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Patel Jeshbhai Revendas and anr. Vs. Patel Narisnbhai - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtGujarat High Court
Decided On
Case NumberAppeal No. 839 of 1960
Judge
Reported inAIR1968Guj101; (1968)9GLR579
ActsProvincial Insolvency Act, 1920 - Sections 28(2), 41, 44 and 67
AppellantPatel Jeshbhai Revendas and anr.
RespondentPatel Narisnbhai
Appellant Advocate B.K. Amin and; D.P. Vyas, Advs.
Respondent Advocate S.G. Shah, Adv.
Cases ReferredRamchandra Narayan Dater v. Nipunge
Excerpt:
civil - insolvency proceedings - sections 28 (2), 41, 44 and 67 of provincial insolvency act - after order of adjudication in insolvency proceedings whole property of insolvent vests in receiver as per section 28 (2) - in case of property situate in foreign state such vesting not recognised unless valid transfer deed in receiver's favour executed in accordance with law of that land - no such transfer effected - right in property undisposed in insolvency proceedings - right of insolvent in such property remains uneffected - after order of discharge court ceases to have power over such property - transfer of right in such property by insolvent valid. - - the rule of private international law is clearly laid down in galbraith v. now there arised no difficulty so far in saying that the.....(1) the suit from which this second appeal arises was instituted by the plaintiffs-appellants in the court of the civil judge (j.d.) at anand for recovering possession of the suit filled bearing survey no. 1937/1 admeasuring 1 acre and 158/4 gunthas situated in the sim of sarasa after redeeming the same on payment of the amount due under the mortgage deed dated 1st november 1925 passed in favour of the defendant by one parshottam and for costs of the suit together with mense profits. ** ** **(5) before we actually consider the points raised before this court, it is essential to set out certain other and undisputed facts in this case. parshottam raghnath held certain properties in the then state of baroda and had also a portion of land admeasuring 1 acre and 151/4 gunthas said to be a part.....
Judgment:

(1) The suit from which this second appeal arises was instituted by the plaintiffs-appellants in the Court of the Civil Judge (J.D.) at Anand for recovering possession of the suit filled bearing survey No. 1937/1 admeasuring 1 acre and 158/4 gunthas situated in the sim of Sarasa after redeeming the same on payment of the amount due under the mortgage deed dated 1st November 1925 passed in favour of the defendant by one Parshottam and for costs of the suit together with mense profits.

** ** **

(5) Before we actually consider the points raised before this Court, it is essential to set out certain other and undisputed facts in this case. Parshottam Raghnath held certain properties in the then State of Baroda and had also a portion of land admeasuring 1 acre and 151/4 gunthas said to be a part of S. No. 1937 situated in the limits of the town of Sarsa in the then British Territory he was a resident of Baroda. Since he was unable to pay his debt, he had filed Insolvency Application No. 1/33-34 in the District Court of Baroda under the provisions of the Law of Insolvency prevailing in the then State of Baroda. He was adjudicated an insolvent by the Court and one Mr. R. A. Chiplunkar was appointed a receiver. The receiver had thereupon administered the estate of insolvent. The amount realised by sale of properties, etc same to Rs. 1969-12-0 as against the total amount of the creditors of Rs. 3551-14-6. After deducting the expenses the creditors got 46% of their claims before the Insolvency Court. While dealing with the properties of the insolvent, the receiver tried to take certain steps for realising the amount out of the property comprised in the present suit which was situated at Sarsa within the British Territory. It further appears that some of the creditors had presented even an application Ex. 51 for having the right of the equity of redemption of the insolvent in the Sarsa property being sold and the amount, if realised be taken for the distribution to the creditors . that application does not appear to have been prosecuted any further and the Court passed an order saying that nothing is required to be done in that respect. That order is dated 25-6-36. Then we find from Ex. 52 the report of the receiver that the attempts were made by him for disposing of the property or equity of redemption of he insolvent in respect of that property, but no one was able to offer any amount more than the mortgage amount due on that property to the defendant. He also felt that any expenditure incurred on obtaining the transfer deed in respect of that property from the insolvent would be an unnecessary burden on the plaintiffs themselves as no advantage is likely to accrue out of that right of the insolvent in that property. N those grounds he solicited the orders of the Court and in that respect the learned Judge by his order dated 22-8-36 said that nothing is necessary to be done in respect of that Sarsa (sic) upon the final dividend was awarded to the creditors on the basis of the amount realised and at last as per the report Ex. 53 the insolvency proceedings appear to have come to an end. Before that, the insolvent was given an absolute discharge under the provisions of the Baroda Insolvency Act. In fact even the defendant in his evidence at ex. 49 has admitted that the property was then worth Rs. 500 to Rs. 600 and none was out to offer or give more than his mortgage amount or give more than his mortgage amount. In other words, the right of the insolvent in this property was not considered to be of any benefit to the creditors and since it was not likely to fetch any amount more than the amount that was required to be paid to the mortgagee in respect of that property, that was left off by the receiver and that too under the orders of the Court. It is the right of the equity of redemption in this property that the insolvent had chosen to transfer by a deed ex. 46 dated 23rd July 1941 to one Bhikhabhai Zaverhhai for a sum of Rs. 1500. That such a right of equity of redemption as it is called, in the property is transferable and such a right passes on to the transferable and such a right passes on to the transferee is not in dispute. That Bhikhabhai then sold his right or interest in that property to the plaintiffs for a sum of Rs. 1900 under a deed Ex. 47 dated 8th March 1943. It is that way that the plaintiffs have filed the present suit for redemption of that property which was mortgaged with the defendant by the original owner, namely, parshottam Raghnath. It was mortgaged by him with the defendant as per Ex. 24 for a sum of Rs. 700 on 1-11-1925. The point that arises to be considered would be as to the effect arising out of those insolvency proceedings taken out by Parshottam himself in the Baroda Court vis-a-vis the property in suit which was situated then in a foreign territory such as Sarsa in British India.

