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Jashwantlal Natverlal Thakkar Vs. Sushilaben Manilal Dangerwala and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtGujarat High Court
Decided On
Judge
Reported in(1975)16GLR181
AppellantJashwantlal Natverlal Thakkar
RespondentSushilaben Manilal Dangerwala and ors.
Cases ReferredRamchandra Genuji Thosar v. Shripati Sukaji Gade and Ors. A.I.R.
Excerpt:
- - section 68 of the act says- if the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the court, and the county may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just. thus, in case the insolvent finds that the official receiver does not look to his interest properly or that any act contemplated by him is not in the best interest of himself and/or other creditor, it is open to him or the creditor to apply under section 68 of the act to pass appropriate orders. but the vesting order for the time being is paramount, and, even if an insolvent may eventually be entitled to what may remain as surplus after satisfying his creditors, it is perfectly clear that he cannot.....a.a. dave, j.1. this appeal arises out of the order of the learned judge, city civil court, ahmedabad, dismissing the application preferred by the present appellant under order 21, rule 90, civil procedure code for setting aside the sale on the ground of irregularities and illegalities as per particulars mentioned in the application.2. when this appeal came up for hearing before me, a preliminary objection was taken by mr. m.d. pandya, learned advocate for the respondent no. 1 (original judgment-creditor) that the present appeal filed by the insolvent-appellant is incompetent as on the date of the appeal, he had no interest in the property. he urged that the insolvency court had already passed an order appointing an official receiver in whom the interest of the insolvent in the property.....
Judgment:

A.A. Dave, J.

1. This appeal arises out of the order of the learned Judge, City Civil Court, Ahmedabad, dismissing the application preferred by the present appellant under Order 21, Rule 90, Civil Procedure Code for setting aside the sale on the ground of irregularities and illegalities as per particulars mentioned in the application.

2. When this appeal came up for hearing before me, a preliminary objection was taken by Mr. M.D. Pandya, learned Advocate for the respondent No. 1 (original judgment-creditor) that the present appeal filed by the insolvent-appellant is incompetent as on the date of the appeal, he had no interest in the property. He urged that the insolvency court had already passed an order appointing an official receiver in whom the interest of the insolvent in the property had already vested. Mr. Pandya, therefore, urged that as the insolvent has no locus standi to file the present appeal, the appeal deserves to be dismissed summarily.

3. In support of his submissions, Mr. Pandya referred to several decisions to which I will refer in due course.

4. Mr. V.B. Patel, learned Advocate for the appellant, however, invited my attention to a chain of decisions by the Madras High Court wherein it was laid down by the full bench of the Madras High Court that inspite of the judgment-debtor being declared as insolvent, he was competent to take proceedings in a civil court particularly in an application filed under Order 21, Rule 90 of the Code of Civil Procedure. Mr. Patel urged that in the instant case, a large amount was at stake. The property worth Rs. 4,00,000/- was sold only for Rs. 1.20.000/-. Many irregularities and illegalities had been committed in the publication of the proclamation for sale as a result, bidders could not be attracted for making offers for purchase of the property. Mr. Patel submitted that ultimately, the judgment-creditor herself obtained leave of the court and purchased it for Rs 1 20,000/-. This leave was obtained by her without giving a notice to the other side. She obtained this leave from the court even though she was aware that a petition for declaring the present appellant an insolvent was already pending in the court. Under the circumstances, Mr. Patel urged that when there is every likelihood that even after satisfy-inn' all the creditors, some surplus amount may remain to which the insolvent reason why he should not be permitted to pursue the proceeding with regard to setting aside of the sale if the official receiver did not choose to do so.

5. In order to appreciate the points involved in this appeal, it will be worthwhile to refer to some salient facts of this case.

