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T.S. Sailappan Vs. Subbiah Pillai and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Case NumberCivil Revn. Petn. No. 1666 of 1961
Judge
Reported inAIR1963Mad156
ActsProvincial Insolvency Act, 1920 - Sections 20; Code of Civil Procedure (CPC) , 1908 - Order 21, Rules 89 and 90
AppellantT.S. Sailappan
RespondentSubbiah Pillai and ors.
Appellant AdvocateV. Thyagarajan, Adv.
Respondent AdvocateV. Shanmugham and ;S. Bhaskaran, Advs.
DispositionRevision allowed
Cases ReferredMohideen Kutti v. Duraiswami
Excerpt:
.....90 of code of civil procedure, 1908 and section 20 of provincial insolvancy act, 1920 - whether interim receiver appointed under section 20 entitled to apply to set aside court sale of property of debtor under order 21 rule 90 - receiver appointed by court takes charge of property - receiver have authority to institute all necessary proceedings to retain property - receiver makes right of judgment debtor more perfect - receiver have right of appeal against sale of property. - - we will therefore have to examine it in the light of the relevant statutory provisions and certain well recognised principles. thus the possession of the interim receiver is like that of any other receiver, that is, he will be a statutory respresentative of the real owner by virtue of his position as an..........was duly admitted and on 23rd november 1960 the official receiver of tirunelveli was appointed as interim receiver pending disposal of the insolvency petition. the order appointing the interim receiver stated inter alia 'he is directed to take charge of the properties of the respondent-debtor pending disposal of the insolvency petition.' the official receiver entered into possession of the properties. alleging that the execution sale in favour of the first respondent was vitiated by a material irregularity which resulted in the property being sold for less than its proper value, he applied to the executing court under order 21, rule 90 c. p. c. to set aside the sale. though it is not very material for the decision of this reference it may for the sake of completion of the narrative be.....
Judgment:

Ramachandra Iyer, C.J.

1. This reference involves the determination of the question 'whether an interim Receiver appointed under Section 20 of the Provincial Insolvency Act is entitled to apply to set aside a court sale of the property of a debtor under Order 21, Rule 90, C. P. C.'

2. The third respondent in this civil revision petition obtained in O. S. No. 53 of 1955 on the file of the Sub Court, Tirunelveli, a decree against the fourth respondent for the payment of a sum of money. In execution of the decree ha attached and brought to sale certain immoveabla properties of the debtor. In the sale that was held on 4th November 1960 the first respondent who was the highest bidder became the purchaser. Subsequent to the sale and before it was confirmed, i.e., on the 23rd November 1960 another creditor of the fourth respondent applied to the Sub-Court of Tirunelveli in I. P. No. 18 of 1960 to adjudge the latter an insolvent. The petition was duly admitted and on 23rd November 1960 the Official Receiver of Tirunelveli was appointed as interim Receiver pending disposal of the insolvency petition. The order appointing the interim Receiver stated inter alia 'He is directed to take charge of the properties of the respondent-debtor pending disposal of the insolvency petition.' The Official Receiver entered into possession of the properties. Alleging that the execution sale in favour of the first respondent was vitiated by a material irregularity which resulted in the property being sold for less than its proper value, he applied to the executing Court under Order 21, Rule 90 C. P. C. to set aside the sale. Though it is not very material for the decision of this reference it may for the sake of completion of the narrative be stated that the debtor was adjudged insolvent on 13th December 1960.

3. The maintainability of the petition to set aside the sale, filed by the Official Receiver was challenged by the auction purchaser. He contended that an interim receiver appointed under Section 20 of the Provincial Insolvency Act has no interest in the property sold and would therefore have no locus standi to sustain the petition. The learned Subordinate Judge who disposed of the petition in a perfunctory manner did not consider that objection. He assumed, an assumption which was wholly unjustified, that the parties before him were only interested in the decree-holder recovering the monies and if that could be secured, there was no objection to set aside the sale. He accordingly passed a conditional order setting aside the sale directing that if the interim Receiver were todeposit the decree amount with commission and poundage within a month from the date of the order, the sale would stand set aside; failing compliance, the petition to stand dismissed. The auction purchaser whose existence and rights were completely ignored by the executing Court filed an appeal to the District Court. The learned District Judge found that there was no justification for disposing of the application on any consent of the parties. He accepted the contentions of the auction purchaser that the interim Receiver had no locus standi to file the application for setting aside the sale and dismissed that application in limine.