(6) The points raised by Mr. Amin, the learned advocate for the appellants are as to whether the suit property which was situated in the foreign State vested in the insolvency Court or its receiver appointed in the case in the insolvency petition filed by Parshottam Raghnath in the Court of Baroda. According to him, much though the property of the insolvent vests in the receiver no sooner an order of adjudication is passed against him, in so far as the property in suit was outside the territory of the then State of Baroda, it could not be affected in any manner and that, therefore, at any rate, after Parshottam was discharged as an insolvent, he became entitled to get the right of equity of redemption in the said property in any manner as he chose and that way the right in that property has validly come in to the plaintiffs. He further contended that even if the properly can be said to have vested in the receiver, the receiver gets no right over the property unless it was transferred to him by the insolvent by executing an authority of transfer as is required in accordance with the law prevailing in British India where the property was situated. Since no such document was obtained by the receiver till he came to be discharged by the Court in the insolvency proceedings and that, therefore, a any rate, after his discharge he was entitled to deal with the property in any manner he chose.

(7) The next point raised by him was that by reason of the order of discharge passed under the Baroda insolvency Law, he became free from all debts and since this property was obviously abandoned not only by the creditors of the Court and since the administration even of the insolvent's property had come to an end with the termination of the insolvency proceedings after due distribution of the debts to the creditors after the income realised from the property of the insolvent, this undisposed of property automatically reverted in the insolvent himself, and that being so, he was entitled to transfer his right or interest in the property in favour of Bhikhabhal Zaverbhai who in turn was entitled to transfer his interest in favour of the plaintiffs.

(8) The counter arguments advanced by Mr. Shah in respect of the points referred to above shall be considered hereafter while dealing with the points in the order in which they have been set out. It may, however, be mentioned that the learned advocates appearing for the parties in this Court concede that the provisions of the Baroda insolvency Law are exactly similar as we have in the Provincial insolvency Act with no doubt the difference in the number of sections in the respective Acts. I shall, therefore, for the sake of convenience refer to the provisions of the Provincial Insolvency Act. It is also a common ground that the State of Baroda was an independent foreign State where the insolvent resided and had filed Insolvency Application No, 1/33-34. The suit property, however, was situated in the British territory vis. At Sarsa in the District of Kaira in the then Province of Bombay.

(9) In the insolvency proceedings the Court had passed an order of adjudication and a receiver was also appointed for the administration of his estate. The effect of this order of adjudication as contemplated in section 28(2) of the Provincial Insolvency Act. hereinafter to be referred to as 'the Act') was that 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 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 or receiver, and the provisions of sub-section (2) shall apply in respect thereof, and sub-section (7) then says that an order of adjudication shall relate back to, and take effect from the date of presentation of the petition on which it is made. It is, therefore, clear that as soon as the adjudication order is passed by the Court, the whole of the property of the insolvent would vest in the Court or in a receiver appointed by the Court and that would be with effect from the date of the application made in those proceedings. Any other property, if acquired by the insolvent after the date of an order of adjudication and before his discharge similarly would vest in the Court or the receiver. Then such a property would become divisible amongst the creditors of that insolvent. That would have to be done by the Court or the receiver as provided in the various provisions of this Act. During the pendency of the insolvency proceedings no creditor would have any remedy against the property of the insolvent in respect of any such debt and cannot file any suit or the other legal proceeding without the leave of the Court. Now, the first part of the argument advanced by Mr. Amin was that since the suit property was situated in a foreign territory, it did not vest in the receiver appointed in the insolvency proceedings and in support thereof he referred to a case of Anantapadmanabha Swami v. Official Receiver of Secunderabad. AIR 1983 PC 134. In that case an order of adjudication was made by the District Court at Secunderabad in 1928 adjudging as insolvents plaintiffs in a partition suit in the Madras High Court. The preliminary decree in the partition suit was attached in 1926 by a decree-holder against the plaintiffs in execution of his decree. The question arose as to whether the adjudication order passed by the District Court at Secunderabad was to be regarded as the order of a foreign Court, and if so, what was the effect thereof on the attachment made of the property by the Madras High Court. Secunderabad was obviously a part of the Hyderabad State and the administration of justice according to British enactment s by the District Court established there did not render the orders of a foreign Court in relation to the Courts of British India. In other words, it was an order passed by the Madras High Court in respect of the property attached in the execution proceedings. The observations relied upon by Mr. Amin were:

'The rule of private international law is clearly laid down in Galbraith v. Grimshaw, (1910) Ac 508 as regards moveable estate, for it is settled that no adjudication order is recognized as having the effect of vesting in the receiver any immovables in another country.'