6. Present respondent No. 1 Sushilaben Manilal Dangerwala had filed a summary suit No. 538 of 1968 in the City Civil Court at Ahmedabad against Central Sales Corporation, a partnership firm and three partners including the present appellant Jashwantlal Natverlal Thakkar, for recovery of a deposit of Rs. 10,000/- with interest thereon, on 26-1-1968. A decree for Rs 13 500-51 paise was passed against the defendants in that suit. Thereafter the judgment-creditor filed Darkhast No. 506 of 1968 in the court for recovery of the decretal amount. The present appellant appeared before the court and asked for adjournment which was rejected On 9511 1968 the court passed an order of attachment of the property of the appellant bearing City Survey Nos. 1707, 1715 of Khadia ward Thereafter a notice for fixing terms of sale proclamation under Order 21, Rule 66 was fixed on 16-12-1968. The appellant appeared and asked for adjournment. On 16-12-1968, the matter was fixed for order on 28-1-1969. On 28-1-1969, papers were sent to the Commissioner for taking Accounts for fixing the terms of sale. The terms of sale proclamation were fixed by the Commissioner after hearing the parties and papers went back to the Registrar. On 5-4-1969 the sale proclamation was issued. The proclamation of sale was fixed at the site on 1-7-1969. A public notice of sale was also published in he daily newspaper Prabhat. It transpires that no sale took place for several days right from 2-7-1969 to 21-7-1969 for want of bidders. On 22-7-1969 there was a bid for Rs. 50,000/- by Dr. Kanubhai Bapalal. Thereafter, from 23-7-1969 to 28-7-1969, nobody gave any higher On 29-7-1969, a bid for Rs. 75,000/- by Dr. Mrudulal Jayantilal Thakkar was given. These bids were considered to be inadequate and were not accepted. On 30-7-1969, the present respondent No. 1 after obtaining permission of the court gave a bid for Rs. 1,20,000/- which was accepted. The present appellant, thereafter, on 27-8-1969 gave an application for setting aside the sale under Rule 90, Order 21, C. P. Code. It transpires that before the present respondent No. 1 had given a bid for Rs. 1,20,000/- on 30-7-1969 with the permission of the court, the insolvency application No. 15 of 1969 was filed by Kantilal Madhavlal against the defendant-firm and partners on 24-6-1968. On 25-6-1968, a Commissioner was appointed by the court to make inventory of the account books. On 1-7-1969, interim Receiver was appointed. On 30-10-1969, the Receiver actually received Receiver-Patrak. On 7-8-1970, the appellant was declared an insolvent. The present appellant, thereafter, gave an application to the court for impleading the official receiver as an opponent in the application given by him for setting aside the sale. In response to the notice served on him, the official receiver appeared before the court and gave a purshis stating that he had no objection if he was impleaded as a party. It may be borne in mind that the present appellant in his application for joining official receiver as a party had stated that if the official receiver was prepared to be substituted as an applicant in his place he would solicit necessary orders from the court to that effect. The purshis given by the Receiver which was shown to me by the learned Advocate appearing for the official receiver does not show that ha had intimated an intention to be substituted in the place of the present appellant as an applicant in that application which was filed under Order 21, Rule 90 C.P. Code. Thereafter, on the affidavits of the parties and after hearing their learned Advocates, the learned Judge below dismissed the application. Against that order, the judgment-debtor has preferred the present appeal to this court, in which, once again, he has impleaded the official receiver as respondent No. 12. Respondent No. 1 is the original judgment-creditor of suit No. 533 of 1968 referred to earlier while respondents Nos. 2 to 11 are the judgment-creditors in other suits who had applied to the court in the execution proceedings for rateable distribution.

7. In the background of the history of this litigation, therefore, I am required to decide the question whether the present appellant has any locus-standi to file this appeal. Section 28(2) of the Provincial Insolvency Act, hereinafter referred to as the Act, states as under:

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.

