1. The plaintiff sues for a declaration that a mortgage deed is valid. He is transferee of the mortgagee, 10th defendant.
2. The mortgagors, defendants 1 to 3, were declared insolvent on a creditor's petition. The alleged act of insolvency was the fraudulent execution of this very mortgage and it was prayed that the alienation be declared void. (I.P. No. 53 of 1918, p. 2 of documents.)
3. The 10th defendant got notice of this petition and remained ex parte (paragraph 6 of Order, page 5 of documents). The Judge in his 'Order' found that there was no opposition to the petition to adjudge the debtor insolvent, declared the alienation void and vested the assets in the Official Receiver (paragraph 7). It will be noted that this 'Order' does not in terms adjudicate the debtor an insolvent. But on the same date an. Order of Adjudication was also issued (page 3 of documents). More than that a Court is not required to do under Section 27, Act V of 1920 and it is difficult to say if the 'Order' is more than obiter.
4. A similar order by the same Judge is under consideration in Appireddi v. Appireddi I.L.R. (1921) 45 M. 189 : 41 M.L.J. 606 where it is held, following Hemraj Champa Lall v. Ramkishen Ram (1916) 2 Pat. L.J. 101 that the Judge should not avoid such alienations until moved by the Official Receiver under Section 53, or by an aggrieved party. 'No one else can do so.
5. So much is undisputed. The present question is whether the 10th defendant, and through him the plaintiff, are bound by res judicata because the 10th defendant allowed the proceeding to go ex parte, and suffered this decision that the alienation was void.
6. The learned Judge in the Lower Appellate Court has ingeniously argued that the Bankruptcy Court had inherent jurisdiction to avoid the alienation, and the fact that it was exercised erroneously will not help the plaintiff. But to build up a constructive res judicata it must be found in the first place that the matter was directly and substantially in issue. Can a matter be said to be thus in issue at a stage when the Court cannot go into it? The answer is that it cannot; to hold otherwise would be to treat 'substantially' as meaningless. If the Court from an erroneous view of its powers, proceeds to deal with something not substantially in issue, the absentee party cannot be held bound by that decision. There does not seem to be a case exactly in point, because this sort of error by the Court itself is happily rare. An ex parte decree can only be res judicatfi in respect of a matter in which relief has been claimed in the plaint. But the case has not previously arisen where the relief is claimed but claimed prematurely in the plaint, and the Court has nevertheless passed a decree. I think, that a party is justified in holding that such a relief would never be substantially in issue, because the Court could be trusted to know its powers and to perform its duty, and if on the strength of that belief the party remains absent, an erroneous exercise of the Court's power cannot constitute res judicata.
7. It may also be argued that the adjudication on the Insolvency petition is entirely contained in what is called the Order of Adjudication and the Order of the same date is an informal superfluity which in no case can amount to res judicata. Sardarmal v. Aranvayal Sabhapathy I.L.R. (1896) 21 B. 205 cited by the Lower Appellate Court does not clarify the matter. There the Insolvency
8. Court in the ordinary exercise of its jurisdiction had adjudicated a debtor insolvent, and it was pointed out that its adjudication could not afterwards be treated as a nullity on the mere plea that an act of insolvency had not been proved. The appeal is allowed with costs up to date throughout. The original Court must proceed with plaintiff's suit. The Court-fees in appellate Courts may be refunded.