It was held in that case that the adjudication order was to be regarded as the order a foreign Court, that it could not be recognized as having the effect of vesting in the receiver any immovable property of the insolvent and that the decree-holder was entitled to the benefit of his prior attachment. Now there arised no difficulty so far in saying that the adjudication order was one passed by the foreign Court, but the further observation that a property did not vest in the receiver may well be on the basis of English authorities and the enactments existing in England. That, however, cannot be taken as settled law in India and we have to consider as to whether any such property situated in independent State would vest in the receiver appointed in a proceeding in a foreign Court as soon as the adjudication order is passed. Besides, the question there was not as to whether the property vested in the receiver or not, but with regard to the process of Court in Madras in respect of a property situated in that territory. In this connection however, it would be convenient to refer to another case of Jayantilal Kashavlal v. Kantilal Jesingbhai. AIR 1955 Bom 170 relied upon by Mr. Amin to say that even if any such property were to vest, such vesting could not be in any way effective and that it could only become effective on a proper transfer deed passed by the insolvent in favour of the receiver. Now before we turn to this case we may incidentally observe in the first place that sub-section (2) of Section 28 makes no distinction in respect of the property of insolvent whether situated in the State where he resides or elsewhere and the words used are 'the whole of the property of the insolvent shall vest in the Court or in a receiver'. It follows therefrom that it contemplates the entire property belonging to the insolvent wherever situated. It will make no difference whether the property was situated in the same State or in a foreign State Sub-section (4) of Section 28 also relates to 'all property' without making any such distinction or reservation. In this respect, Mr. S. G. Shah, the learned advocate for the respondents, referred to a case of Chandulal Hachichand v. Mulchand Ratanchand : AIR1926Bom271 where it has been clearly laid down that the property of a debtor, who has been adjudicated insolvent under the Presidency towns Insolvency Act, 1909, vests in the Official Assignee under Section 17 wherever it may be situated, irrespective of the question whether the latter will be able to get possession of the property if it is in fact situated outside British India. Section 17 of the Presidency towns Insolvency Act, 1909, is similar to S. 28 of the Provincial Insolvency Act. It is, therefore, clear that the property of the insolvent referred to in section 28, sub-sections (2) and (4) embraces the whole of the entire property of the insolvent wherever situated though it may or may not be possible to recover possession of any such property situated in a foreign State. The same view has been expressed in the case of AIR 1955 Bom 170, where it is observed that it cannot be disputed that the expression 'the whole of the property of the insolvent' as used in subsection (2) of Section 28 would in included all properties of the insolvent wherever situate. His Lordship Justice Shah as he then was, then observed that the provision has apparently extra-territorial operation; but that extra-territorial operation can become effective only if its validity is recognised in the foreign State. It is on the basis of this decision that Mr. Amin contended that unless the receiver had obtained a valid transfer deed from the insolvent in respect of the property in the suit, the same having been situate in a foreign territory, the property much though may be said as in an ideal sense vesting in the receiver cannot be said to have effectively vested in him. In this case on Gajjar who was a cousin of the insolvent filed on 20-2-1946 suit No 118 of 1945-46 in the Court of the Subordinate Judge at Kalol for a money decree and obtained on 3-3-1946 an order for attachment before judgment of S. No. 291 and the bobbin factory standing thereon the property attached was outside British India Similarly the Court at Kalol was a Court in the Baroda State which was not a part of the British India as it then was. On 29-3-1946, a decree expert was passed in Gajjar's suit and the order of attachment before judgment was confirmed by the Court at Kalol gajjar thereafter filed a Darkhasi for executing the decree and on 21-9-1946 the property attached was brought to sale and was ultimately purchased by a stranger to these proceedings. The auction-purchaser deposited in the Court at Kalol Rs. 5200 being the amount for which the purchased the property and the amount was paid under order of the Court to gajjar on 6-11-1946. On the other hand, on 27-2-1946 one Mohanjal Lallubhai filed application No. 5 of 1946 in the Court of the civil Judge (Senior Division) at Ahmedabad, in the exercise of insolvency jurisdiction, for adjudicating one Gordhandas Suthar an insolvent. On 28-2-1946 the Insolvency Court appointed an interim receiver of the estate of Gordhandas Suthar and an order of adjudication was passed on 29-10-1946 and a receiver of his property was appointed. It appears that the insolvent had certain property in British India as it then was. He was also the owner of S. No. 291 of the village of Adivad in the Baroda State, and of a factory for manufacture of bobbins standing thereon. Then the insolvent having failed to apply for discharge, the Insolvency Court at Ahmedabad annuiled the adjudication by an order dated 24-4-1946, but it was directed by order of annuiment that all the properties of the insolvent-debtor and in particular his half share in Pehapur property and the sale amount of Rs. 5,200 recovered by one of his creditors and cash held by him (receiver) at present are vested in the receiver. The receiver was to continue his work and after deducting his costs and remuneration and the costs of the appellant creditor should distribute the surplus when realised among the proved creditors in the Schedule. On 17-2-1949 the receiver filed Suit No. 54 of 1949 in the Court of the Civil Judge (Senior Division) at Ahmedabad against Gajjar for a decree for Rs. 5,200 which Gajjar had received from the Kalol Court. Tajjar resisted the claim. During the pendency of the suit. Baroda State merged with the Indian Union on 1-5-1949. The trial Court held that Gajjar having failed to challenge the order vesting Rs. 5,200 in the Receiver in Insolvency, the suit was maintainable against him and that the Civil Courts in India were bound to recognise the validity of the order passed by the Insolvency Court in India and to enforce the order passed by that Court. The point came to be considered by the High Court and it was observed that.

The assumption made by the learned trial Judge that a receiver in Insolvency in whom the estate vested by order of the Court in British India was entitled to ignore proceedings competently entertained by a foreign Court in respect of immovable property of the insolvent and the order passed therein and to claim the amount received by a creditor of the insolvent by those proceedings as if the amount was the property of the insolvent to which the receiver was entitled by reason of the order of adjudication is in my judgment fallacious.'

'Indisputably, the Kalol Court had jurisdiction to entertain the suit against the insolvent when filed. That Court was competent to attach the property and to sell it in enforcement of the decree passed by it.

The Kalol Court was not bound to recognise the title of the Receiver even if by the law of British India, which had no operation in the Baroda State, the property had vested in the Receiver, Gajjar received the amount paid by the auction-purchased under orders of the Court at Kalol and the operation of that order was not liable to be questioned under the extraterritorial operation of a statute which might have been under the rules of private international law respected. If steps had been taken for obtaining recognition of the title of the Receiver, but which it was not obligatory upon the Court at Kalol to respite.'

Then after referring to Section 28(2) of the Provincial Insolvency Act. It is observed as stated here above that the extra territorial operation can become effective only if its validity is recognised in the foreign State. Then continuing the discussion in respect of private international law etc. It has been then observed that:

'It need hardly be said that Legislature in one State cannot legislate in respect of land situate in a foreign State. Even if the land in a foreign State be regarded as vested on adjudication in the receiver in Insolvency in an ideal sense, unless the law of the foreign State recognises the vesting as a transfer of the property to the receiver, the vesting cannot operate to confer title upon the receiver in Insolvency and the property situate in the foreign State would continue to be liable for satisfaction of the claims against the debtor according to the law of that State and unaffected by the insolvency'

Thereafter referring to Section 28(1) of the Act, it has been observed as under:

'By Section 28(1) Provincial insolvency Act duty is imposed upon an insolvent to aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors. But the provision imposes a purely personal obligation upon the insolvent which may be enforced by process of the insolvency Court to compel compliance of all sets necessary for completing the title of the receiver to property situate in a foreign territory. But the personal obligation cannot affect the jurisdiction of the Courts in the foreign State to deal with property situate in that State: nor can it compel the creditors who are not amenable to jurisdiction of the insolvency Court which has adjudicated the debtor an insolvent, to allow other creditors to participate in the satisfaction obtained by them by taking proceedings in a foreign State By the rules of private international law immovable property can only be transferred in accordance with what is called 'lex reisitae''