Thus, the effect of Sub-clause (2) of Section 28 of the Act is that on the making of an order of adjudication, all the properties of the insolvent would vest either in the court or the official receiver. In other words, the insolvent would be devested of any interest in the said property. Even a creditor if he wants to proceed against any of the properties of the insolvent, after the order of adjudication is passed, could do so only with the leave of the court and on such condition as the court may impose. Sub-clause (7) of Section 28 states '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.' Thus, even though the actual order of adjudication adjudicating the present appellant as an insolvent was passed on 7-8-1970 under Section 28 of the Act, the said order would relate back to the date of the petition viz. 24-6-1968. Thus on the date of the present application viz. 27-8-1969, the present insolvent could not be said to have any interest in the property. The pertinent question, therefore, which requires consideration is-whether the insolvent could file such an application for setting aside the sale or could file an appeal against the order passed in the said application. It may be noted that there is no specific bar under the Act itself prohibiting the insolvent from taking recourse to a regular civil court with regard to his property. But the effect of the order of adjudication is that the insolvent would be devested of his interest in the property. If he is devested of all the interest in the property, naturally he could not pursue any remedy in respect of that property. Whatever remedy he chose to take, it would be open to him to do so under the Act itself. The insolvency court, subject to the provisions of the Act, has got full powers to decide all questions whether of title or priority under the provisions of the Act. Section 4(1) of the Act states-

Subject to the provisions of this Act, the court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the court, or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.

Sub-clause (2) states-

Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the debtor's estate and, on the other hand, all claimants against him or it and all persons claiming through or under them or any of them.

No doubt, after the order of adjudication is passed, the official receiver above would be the competent person to deal with the property of the insolvent and the insolvent himself would have no locus standi to do so. But he is not helpless. Section 68 of the Act says-

If the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the court, and the county may confirm, reverse or modify the act or decision complained of, and make such order as it thinks just.

Thus, in case the insolvent finds that the official receiver does not look to his interest properly or that any act contemplated by him is not in the best interest of himself and/or other creditor, it is open to him or the creditor to apply under Section 68 of the Act to pass appropriate orders. It cannot, therefore, be said that the insolvent would 'be prejudiced if the official receiver did not choose to take any action with regard to his estate. The effect of the order of adjudication merely is that the insolvent independently of the official receiver, cannot act with regard to his property. He has to aid and instruct the official receiver who alone; in his discretion, would be competent to decide the matter. But if he is aggrieved by the decision of the official receiver, it is open to him to approach the court under Section 68 for appropriate orders as referred to earlier. In the instant case, when the application for setting aside the sale was given OD 27-8-1969, no doubt, the order of adjudication was not passed against him. But an interim receiver was appointed on 1-7-1969. Subsequently, however, before the application came up for final hearing, order of adjudication was passed and the official receiver was brought on record as one of the opponents as stated earlier. The official receiver seemed to have given his consent for being added as a party in the application as per the purshis given by him. But he has not expressly agreed to be substituted in the place of the present appellant. It cannot, therefore, be said that the application was continued by the official receiver though he was impleaded as an opponent. It transpires that before this application was decided by the court, the official receiver had taken out a chamber summons on 14-12-1971 seeking an order for delivery of the property or in the alternative, for sale proceeds if it was held that the auction purchaser was a bona fide purchaser as stated in Section 51(3) of the Act. To this application, present respondent No. 1 had filed his reply and after hearing both the parties, the court directed respondent No. 1 to deposit the whole amount in court within two months. In the light of this development in the litigation, the question which now emerges is-whether the application at the stage by the present appellant was competent.

8. Mr. Mayur Pandya referred to the case Tribhovandas Narotamdas v. Abdullatty Hakimjl Bagadivalla and Ors. A.I.R. 1915 Bombay 298 wherein it was observed-

No cause of action survives against an insolvent whose interest in the plaint property has devolved upon the Official Assignee. The insolvent and the Official Assignee cannot both stand together on the array, and if the Official Assignee refuses to defend the suit, the insolvent cannot be allowed to do so independently of the Official Assignee.

Beaman, J. at page 299 observed-

The official assignee has been made a party to this suit with the leave of the court. It is obvious, then, that both he and the defendant No. 1, from whom the said interest has devolved upon him, cannot, in reason, both stand together on the array. The only person at present who possesses any interest whatever in this property from the point of view of the plaint in the present suit is not the defendant No. 1, but the Official Assignee. It is, therefore, a case in which defendant No. 1 is, being wrongly sued in the events that have happened and not a case in which it is unnecessary that the Official Assignee should be made a party defendant.