4. A creditor of the insolvent has filed this civil revision petition against that order. No objection has been taken on behalf of the respondents to the maintainability of the civil revision petition at the instance of the creditor who was a third party to the proceedings in the lower court.

5. The view taken by the learned District Judge that an interim receiver appointed under Section 20 of the Provincial Insolvency Act has no locus stand! to maintain an application for setting aside a court sale of the debtor's properties under Order 21 Rule 90 C. P. C. is supported by the decision in Official Receiver, Ramnad v. Veerappa Chettiar, ILR (1943) Mad 577 : AIR 1943 Mad 199. The correctness of this decision has, however, been canvassed before us. We will therefore have to examine it in the light of the relevant statutory provisions and certain well recognised principles.

6. Section 20 of the Provincial Insolvency Act empowers the Court while admitting a petition to adjudicate a debtor an insolvent to appoint an interim Receiver for the properties of the debtor or any part thereof. While so appointing, the Court may direct him to take immediate possession of the properties and the interim Receiver will thereupon have such of the powers as the Court may direct as are conferrable on a receiver appointed under the Civil Procedure Code. But the appointment of the interim Receiver does not have the effect of vesting or transferring title in the property to him. The real purpose of such appointment is to preserve the assets of the debtor for the benefit of the general body of creditors in case the main petition were to result in an adjudication of the debtor. After an adjudication however the property of the debtor will vest in the Official Receiver (under the provisions of the Provincial Insolvency Act) as and from the date of the presentation of the petition.

Therefore the interim Receiver's duty will in such a case be to preserve the assets of the insolvent and hand them over to the Official Receiver on the adjudication of the debtor. Even if the petition were to be dismissed, his possession will be for the benefit of the owner of the property, namely, the debtor. Thus the possession of the interim Receiver is like that of any other Receiver, that is, he will be a statutory respresentative of the real owner by virtue of his position as an officer of Court in whose custody the property is placed. The insolvency Court which has the power to take into its custody the property of the debtor pending a petition to adjudicate will therefore be competent to give such directions as may -be necessary for its preservation or even for making the title of the debtor in relation thereto, more perfect. There can be little doubt that if the terms of the order appointing a Receiver justify or if the Court gives appropriate direction to the interim Receiver to file an application for setting aside a sale of the debtor's property he would be entitled to file an application for that purpose.

It will be sound practice, therefore in all such cases for the Receiver to apply to the Court from which he derives his authority for directions to file suits or applications in relation to the administration of properties which are entrusted to his charge under or by virtue of the order appointinghim a Receiver. But such a course, namely applying to the insolvency Court for directions will not be necessary where the order of appointment itself either expressly or impliedly empowers the Receiver to institute proceedings in court with a view to protect the property of the debtor or to recover possession of such property.

7. The appointment of an interim Receiver does not, as stated before, affect the title to the properties which, notwithstanding such appointment, will continue to reside in the debtor; but the interim Receiver can with the leave of Court or by himself if the terms of his appointment justify, apply for setting aside the sale under Order 21 Rule 90 C. P. C. as such a step is intended to preserve and protect the debtor's title add possession. In other words, the right to institute proceedings with respect to the properties of the insolvent is not necessarily dependent on the vesting of any title in the Receiver. Even if there has been no such vesting, the order appointing the Receiver which thereby takes the property of the party in the custody of law, will have the jurisdiction to authorise a Receiver to institute proceedings. The question in each case will only be whether there has been such authorisation either expressly or impliedly. Apart from that principle there may also be other cases where a Receivet will have an independent right to institute proceedings, that is, where his interests can be said to be affected. This latter aspect is adverted, to thus by Fry L. J. in In Re Sacker Ex parte Sacker, (1888) 22 QBD 179 :

'As a general rule, a Receiver cannot maintain an action to compel obedience to an order for the delivery of goods or the payment of money to him by a party to the action. There may, no doubt, be exceptional cases in which a Receiver can bring an action in his own name, when for instance he is the holder of a bill of exchange. In that case he can maintain an action not because he is a Receiver, but because he is a holder of the bill. So too, if he is possessed of chattels as Receiver and those chattels are unlawfully detained from him he may well be able to maintain an action to recover them as being a person in possession of them quite independently of the fact that he is a receiver. And there may be other cases in which having an independent cause of action the fact that he is a Receiver does not disqualify him from suing.'