Later on, it has been observed that it is clear from the observations made by the Court in the case of Yokohma Specie Bank Ltd. V. Curlender and Co; AIR 1926 Col 898 try is not transferred to the receiver in Insolvency by operation of an Indian statute relating to insolvency. It follows therefrom that though in an ideal sense, having regard to sub-section (2) of Section 28 of the Act, such a property situate in a foreign State would be covered by the whole of the property of the insolvent and that way can be said to have vested in the receiver appointed on adjudication of an insolvent by foreign State, the vesting cannot be said to be such as to be recognised in a foreign territory unless a valid transfer in accordance with law of that lend is made in favour of the receiver. The insolvent is bound to or even can be compelled to pass any such transfer deed in respect of his right or interest in any such property situate in a foreign State so as to complete the title in the receiver to that property situate in a foreign State. When such is the effect of the adjudication order in relation to any property or right in a property situate in a foreign State, it would be difficult to say that there was an effective vesting of the right in that property in the receiver by operation of law viz. Under Section 28(2) of the Provincial Insolvency Act. The atmost that can be said is that the insolvent as Mr. Shah put it, would be estopped from dealing with that property or even deal with that property (sic) by reason of the fact that an order of adjudication has been passed against him. Till he has obtained his discharge under the provisions of the Act, he would not be entitled to deal with that property. But the question that arises is as to whether he can deal with the properly or right in the property in any manner he chooses after his having obtained an order of discharge under Section 44 of the Act. It is however, enough to say as observed in the case just referred to above, that no title had passed in favour of the receiver in so far as that property was concerned since he had not obtained any deed of transfer from the insolvent during the pendency of insolvency proceedings in the Court. It is true that a receiver could have filed a suit for redemption or could have taken any other action permissible in law, but no such steps were also taken by him by having recourse to the remedy in the foreign territory viz. In the Court within which the suit property was situate. On that basis, after having obtained an absolute discharge under Section 44 of the Act, the insolvent would be entitled to deal with property or his right in the property as any other person can and if he did so, that transfer cannot be said to be invalid.

(10) The other point made out by Mr. Amin was with regard to the effect of absolute discharge given to the insolvent by the Court under Section 44 of the Act. Section 44 sub-section (1) provides as under:

'(1) An order of discharge shall not release the insolvent from

(a) any debt due to the Government;

(b) any debt or liability incurred by means of any fraud or fraudulent breach of trust to which he was a party;

(c) any debt or liability in respect of which he has obtained forebearance by any fraud to which he has obtained forbearance by any fraud to which he was a party; or

(d) any liability under an order for maintenance made under Section 488 of the Code of Criminal Procedure, 1898.'

Then sub-section (2) says that

'save as otherwise provided by sub-section (1), an order of discharge shall release the incident from all debts provable under this Act.'

In other words, he remains to the liable in respect of any debts referred to in sub-s (1) but he becomes free from his liability to pay all other debts which can be proved under all other debts which can be proved under this Act by the Creditors. Now apart from making any reference to the provisions of the Act, the object with which the insolvency jurisdiction is assumed by the Court is mainly two-fold. The first is the realisation of the whole of the insolvent's property and the distribution of the amount to all his creditors. The second object is to give a complete release to the debtor from the liability to pay his debts except those referred to in sub-section (1) of Section 44 of the Act and to allow him a new start in life. For realising the first object behind the insolvency proceedings., the various provisions of law relating to the appointment of a receiver and the manner in which he has to realise the property belonging to he insolvent, the manner in which the creditors are paid and the procedure to relation to the distribution of the assets realised to the creditors, are provided. It is only when that part of the object is achieved and if some part thereof remains to be carried out which can be done later, but on that basis, the discharge is being given to the debtor under Section 44 of the Act Now the Court has been given sample powers either to grant or refuse an absolute order of discharge, or suspend the operation of the order for a specified time or grant an order of discharge subject to any conditions with respect to any earnings or income which may afterwards become due to the insolvent, or with respect to his self acquired properly. Before passing any such order of discharge as contemplated under section 41 of the Act, the Court apart from hearing the application and any objections which have been raised by the creditors etc. Would also consider the report of the receiver. Then by reason of Section 42 the Court is empowered to refuse to grant an absolute order of discharge under Section 41 on proof of any of the following facts, namely; (a) that the insolvent's assets are not of a value equal to eight annas in the rupee on the amount of his unsecured Liabilities unless he satisfies the Court that the fact that the assets are not of a value equal to eight annas in the rupee on the amount of his unsecured liabilities has arisen from the circumstances for which he cannot justify be held responsible; (b) that the insolvent has omitted to keep such books of account as are usual and proper in the business carried on by him and as sufficiently disclose his business transactions and financial position within the three years immediately preceding his insolvency; (c) that the insolvent has continued to trade after knowing himself to he insolvent, and several other clauses have to be taken into account before any order of discharge is ultimately passed. It was on the basis of assets having been realised to the extent of a value equal to eight annas in the rupee and by reason of the Court being satisfied that the insolvent had not been guilty of any fraud etc. And having been certified to be a person deserving discharge by the receiver himself, that the final order of absolute discharge was given to him under section 41 of the Act. That order did not impose any conditions with regard to any property which remanded to be dealt with. There was no property of any kind which had come to him after adjudication and not shown to the Court or the receiver during the pendency of the insolvency proceedings. It is, in these circumstances, that we have to consider the effect of the discharge vis-a-vis the property is question. The points made out in this respect are of two-fold character. The first is that the property or right in the property in question was not one which came to be realised after his adjudication and before his discharge and that he had not disclosed the same Nor is it a case of a properly which he had willfully suppressed and that later on tried to d dispose it of to his advantage after obtaining the order of discharge. The right in the property was amply known not only to the creditors in the insolvency proceedings but also to the receiver. And the Court itself. On the report of the receiver submitted to the insolvency Court it appears abundantly clear that he tried to make all possible attempts to get something out of such a right of insolvent in that property but on all possible inquiries and efforts made by him be found that no useful purpose whatever would be served by even trying to obtains a transfer deed from the insolvent so as to entitle him to file a suit for resumption in the Court within whose jurisdiction in the Court within whose jurisdiction that Sarsa village was situate or for having that property sold to the advantage of the creditors. On the contrary, his effort was to show that the expenses incurred in that direction would be wasted and that would be rather to the disadvantage of the creditors of the insolvent. The application presented by some of the creditors was also not prosecuted any further and the Court after having considered the effect of all the materials before it found that no useful purpose will be served by taking any steps whatever in respect of that right of the insolvent in the property situate as such. The property was termed as 'useless' and not at all beneficial to the creditors. In fact, as already pointed out here above from the admission of the defendant himself, that the property was then worth Rs. 500 to Rs. 600 as against the sum of Rs. 700 due on that property under the mortgage deed taken from the insolvent. He has also stated that there was nobody who offered any bid for any amount higher than the sum of Rs 700. There was, thus, no purpose whatever in taking any steps in realising any amount by sale of the insolvent's right in that property, for, after all, the insolvency Court is supposed to look to the interest of the creditors of that insolvent and it is that way hat the solvency Court. The other aspect of the case is that not only by reason of the property being useless or rather not beneficial to the creditors but that with the disposal of the insolvency petition by the Court, the administration of the estate of the insolvent came to be exhausted and there remained nothing to be done in that matter. The obvious result would be that the Court ceased to have power or jurisdiction to deal with any such property over again not only after the discharge order is passed, but after the matter is completely disposed of and the administration of the receiver having come to an end. It is by reason of these two aspects of the matter that it was urged that after the absolute discharge obtained by the insolvent he was entitled to redeem the property in the same manner as any other free man would have been able to do under the provisions of the Transfer of Property Act.