It will thus be seen that when the Official Assignee refuses to defend the suit, the High Court held that defendant No. 1 (insolvent) cannot do so independently of the Official Assignee. Similarly, in the case of Sayad Daud Sayad Mahomed v. Mulna Mahomed Sayad and Ors. : AIR1926Bom366 the division bench held that-

When a person is adjudicated an insolvent, the whole of his property passes to the official Assignee by virtue of the vesting order passed under the Presidency Towns Insolvency Act. Consequently, nothing is left vesting in the insolvent which would give him a cause of action. So a suit by an insolvent in his own name, after his adjudication cannot be maintained and the substituting the name of the Official Assignee later on is adding a new plaintiff within Limitation Act, Section 22.

In this case, it was sought to be argued on behalf of the insolvent that even after an order of adjudication is passed, at interest in the property did not cease and such questions may arise where after settling with the creditors either be may get back the property or he may get a surplus. It was, therefore, urged that even after the order of adjudication, it cannot be said that no interest would remain with the insolvent so as to take a proceeding in a court of law. Macleod, C.J., observed-

It is true that an insolvent does not lose absolutely all interests in his property when he is adjudicated. He may, for instance, be able to settle with his creditors and get his property back. But the vesting order for the time being is paramount, and, even if an insolvent may eventually be entitled to what may remain as surplus after satisfying his creditors, it is perfectly clear that he cannot be allowed to take steps after he is adjudicated to recover his property. That would be opening the door to fraudulent actions to the detriment of the creditors.

Mr. Patel, learned Advocate for the appellant, however, urged that the provisions of Order 21, Rule 90, C.P. Code are much wider in terms. Under Rule 90, 'Where any immovable property has been sold in execution of a decree the decree holder, or any person entitled to share in a rateable distribution of assets, or whose interests are affected by the sale may apply to the court to set aside the sale on the ground of a material irregularity or fraud in publishing or conducting it'. Mr. Patel submitted that if the interest of the insolvent is affected by the sale, it would be open to him to apply to the court to set aside the sale even though the interest in the property may have been vested in the official assignee as a result of the order of adjudication being passed against him. In order to hold that the insolvent is entitled to pursue a remedy under Rule 90, it would be necessary first to decide whether his interest in the property is affected by the sale. If his present interest in the property is already vested in the official assignee and he is completely devested of the interest, it is difficult to say that he would be a person affected by the sale, because in order that he could be considered to be a person affected by the sale, it is necessary to come to the conclusion that he had some interest in the property. Mr. Patel's submission, however, is that the order of adjudication may ultimately be annulled by the court and the property may return to the insolvent. It may also happen that he may be able to persuade his creditors and may come to terms with the result that he may be able to save some part of his property. If he is not permitted to pursue the remedy under Rule 90, Order 21, C.P. Code, ultimately even if the order of adjudication is declared void, or even if all the creditors are satisfied and surplus comes to his hand, he would be helpless so far as the property purchased by the auction-purchaser is concerned, as a result of the irregularities or material irregularities committed by him in publishing or conducting the sale. Mr. Patel, therefore, urged that so far as the provisions of Order 21, Rule 90, C.P. Code are concerned, they are wide enough to include the interest or right of the insolvent in pursuing an application under this rule. Mr. Patel invited my attention to the case of Kondipalli Tatireddy v. D. Ramachandra Row Uppaluru and Anr. A.I.R. 1921 Madras 402 wherein it was observed-

If during the pendency of a litigation one of the principal parties is adjudicated insolvent that person is not disqualified by reason of his insolvency from appealing.

It was observed by Spencer, J:

Next, it is argued that if during the pendency of litigation one of the principal parties is adjudicated insolvent, that person is not disqualified by reason of his insolvency from appealing.