8. Thus a Receiver who under the authority of the order of Court has entered possession of the property but is disturbed in regard to such possession can maintain in his own name an action to obtain an injunction to protect his possession or even to recover possession where he is dispossessed, If he can file a suit, it would follow that he can maintain an application for preserving possession in cases where the procedural law of the country enables relief being obtained thereby.

9. Let us apply what is stated above to the concrete facts of this case if only to make the principle more clear. The order appointing the interim Receiver directed him to take charge of the debtor's property. That means that the property which was then in possession of the debtor is to be taken into custody of the Receiver and he is to retainsuch possession pending disposal of the insolvency petition. Till then at any rate the debtor had been in actual possession of the property which had been sold in execution, as the execution sale had yet to be confirmed. Indeed it will be only on confirmation of the sale that title will be transferred to the purchaser although once there is confirmation the title will be deemed to vest from the date of the court sale. The confirmation of sale will be dependent on an application being filed under Order 21 Rule 89, 90 or 91 C. P. C. or if one were filed it being unsuccessful. If, there has been an improper sale, the protection of the property of the debtor, against title vesting in a purchaser, under such a sale, would itself require proceedings being taken by the Receiver for the purpose.

He should therefore have the right to take such proceedings because he will be bound to protect and preserve the property. Again an interim Receiver as the person entrusted with possession should prima facie be entitled to preserve the property against all persons who have no title to the same. If another person, namely, the purchaser, has acquired an inchoate or imperfect title thereto but such title would be made perfect by the inaction of the Receiver, it will be his duty to take proceedings so as not to allow the purchaser perfect his title as otherwise the possession of the properties entrusted to his charge will be lost. To this extent and for effectuating the purpose of his appointment he should be held to have an interest in the property entrusted to his charge.

10. Order 21 Rule 90 Civil Procedure Code enables any person whose interests are affected by a Court sale to apply to the executing Court to set aside the sale on the ground of material irregularity or fraud in publishing or conducting it provided that the sale has resulted in the judgment-debtor sustaining substantial injury. The words of the rule are wider than those in Order 21 Rule 89 Civil Procedure Code which enables only a person 'holding an interest' in the property sold to apply for setting aside the sale. Thus while R. 89 requires that the applicant should have an interest in the property, it would be sufficient for the purpose of Rule 90 if the applicant's interests are affected by the sale. A person charged with possession of the property and who has an interest in retaining such possession will prima facie come under that provision. Let us first see how the I Courts have considered the position of an interim Receiver in regard to an application under Order 21 Rule 80, which requires an interest in the property in the applicant.

In Official Receiver, Tanjore v. Sankara Iyer, 50 MLJ 239 : AIR 1926 Mad 35, Jackson, J., accepted the position that an interim Receiver who was appointed subsequent to the date of the Court sale could maintain the application if the Court that appointed him gave him the authority to do so. The matter was viewed in a different aspect in Ankayya v. Official Receiver : AIR1937Mad589 , where Venkataramana Rao, J., who observed that what the Receiver rightly did with regard to the property, he could be properly regarded as having done as the agent of the owner of the property or the person interested in theproperty. The learned Judge was prepared to put a more liberal interpretation on section 20 of the Provincial Insolvency Act when he held that an interim Receiver appointed pending adjudication of the debtor an insolvent, would have the power to reduce to his possession of the property of the debtor, that he would have an interest in the property for that purpose and that such interest would be sufficient to entitle him to file an application under Order 21 Rule 89.