(11) Now on this aspect of the case, we have some authorities pointed out by the learned advocates appearing on each side. The first case referred to by Mr. Amin was of sheonandan v. Kashi, 37 Ind Cas 878 = (AIR 1917 All 302 (1)). In that case one Bipat was declared insolvent on he 1st of October 1910 Among his assets he had shown his mortgagee rights under a certain mortgage of the year 1907 The receiver who was appointed in the insolvency proceedings considered those rights worthless and after making such efforts as the though proper to realize the insolvent's assets for the benefit of his creditor that receiver made a report of the district Judge that there were no other assets of the insolvent which, in his opinion were capable of realisation. Upon this Bipal was discharged by an order of the 24th of June 1913 Since that date, that is to say, on the 20th October 1914 Bipat found one Kashi who was willing to pay him Rs. 500 for his rights under the mortgage of 1907. The present suit was by Kashi to enforce the rights if any, acquired by her under this transfer . The trial Court disposed of this suit on the ground that Bipst after his order of discharge had no rights left under the mortgage in question. The joint taken was that Bipat's rights had vested in the Court or the receiver under section 16 of the Provincial insolvency Act. III of 1907, and that the order of discharge does not operate so as to revert those rights in Bipat The learned District Judge revised that finding and remanded the case to the first Court for trial on merits. The Division Bench of the Allahabad High Court before whom an appeal against that order was preferred, held that-

'The Receiver having abandoned this particular item of property as worthless, Bipat became entitled to deal with it after the order of discharge, and if he succeeded in getting anyone to pay something for his rights, the circumstances that he was declared insolvent in 1910 and got an order of discharge in 1913 would not in itself make the transfer in favour of Kashibad.'

It was, however, pointed out by Mr. Shah, the learned advocate for the respondent, that this decision does not give any reasons for arriving at such a conclusion, and that has been so observed in the case of Tarak Das Dhar v. Santosh Kumar Mallik, ILR (1937) 2 Cal 386 which has laid down that the property or right therein by the insolvent even after his discharge cannot pass any good title to the purchaser. He, therefore, urged that the decision of Calcutta High Court deserves to be accepted in preference to the one in Allahabad Case relied upon by Mr. Amin for the appellants. A reference may well be made to the observations made by that distinguished and learned author, Sir Dinshaw Mulls, in his Lecture No. 8 of the Lectures, which he delivered as Tagore Professor of Law at Calcutta University and which were afterwards published in a book under the title of 'Law of Insolvency'. The relevant paragraph appears at page 346 of the Book with the heading 'Property abandoned by Official Assignee as worthless'. They run as under:-

'Where a particular item of property belonging to the insolvent e.g., a mortgage security. Is abandoned by the official Assignee or receiver as being of no value at all, and the insolvent obtains his discharge, the property belongs to the insolvent, and the sale therefore by the insolvent after his discharge will pass a good title to the purchaser'

These observations, as also the decision in the Allahabad Case above referred to were disapproved by the High Court of Calcutta, and it was held that once a particular item of property has vested in the official Assignee by virtue of the operation of section 17 of the Presidency towns Insolvency Act, that property cannot become reverted in the insolvent without any other action on the part of the Official Assignee save an expression of opinion that the property is of no value and that he does not propose to do anything in the way of attempting to make the property available for the creditors of the insolvent and that accordingly he is abandoning it. It was further held that the sale by the insolvent after his discharge of such property abandoned by the official Assignee will not pass a good title to the purchaser. Now if we turn to the reasoning of his Lordship Justice Castello, what h thought was that the bare idea the immovable properties can vest or revest in an one in that kind of way is obviously directly contrary to the express provisions of the Transfer of Property Act, which make it quite clear that property of the kind with which they are now concerned, can only be transferred from one person to another by means of an appropriate instrument in writing which is subsequently registered,. It is again, with respect, difficult to understand how the Official Assignee or the receiver as the case may be, will be required to pass the case may be, will be required to pass any deed of transfer under the provisions of the Transfer of Property Act for the simple reason that the receiver of the Official Assignee as the case may be, is to deal with the property only for a particular purpose viz, for the benefit of the creditors of the insolvent, and that again for a period viz. Insolvent, and that again for a period viz. Till that purpose, which also required the administration of any such property, is over. The Court will have to find out as to in whom the property remainded either after fully paying off all; the creditors or by reason of happening of any event that some property is found so useless as is not required to be dealt with under the express orders of the Court. The official Assignee or the receiver as the case may be, became entitled to deal with the property by reason of the vesting order passed by the Court in the insolvency proceeding and the insolvent of any such property was thereby debarred from dealing therewith. It is true that the insolvent may not be able to deal with the property mentioned in the insolvency application till at any rate he obtains discharge from the Court. But to say that by reason of any such deed of transfer he can only get back his own property does not sound to be so very convincing Whatever that be, even under section 67 of the Act. There is nothing about re-vesting of any property in an insolvent, but what is essential is that the insolvent would be entitled to get back his surplus property subject to the conditions laid down therein. The other reason giving in the case that none of the provisions giving in the case that none of the provisions say that such a property would re-vest in the insolvent and that therefore, the property would continue to remain in the receiver for all time to come again to may mind does not appear to be so very convincing. It may well be that even after the order of discharge given by the Court some realization may have to be made for which suits are filed and it would take some time before the finality is reached. But once the finality is reached in respect of an insolvency proceeding, the receiver shall be discharged and the matter disposed of by the Court unless some orders are passed by the Court which would justify one to say that the insolvent had no right to deal with any such property. In absence of any such orders passed by the Court, for the benefit of the creditors, the property if remained undisposed of, obviously should revert back to the discharged insolvent from whom it was taken over under the provisions of Insolvency Act. In the present case absolute discharge is given to the insolvent, and insolvency proceedings have terminated and receiver discharged. The creditors have been paid up, though no doubt not fully, and in fact they had not chosen to proceed afresh for having this very property dealt with and have the right of the insolvent sold. In those circumstances, there remains the property which is found by every one concerned in an insolvency proceeding as useless and when such is the position and if the insolvent finds., as we find in the Allahabad. Case, that someone came forward to purchase his right, the insolvent sold his right, title and interest, the transfer by a registered deed cannot be said to be invalid in law. With respect, it is difficult to agree with the decision of the Calcutta High Court referred to here above which was followed in a case of Vijaranga Naidu v. Narayanappa, : AIR1946Mad371 .