We have not been shown any authority for this proposition. Under Section 16 of the Provincial Insolvency Act it is the property of the insolvent which becomes vested in a Receiver. There are words which may be read as making insolvency equivalent to the civil death of the individual and taking away his common law rights of action. For protecting the rights of creditors in an insolvent's property; the receiver may appropriately be joined as a party, but it does not follow from this that the insolvent has no locus standi in civil proceedings of this kind.

With respect, it is difficult to follow the reasoning of this case. Even the learned Judges had to observe that there was no authority for this proposition. The learned Judges had also to observe that the effect of the order of adjudication would be that it would be equivalent to the civil death of the individual and taking away his common law rights of action. Yet, the learned Judge held that it does not follow from this that the insolvent has no locus standi in civil proceedings of this kind. What rights remain in an insolvent after his being adjudicated as insolvent has been explained by the Bombay High Court in the case of Ruslomji Ardeshir Cooper v. Byramji Bomanji Talati A.I.R. 1934 Bombay 84. At page 85 it was observed-

However, Mr. Forbes, on behalf of the insolvent, Cooper, has argued that as a matter of fact the right of appeal remains in the insolvent, and does not pass to the Official Assignee, and he asks for time to file his paper book. The way he puts his case is this. He says that this right, if it amounts to anything, is a chose in action, and he relies on the Law stated in Halsbury's Laws of England, Vol. 2, Ed. 2, page 186, para 255, which is in these terms:

All rights of action which relate directly to the bankrupt's property and can be turned into assets for the payment of debts passed to the trustee, but where a cause of action arises from the bodily or mental suffering or personal inconvenience of the bankrupt, or from injury to his person or reputation, then the right of action remains with the bankrupt.

I agree with the contention that this right to set aside the judgment is a chose in action. Under Section 17, Presidency Towns Insolvency Act, all the property of the insolvent passes to the official assignee, except as otherwise provided in the Act, and undoubtedly, the word 'property' is wide enough to cover a chose in action. It is quite clear that this particular judgment does not fall within the second class of cases referred to in the passage in which I have read, because the cause of action does not arise from any bodily or mental suffering for personal inconvenience of the bankrupt or from any injury to which person or reputation; but, in my opinion, the two classes of choses in action, which are referred to in Halsbury, are not exhaustive. The true view is that all choses in action pass, unless they come within the exception which has been established in relation to matters personal to the bankrupt.

The ratio of the Bombay case is that if in the event of a person being declared an insolvent, all his rights in the property would vest in the official assignee except in cases where the cause of action arises from bodily or mental suffering or personal inconvenience of the bankrupt. So, the only rights reserved under the English law, as referred to in Halsbury are the rights which are personal to him. No right or chose in action which is not personal but relates to the property would remain in the insolvent after the order of adjudication. In the light of this Bombay decision, therefore, the view taken by the Madras High Court referred to earlier, cannot be accepted.

9. Mr. Patel then invited my attention to the case of C.S. Ponnuswami Mudaliar v. Subbaraya Mudaliar and Ors. A.I.R. 1947 Madras 298 wherein it was observed-

The amendment of Rule 22 of Order 21 cannot, however, affect the question whether the insolvent was a person interested within the meaning of Order 21, Rule 90: and since it was held in (1940) 1 M.L.J. 711 that an insolvent was a person interested within the ordinary meaning of that expression and that the decisions based on insolvency law in which it was held that the insolvent was not a person aggrieved had no application to petitions under Order 21, Rule 90, it would follow that the learned subordinate Judge was wrong on this point.

The division bench in this case relied upon the case decided by the full bench of the Madras High Court in the case of Manthiri Goundan v. Arunachalam Gaundan and Anr. A.I.R. 1940 Madras 569 wherein it was observed-

The words 'whose interests are affected by the sale' must be construed in their ordinary sense, and it is too much to say that merely because a person is adjudicated insolvent his interests are not adversely affected by the sale of property that belonged to him before adjudication. Hence, the insolvency of the judgment debtor does not per se render it incompetent for him to continue proceedings initiated by him under Order 21, Rule 90.