As we indicated earlier, Order 21 Rule 90 is of wider amplitude in regard to the class of persons who can apply under it. In Ayyappa v. Kasiperumal, ILR (1939) Mad 374 : AIR 1939 Mad 250 a Full Bench of this Court held that even a person who had obtained an attachment before judgment would come within the category of 'persons whose interests are affected' albeit attachment as such created no interest in the property. The learned Chief Justice in the course of his judgment observed that the words 'whose interests are affected by the sale', would cover a wider class of persons than those having a proprietary or possessory title to the property. In Adanamoli Chetti v. Chinnaswamt : AIR1926Mad959 Ramesam, J., held that a reversioner who would be entitled to inherit the properties after the termination of a Hindu woman's estate would have sufficient interest in the property to enable him to apply under Order 21 Rule 89 or Rule 90 Civil Procedure Code.

11. But it must at the same time be recognised that wide as the terms of Order 21 Rule 90 are, it would not cover any remote or hypothetical interest in the property that is sold. As Rajamannar, C. J., observed in Murugappa Chettiar v. Kannamma Achi, : AIR1959Mad76 , the interest affected should be such as were directly and immediately likely to be affected. The question now before us directly arose for consideration in Subramania Ayyar v. Dharapuram Janopakara Nidhi Ltd., : AIR1928Mad454 , where Phillips, J., upheld the right of an interim Receiver appointed to take charge of the debtor's properties pending an insolvency petition to apply under that rule to have the Court sale of the debtor's property set aside. This decision was distinguished in ILR (1943) Mad 577 : AIR 1943 Mad 199 as one where the court sale took place after the interim Receiver had been appointed and not applicable to cases where he was directed to take charge of the debtor's properties after the date of the court sale.

12. We are with great respect to the eminent Judges who decided the later case, unable to agree that there can be any substantial distinction so far as the applicability of Rule 90 is concerned between a case where a sale takes place after the appointment of a Receiver and one which took place before such appointment. In either case the insolvency Court could by the terms of appointment or otherwise confer on the Receiver authority to take proceedings to set aside the sale. Secondly in both the cases if the Receiver takes possession of the property (which before confirmation of the sale could only be with the debtor) he should be competent to take proceedings to retain such possession. Again where the Receiver is appointedafter the execution sale but before its confirmation, the debtor can certainly take proceedings to set aside the sale. It stands to reason that the interim Receiver, who in certain respects is his representative, should also be eligible to file all those applications for the protection of the property.

In ILR (1943) Mad 577 : AIR 1943 Mad. 199, the main argument advanced in support of the interim Receiver's authority was that he as the representative of the creditors would be entitled to file the application under Order 21 Rule go Civil Procedure Code as a person entitled to share in the rateable distribution of the assets received in Court by reason of the sale and as one whose interests are identical with the creditors. The learned Judges repelled that contention. We are in respectful agreement with that view. A creditor as such cannot be said to be directly and, immediately affected by the sale at the instance of a decree-holder of their debtor and a Receiver who would under certain circumstances represent his interests can in no sense be said to be interested in the sale.

13. But that was not the only reason for the decision. It was also held that on the terms of Rule 90 the interest of the party applying should be such as could be said to have subsisted on the date of sale and that condition not having been satisfied in a case where the Receiver took charge-after such date, he should not be held to be a person affected by the sale. We would with all deference to the learned judges, prefer to look at the matter from a different point of view. The debtor had undoubtedly the right to file the application to save his property from being taken away by an irregular sale; he would also have been in possession of the property as the question of setting aside the sale would arise only before its confirmation. When the insolvency Court removes him from such possession and commits it to the charge of the Receiver, there is at least an implied direction to him to preserve it till the disposal of the insolvency petition. The direction to hold charge of the property carries with it the direction to file an application to set aside the sale as otherwise the order of the Court would be rendered nugatory and of no avail. The interim Receiver's right to file the application, therefore, arises by virtue of the order of the insolvency Court and not by virtue alone of any independent right of his. This aspect of the matter has not, however, been considered in the decision referred to above. That decision, no doubt, has been cited with approval in : AIR1959Mad76 , but the question in the present form did not fall to be decided in the later case which related to a simple money creditor of a debtor seeking to apply under Rule 90.