(12) There are two other cases which lend support to the view of the Allahabad Court. The first case is of C. D. Desikachari v. Official Receiver, Chingleput, AIR 1943 Mad 26. It is a decision of the Division Bench of the Madras High Court. In that case, the appellant who was adjudicated an insolvent in December 1930, came to be granted an absolute discharge in July 1932 by the Insolvency Court. The reasons for granting such an absolute discharge were two (1) because there was no mala fide conduction on the part of the insolvent and (2) because no creditor had proved his debt before the Official Receiver and therefore no one was entitled to oppose his petition for an order of absolute discharge. The property had already vested in the Official Receiver., Naturally when the order of discharge was granted, the Official Receiver had done nothing in regard to the disposal of the property as there were no creditors properly before him. More than seven years later, one of the Official Receiver's creditors applied that the insolvent's property should be sold and the learned District Judge of Chingleput ordered that the property can be sold at the instance of the creditor by the Official receiver When the matter went to the High Court the Division Bench observed that

'It is clear that if such an order can be justified, it amounts to a complete frustration of the intention of the insolvency law. The whole purpose of the Insolvency Act is that proceedings in insolvency shall be dealt with as expeditiously as possible, that the creditors shall be satisfied as expeditiously as possible from the property of the insolvent, and that the insolvent shall then be free to start life again unburdened by his debts. The situation in 1932 clearly was that for whatever reason it is impossible now to say none of the creditors of the insolvent took the slightest interest in the insolvency proceedings.'

That way it was said that the proceedings had come almost automatically to an end because none of the creditors took any interest in it. The contention made out before the High Court was that the receiver's creditor can proceed at nay time he pleases against the insolvent's property no matter how many years he any have waited after the insolvency proceedings began before he attempted to prove his debt. To that position, they observed that no Court can possibly approve. With regard to the argument that the granting of an absolute order of discharge does not necessarily put an end to the administration of the insolvent's property, it was observed that there is nothing to prevent the Court granting an absolute order of discharge when it has been satisfied for instance, that the insolvent had placed all his property within the control of the Official Receiver so that from his-insolvent's-point of view nothing more remains to be done Then they referred to S 37 of the Act and observed as under

'We think that although S. 37 of the Act does not in terms apply to the circumstances of his case, the principle which is embodied in that section should apply. It is clear that when an adjudication is annulled, it is for the Court to decide whether the property should continue to vest in the Official Receiver or not. Nothing specific has been stated on this point in the order of 1932 granting an absolute order of discharge, and if there were anything to show that the Court had in mind any contemplation of the future administration of the insolvent's estate we would agree that the order could not have the effect of revesting the property in the insolvent. It is however clear that when the learned Subordinate Judge gave as one reason for his order of absolute discharge the fact that no creditor had proved his debt that means in effect that there is no chance of any administering of the insolvent's property. We cannot confirm the order of the learned District Judge passed eight years later which in effect thus cancels and nullifies the order of 1932. That, in our opinion, would be a complete breach of faith on the part of the Court towards the insolvent'

Lastly they held that the administration of this particular insolvency was brought to an end by the Court's order granting the absolute order of discharge in 1932 and therefore there is no longer power in the Official receiver to bring any of the properties of the ex-insolvent to sale. The next case referred to was of Mutha Sarvarayudu v. Vammi Kondalarayudu : AIR1961AP219 . In this case also the Division Bench took almost a similar view while observing that

'the discharge does not by itself operate to divest the Official Receiver of the insolvent's estate or to make the insolvency Court functus officio. Unless there are directions in this respect in the order of discharge all that can be presumed is that the status quo was not immediately altered. However, the main object of vesting the insolvent's property in the insolvency Court or a receiver is to realise the assets and distribute the proceeds among the creditors and if an Official Receiver closes or abandons the administration and no creditor opposes such a course, the vesting order must be deemed to have worked itself out and the residue of the estate would naturally revert to the insolvent even without a specific order reverting it.'