Reliance was placed by the learned Advocate for the appellant on the case of A. Swaminatha Odayar v. Kalyanarama Ayyangar and Anr. A.I.R. 1933 Madras 694 wherein it was observed-

The expression 'whose interests are affected by the sale' in Order 21, Rule 90 is a wide and comprehensive one. It is not restricted to persons having an interest in present. It is wide enough to include a judgment debtor who has been adjudged insolvent and whose property has vested in the official receiver, especially when the official receiver has not been made actually a party the execution proceedings.

It is thus seen that the Madras High Court has consistently taken a line which completely supports the submissions made by Mr. Patel.

10. As already stated earlier, the decisions of the Madras High Court certainly support the plea of Mr. Patel that it would be competent to an insolvent to proceed under Order 21, Rule 90, C.P. Code for setting aside the sale even independently of the official receiver. However, in view of the Bombay decisions, I am unable to accept the ratio of the decisions of the Madras High Court, with utmost respect. Mr. Patel submitted that under the Insolvency Act, it would not be possible for the official receiver to pursue remedies as contemplated in execution proceedings provided under Order 21, C.P. Code. He, therefore, urged that in order to decide whether the sale was vitiated as a result of irregularities or illegalities committed in the auction sale, it would be in the interest of justice to permit the judgment-debtor to take a proper remedy as provided in Order 21, Rule 90, C.P. Code. If he is not permitted to do so, great injustice is likely to be done to him. The short answer to this plea would be that the proceedings under Order 21, Rule 90, C.P. Code are not prohibited under the provisions of the Insolvency Act and it would be open to the insolvent to approach the official receiver and request him to do the needful in the matter. If the official receiver inspite of the request made by the insolvent-judgment debtor refuses to do so, it would be open to the insolvent to move the court under Section 68 of the Act to do the needful in the matter. Therefore, I do not agree with Mr. Patel that if the insolvent (judgment debtor) is not permitted to act independently of the official receiver, he would be greatly prejudiced. After all, the Provincial Insolvency Act is a special legislation. Under the provisions of that Act, all interests of a person who is declared an insolvent vest in the official receiver. He would have, therefore, no interest in the property whatsoever. A case may arise, as already referred to earlier, that in a case of annulment of the order of adjudication the property may revert back to the judgment debtor. In such a case whether the judgment debtor could be said to have contingent interest inspite of the order of adjudication. This point is considered by the Bombay High Court in the case reported in A.I.R. 1926 Bombay referred to earlier. Therefore, merely because an insolvent may have some contingent interest in the property, it cannot be said that the insolvent would be competent to proceed in an application filed under Order 21, Rule 90, C.P. Code after he is declared an insolvent. In the case of Babu Rama Chaugule v. The Goodwill Bank Ltd. Miraj 75 B.L.R. 561 the division bench was of the view that even a secured creditor cannot take proceedings against an insolvent with regard to the mortgaged property in the absence of the official receiver being brought on record. Mr. Patel referred to a Bombay decision in the case of Ramchandra Genuji Thosar v. Shripati Sukaji Gade and Ors. A.I.R. 1929 Bombay 202 wherein it was observed-

lf during the pendency of a suit a party is adjudicated an insolvent, he is not disqualified by reason of his insolvency from appealing. After the annulment of the order of adjudication, he is entitled to continue the appeal.

11. In my opinion, this case does not help the appellant at all. In that case, after the annulment of the order of adjudication, it was held that he was entitled to continue the appeal. This case is not the case on the point whether the insolvent, during the continuance of the insolvency proceeding, would be competent to file an appeal. This case, therefore, does not help the appellant in any manner.

12. Taking into consideration the scheme of the Insolvency Act particularly Sections 4 and 28 thereof, there is no doubt in my mind that once an order of adjudication is passed, all the interest of the insolvent in his assets would pasts in the official receiver and unless the official receiver chooses to take appropriate proceedings in a court of law, it would not be open to the insolvent to act independently of the said official receiver. He would have no locus standi to do so, so long as the order of adjudication is in force.


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