14. The question whether an ordinary receiver in whom no title to the property vests, who is nothing more than a mere custodian directed to take charge of the same pending proceedings in a Court could, if authorised to sue, sue in his own name was considered in Jagat Tarini Dasi v. Naba Gopal Chaki, ILR 34 Cal 305, where it was observed :

'But although the Receiver has not the titleto the property, and although he is a custodian to take charge of and hold the property during or pending litigation, it does not necessarily follow, that if he is authorised to sue, he cannot sue in his own name. Though he is in one sense a custodianof the property of the person, whom in certain respects he is made to supplant, there seems to be no reason why his power should not be held to he co-extensive with his functions. It is clear that he cannot conveniently perform those functions, unless upon the theory that he has sufficient interest in the subject-matter committed to him, to enable him to sue in respect thereof by virtueof his office, in his own name. If the matter is regarded from the point of view of convenience, there can be no doubt, that the rule allowing a Receiver to sue in his own name is the preferable one. Thus, for instance, a Receiver may be appointed in a suit in which there is a dispute as to the title of the property, and if the Receiver was compelled to sue in the name of the true owner, he could not do so, because the question of the true ownership is the subject-matter of the litigation.

He could not very well sue in the name or both the contesting parties as one of them admittedly has no title; nor could he sue in the name of the party at whose instance he was appointed, because the order of the appointment of a Receiver gives no advantage to the party applying for it and at whose instance it is made, over other claimants of the property. If, therefore, a Receiver is appointed in the course of a suit by A against B to recover a zamindari, and a Receiver, who has been authorised to sue for the recovery of arrearof rent from the tenants of the property, cannot sue them in his own name, the very object of the appointment of a receiver might be defeated. On the whole, we are disposed to take the view that, although a receiver is not the assignee or beneficial owner of the property entrusted to his care, it is an incomplete and inaccurate statement of his relations to the property to say that he is merely its custodian.

When a Court has taken property into his own charge and custody for the purpose of administration in accordance with the ultimate rights of the parties to the litigation, it is in custodia legis. The title of the property for the time being and for the purpose of the administration, may, in a sense, be said to be in the Court. The Receiver is appointed for the benefit of all concerned; he is the representative of the Court, and of all parties interested in the litigation, wherein he is appointed. He is the right arm of the court in exercising the jurisdiction invoked in such cases for administering the property; the Court can only administer through a Receiver. For this reason, all suits to collect or obtain possession of the property must be prosecuted by the Receiver, and the proceeds received and controlled by him alone ... .................. The Receiver, as an officer of theCourt which has taken control of the property, is for the time being, and for the purpose of the administration of the assets the real party interested in the litigation; there is no substantial reason, therefore, why the suit should not be instituted in his own name.'

15. This ruling was accepted by a Bench ofthis Court in Mohideen Kutti v. Duraiswami, : AIR1952Mad51 , where it was held that a Receiver as the statutory representative of the owner could continue execution proceedings originally commenced by the latter. This principle will apply with greater force in insolvency as after adjudication the title of the Official Referee will relate back. A contrary conclusion would, undoubtedly, lead to inconvenient results and even facilitate fraud being committed by a debtor. We can best show this by an illustration. Suppose, a debtor finding adjudication as a bankrupt inevitable, allows a creditor to sell his property through Court. Even if such a sale is vitiated by irregularities and the price fetched is substantially low, the debtor may not care to have it set aside or he might even collude with the execution creditor and not take proceedings to have it set aside. How in such a case is the property to be saved against the improper sale except through the interim receiver? It may be that adjudication is made long afterwards and the Official Receiver in whom the title vests retrospectively might not be in a position to have the sale set aside. But it is unnecessary to rest our conclusion on any argument of inconvenience.

In cases where an interim Receiver is appointed under Section 20 of the Provincial Insolvency Act, subsequent to the date of the execution sale as well as in cases where he has been appointed before we are of opinion that it is perfectly competent to the insolvency Court to clothe the Receiver with authority to take proceedings to set aside the sale. Such authority can be given expressly or even impliedly and if such Court directs the interim Receiver to take charge of the property which had been sold (the sale not having been confirmed), he would have authority to institute all necessary proceedings to retain the property and thereby make the title of the debtor more perfect. We, therefore, agree with the decision in : AIR1928Mad454 . The decision in ILR (1943) Mad 577 : AIR 1943 Mad 199 cannot therefore be held to be correctly decided. The question set out for determination is answered in the affirmative. The civil revision petition is allowed and the application filed for setting aside the sale is remanded to the trial Court for disposal in accordance with law. No order as to costs.


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