On the facts of the case it was held that the administration was either abandoned or closed by the Official Receiver long prior to the suit and the vesting order was allowed to work itself out, and, therefore, the contention that the suit was not maintainable without impleading the Official Receiver could not be upheld. I may incidentally refer to an observation made by Bose C. J. In the case of Kisan Sitaram v. Sitaram Tulsiram, AIR 1951 Nag 241 saying that an order of adjudication denudes the insolvent of all right, title and interest to and in the property. He has then observed that 'in my opinion this continues during the whole period of the insolvency.' This observation has the effect of showing that whatever right, title and interest of an insolvent that came to be vested in the receiver or the Official Assignee as the case may be continued to remain till the disposal of the insolvency proceedings. It cannot extend any further at any rate beyond the termination of those proceedings. Once a proceeding is terminated with the administration of the estate completely over it can be said to have exhausted or, as observed in the Andhra Pradesh Case 'worked itself out' and the residue of the estate would revert to the insolvent even without a specific order reverting it In fact having regard to the facts of the present case, with passing of the order by the Court whereby this property was exonerated as it were from being dealt with for the benefit of the creditors during that insolvency proceeding it can be taken as being allowed to revert to back to the insolvent and more so as after his having obtained the absolute order of discharge, the administration of his estate will be over and the insolvency proceeding being completely terminated. With respect, I agree with the decisions of the Madras, Allahabad and Andhra Pradesh High Courts referred to here above. In so far as they hold that the vesting order in respect of the right over the property of the insolvent has completely exhausted with the termination of the insolvency proceedings, and that the property would, therefore, revert back to the insolvent after his having obtained the absolute order of discharge in the proceedings, Neither any transfer deed is essential to be passed in favour of the insolvent, as held by the Calcutta Case, nor any specific orders of the Court are so essential to be passed. Absence of any orders to the contrary passed by the Court would justify one to presume that with the termination of insolvency proceedings after absolute discharge is given to the insolvent the property automatically reverts to him and nothing remains in the receiver or the Insolvency Court.

(13) It was, however, pointed out by Mr. Shah, the learned advocate for the respondent, that the right in the property would be in the nature of an undisposed of property in that it can only revert to the insolvent after his discharge provided the conditions of Section 67 of the Act are fulfilled. reliance was placed on a case of Raghunath Keshava v. Ganesh : [1964]3SCR520 . The observation relied upon by him are as set out in paragraph 27 of the judgment;

Therefore, on a careful consideration of the scheme of the Act and on a review of the authorities which have been cited at the bar, we are of opinion that an insolvent is entitled to get back any undisposed of property as surplus when an absolute order of discharge is made in his favour, subject always to the condition that if any of the debts provable under the Act have not been discharged before the order of discharge, the property would remain liable to discharge those debts and also meet the expenses of all proceedings taken under the Act till they are fully met, the view of the High Court that the suit is not maintainable is therefore not correct'

In this case, the question that arose before their Lordships of the Supreme Court as stated in Para 8 of the judgment itself was whether an insolvent on whom properly devolves when he is an undischarged insolvent can maintain a suit for the recovery of the property after his absolute discharge. The decision of that depends on what effect the order of absolute discharge has on the insolvent's title to the property which devolved on him when he was still an undercharged insolvent While considering this 'narrow question'. Their Lordships have referred to various provisions of the Act and then observed that

'if any property remains undisposed of in the shape of surplus that vests back in the insolvent, just as surplus in the shape of money would, and that the insolvent becomes entitled to get the same by reason of Section 67 of the Act but it is essential for him to fulfill and comply with the conditions set out therein namely, that there is any surplus remaining after payment to his creditors in full with off set and meeting the expenses of the proceedings taken under the Act.'

On that basis, it was urged that this was an undisposed of property which the insolvent claims as having reverted back to him, and claims as having reverted back to him, and that he can only get provided the conditions set out in Section 67 of the Act are complied with. According to Mr. Shah, the creditors are not paid in full as they are paid on the basis of eight annas in a rupee in the insolvency proceedings, and therefore since the insolvent has not so far fulfilled that condition, he cannot be held entitled to claim such property or has a right in the property so as to enable him to transfer the same to any other person. Broadly speaking, the observations made by the Supreme Court tend to suggest and in fact as observed therein that there is no specific provision with respect to undisposed of property of the insolvent and in their view it is section 67 which tends to meet that contingency in the case, namely, the property which remains undisposed of at the time of discharge must be treated as surplus which the insolvent would be entitled to only on the condition that the pays the creditors in full with interest and meets the expenses made in the proceedings taken under the Act. While considering that aspect of the case, the Supreme Court has referred to certain types of cases to which that provision applies. The first type of cases would be where an insolvent has come into property by devolution after he became insolvent and before his discharge, and if that property as would satisfy the debts in full and meet the expenses of the proceedings in insolvency. In such a case the rest of the property whether movable of immovable would go to the insolvent under Section 67 of the Act. That is in a way a clear case of the 'surplus' of the property to which the insolvent would become entitled on the basis of its being surplus. Another type of cases referred to is where what devolves on the insolvent after the order of adjudication and before his discharge may not be easily or may be matter of dispute which may lead to litigation lasting fro many years. In such a case, the receiver would be entitled to declare a final dividend if the Court is of opinion that the property which has devolved on the insolvent is subject to protracted litigation and it cannot be realised without needlessly protracting the receivership. Such property would also be surplus to which the insolvent would be entitled under S. 67 subject to his complying in full with the conditions set out therein. The third class of cases referred to therein is where the Court may not come to know of the property which devolves on the insolvent and grants a discharge in ignorance of such devolution , may be because the insolvent did not bring it to the notice of the Court. In such case also in principle there will be no difficulty in holding that the property which vested in the receiver under S. 28 (4) and which remained undisposed of by him before the discharge of the insolvent would still be surplus to which the insolvent would be entitled, though he may not be remitted to make full use of it until he complies with the conditions set out therein. Then their Lordships have said that though therefore their is no specific provision in terms in S. 44(2) with respect to the property hat may remain undisposed of by the receiver or by the Court like the provision in S. 37 on an order of annulment, it seems that section 67 by necessary implication provides the answer to a case like the present. All the property, thus, as observed by their Lordships which remains undisposed of at the time of discharge must be treated as surplus to which the insolvent is entitled and he will thus get title to all such property and the vesting in the receiver whether under section 28(2) or section 28(4) would come to an end on an order of discharge subject always to the insolvent copying in full with the conditions of Section 67 and then it is observed further that

