiver has been made a defendant in the suit and it would have been appropriate for the plaintiffs to apply for and obtain leave of the Insolvency court of institute the suit, but no such objection has been raised on behalf of the Receiver, defendant No.6, who has not filed any written statement. In the suit also, no allegations have been made against the Receiver, nor has any remedy been sought in respect of the estate of the insolvent vesting in the receiver. The matter, thereforee, does not proceed beyond the stage of propriety of obtaining leave of the Insolvency Court in instituting the present suit and I am unable to find any legal bar against its maintainability. The issue is, thereforee, decided against the defendants.
14. The suit which has been instituted under Section 53 of the Transfer of Property Act is really for a declaration claimed on behalf of all the creditors of defendant No.1 that the transfer in dispute does not bind them. There is no further relief which the plaintiffs can in law be required to claim in the suit. The proviso to Section 34 of the Specific Relief Act, thereforee, does not bar the present suit. The authority of the High Court of Madras in Nagaportharow v. Subbarow, Air 1942 Mad 360 also deals with this question and has laid down that such a suit is not barred on the ground of omission to claim any further relief. The issue is, thereforee, decided against the defendants.
15. This issue has not been seriously contested. Even otherwise, I do not find any fault with the verification of the plain. The issue is, thereforee, decided against the defendants.
16. The preliminary issues have been disposed of by this order. The suit will now be placed for further proceedings before the learned Judge trying original suits on 27-8-1971. The costs of these issues will abide by the result of the suit.
17. Order accordingly.