'He would be entitled to undisposed of property on discharge and would be free to deal with it as any other person and, if necessary, to file a suit to recover it.' Now, in none of the three categories of cases referred to hereabove, the present case would fall. This is not a case in which the property had devolved or come to the insolvent subsequent to the order of adjudication and before his discharge. Nor is it a case where such property devolved on him was suppressed from being brought to the notice of the receiver or the Court and at any rate it was not a case where the proceedings were to continue after the insolvent is discharged and the receiver is continued after the insolvent is given a discharge. The receiver has already declared the final dividend in favour of all the creditors. The present case, as we have already pointed out, is of a peculiar character. The right in the suit property was quite known not only to all the creditors but to the receiver and the insolvency Court. All of them failed to make use of any such property for the benefit of the creditors, for it was found ultimately by the Court that instead of bringing any benefit to the creditors it would be a burden to them in the sense that they may have to spend for either obtaining the transfer deed or having the property sold, for, it carried a burden of Rs. 700 of mortgagee the defendant in the case. So what remained was a property which was at the date of his discharge purely a burdensome property and that burden was allowed to remain with the insolvent himself. Not only that, but the Court did not allow the insolvency proceeding to continue any further and in fact apart from the absolute discharge given to the insolvent, terminated the proceedings on the final report submitted by the receiver. The insolvency proceeding came to an end. The receiver came to be discharged. There remained therefore nothing which the insolvency Court was expected to deal with later even on any contigency that may arise. Such a case was not contemplated in any of the three cases referred to where the application of section 67 were applied to (Sic). In the Supreme Court case the property had come to be devolved on the insolvent during the pendency of the proceedings and in any way after adjudication and before the order of discharge was passed by the Court. It was, in those circumstances, held that such a property was an undisposed of property and reverted back to the insolvent on his complying with the conditions, namely, of paying in full with interest the dues of the creditors. It is, therefore, clear that this is not such a undisposed of property as in respect of which the Supreme Court was required to deal with and in relation to which the observations have been made so as to call it a property in surplus, and thus fall within the ambit of section 67 of the Act. In my opinion, it was a property which by implication under the orders of the Court was allowed to revert back to the insolvent without attaching any conditions thereto for the reason that it was in no way beneficial to the creditors and being of a burdensome character. The burden was consequently allowed to remain with the insolvent and if in future so late as in 1941 somebody comes forward to pay him Rs. 800/- more than the amount for which he had mortgaged the same in 1925, there is no reason to think that any such right in the receiver continued to exist after the termination of the insolvency proceeding. Nor could the insolvency court be said to continue to have any jurisdiction over the same after the proceedings came to an end.

(14) Besides, the defendant-respondent has not in any way raised a contention about the receiver being a necessary party to this case. Nor do we find any creditors coming forward to claim any such property during all these years till the date of the suit which was filed in 1954. No creditors have chosen to take any action for pursuing this property on the ground that the said property continued to be yet of the insolvent after his full discharge and after the termination of the insolvency proceedings. I do not, therefore, think that it would come within the ambit of the Supreme Court case as undisposed of property and to which the insolvent would only become entitled under Section 67 on fulfilling the conditions set out therein. The defendant has no right to challenge the right of the insolvent original mortgagor in the property viz, of redemption, and if that were so, since such a right in the property is transferable after the insolvent is discharged and, at any rate, after the insolvency proceeding came to an end, he had every right to deal with that property in any manner as any other man would have been able to do. If, therefore, the insolvent had the right of redemption of the said property, and since he transferred the same in favour of Bhikhabhai, Bhikhabhai got the same right and interest in the said property, and he can similarly transfer the same in favour of the plaintiffs. Any such transfer cannot, therefore, be said to be invalid for contravening any of the provisions of the Insolvency Act so as to defeat the right of the plaintiffs from claiming redemption of the property in the case.

(15) Mr. Shah has then referred to a decision of Ramchandra Narayan Dater v. Nipunge, 25 Bom LR 499 = (AIR 1924 Bom 49) and urged that if at all any person had a right o redeem the property, he would be only the insolvent and at any rate none in his transferees. All that the case has laid down is that an assignee cannot by virtue of such assignment of a contigent interest which can give no right to the aasignee to intervene until it is ascertained whether or not the is a surplus. It is further held that an insolvent is at liberty to assign to a purchaser the prospective surplus that may remain over after his estate has been administered in insolvency. In the view that I have taken a discussed hereabove, there arises no question of any surplus and it is not that the surplus is sought to be assigned in favour of the plantiffs' transferor by the insolvent. Nor does there arise any question of interfering with the administration of the estate. The administration of the estate has already come to an end long ago in 1936. It would be too much to say that the administration continues even thereafter till 1954 when the suit was filed. Any such point cannot at all arise.

(16) In the result, therefore, the plaintiffs are entitled to file the suit for redemption of the suit property and that the transfers in their favour are not in anyway invalid for violating any of the provisions of the Insolvency Act. The right of the insolvent in the property reverted back to him no sooner the insolvency proceedings came to be terminated by the orders of the Court, and the property by implication was allowed to revert back to the insolvent as he obtained absolute discharge and with the termination of the insolvency proceedings. The result, therefore, is that the order passed by the Courts below whereby the plaintiffs' suit is dismissed is wrong and it is liable to be set aside.

(17) It is unfortunate that in spite of the trial Court having raised several issues arising out of the pleadings of the parties and having before it the entire evidence led by the parties in relation thereto, had not chosen to record its findings in respect thereof. That was quite essential, for, in the event of the decision of the trial Court being reversed. Such a difficulty of having to send back the case would not arise. Not only that, but he learned appellate Judge also dealt with only one point which the trial Court had dealt with and much though the evidence was before the Court he did not choose to record the findings in relation thereto. If he had done so, this Court would not have been required to send back the case to the trial Court for recording its findings in respect of other issues involved in the case and passing orders in accordance with law after all, the High Court is expected to deal with questions of law arising in any such second appeal and unless we have definite findings in respect of he facts involved in relation to the remaining issues, this Court cannot deal with it and this the only alternative left to us is to send back the case to the trial Court for recording its findings after hearing the parties and then passing suitable orders in the case.

(18) The appeal is allowed and the decree passed by the trial Court and the same being confirmed by the learned Assistant Judge, is set aside. The suit is remanded back to the trial Court for proceeding further in accordance with law. The respondents shall pay the costs to the appellants all throughout.

(19) Appeal allowed.


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