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Bachu Mallikarjuna Rao Vs. the Official Receiver and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1938Mad449; (1938)1MLJ471
AppellantBachu Mallikarjuna Rao
RespondentThe Official Receiver and ors.
Cases ReferredGuardians of Parish of Brighton v. Guardians of Strand Union
Excerpt:
.....jj. the learned judge says on page 611: it is perfectly obvious why notice is necessary to the official receiver in a special sense, because as the whole right, title and interest of the insolvent's property has after adjudication become vested in the official receiver, no title by sale or otherwise can be acquired without his concurrence. it is quite true that under the decision of the privy council the sale would have been bad if the official receiver had not been given notice; but it does not follow that since the official receiver was given notice the sale is good. but under section 51(3) in all cases the purchaser of the property of the debtor acquires a good title as against the receiver; it was necessary to make a provision like section 51(3) by reason of the provisions of..........but the learned subordinate judge refused to stay the sale. on the 4th december, 1935, the official receiver was impleaded in the execution petition. he did not appear on the 9th december, the date fixed for sale, but in response to the notice served upon him on the 4th december, he replied to the executing court that the property of the third judgment-debtor had vested in him upon adjudication, and he requested that the property of the third judgment-debtor might be handed over to him. the learned subordinate judge allowed the sale to proceed, and the present appellant purchased what was put up for sale as the property of the third judgment-debtor for rs. 5,000 odd. the official receiver applied under section 47 and order 21, rule 90, civil procedure code, to have the sale set.....
Judgment:

Burn, J.

1. The facts in this case are quite simple. The appellant is the purchaser at a sale held in execution on the 10th December, 1935. The decree was passed on the I6th April, 1935, and the execution petition was put in on the next day. An order for sale was passed on the 21st October, 1935, but four days before that, namely, on the 17th October, 1935, one of the judgment-debtors (third defendant in the suit) had been adjudicated insolvent in I.P. No. 15 of 1935. It was the property of the third defendant that had been attached in E.P. No. 87 of 1935 and proclaimed for sale in the order passed on the 21st October, iy35. On the 19th November, 1935, one of the creditors of the insolvent judgment-debtor put in an application in which he informed the executing Court of the adjudication of the third defendant, but the learned Subordinate Judge refused to stay the sale. On the 4th December, 1935, the Official Receiver was impleaded in the execution petition. He did not appear on the 9th December, the date fixed for sale, but in response to the notice served upon him on the 4th December, he replied to the executing Court that the property of the third judgment-debtor had vested in him upon adjudication, and he requested that the property of the third judgment-debtor might be handed over to him. The learned Subordinate Judge allowed the sale to proceed, and the present appellant purchased what was put up for sale as the property of the third judgment-debtor for Rs. 5,000 odd. The Official Receiver applied under Section 47 and Order 21, Rule 90, Civil Procedure Code, to have the sale set aside, alleging that after the adjudication of the third judgment-debtor the Court had no jurisdiction to sell his properties in execution, and that the sale after the adjudication was a material irregularity in the conduct of the sale. The learned Subordinate Judge who disposed of this application was the successor of the Subordinate Judge who ordered the sale to proceed. He held that the sale was invalid on the ground that the property of the third judgment-debtor had vested in the Official Receiver under Section 28(2) of the Provincial Insolvency Act, and that therefore no Court had power to proceed to sell the property. The purchaser in execution has-preferred this appeal.

2. The question for consideration, therefore, is whether a Court executing a decree has power to sell a judgment-debtor's property after the judgment-debtor has been adjudicated insolvent. The case of the Official Receiver (respondent) is, as stated by the learned Subordinate Judge, that upon adjudication the judgment-debtor's property vested at once in the-Official Receiver, and that therefore the executing Court had no power to sell. The case of the appellant is based upon Section 51(3) of the Provincial Insolvency Act which declares that:

A person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title to it against the receiver.

3. Mr. Satyanarayana Rao who argued the case for the appellant points to the wide terms of Section 51(3) and relies very strongly upon the case of Muthan Chettiar v. Venkituswami Naicken : AIR1936Mad819 . He relies also upon the case of Ramanatha Mudaliar v. Vijayaraghavalu Naidu : AIR1927Mad983 , Dineshchandra Ray Chaudhuri v. Jahanali Biswas I.L.R. (1934) Cal. 457, Madhu Sudan Pal v. Parbati Sundari Dasya (1916) 35 I.C. 643, Sankaralinga Mudaliar v. Official Receiver of Tinnevelly : AIR1926Mad72 and Rajagopala Aiyar v. Ramanujachariar (1923) 46 M.L.J. 104 : I.L.R. 47 Mad. 288. Mr. Govindarajachari, who appears for the Official Receiver, contends that since immediately upon adjudication the property of the third judgment-debtor vested in the Official Receiver there was nothing left for the executing Court to sell in execution and he relies upon the Privy Council case of Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.), followed in this Court in Anantharama Aiyar v. Kuttimalu Kovilamma : (1916)30MLJ611 , some observations of Odgers, J., in Nainar Rowthen v. Kuppu Pichai Rowthen : AIR1929Mad609 and certain observations of Waller, J., in Sivaswami Odayar v. Subramania Aiyar (1931) 62 M.L.J. 68 : I.L.R. 55 Mad. 316.

4. Now there is no doubt about the all-embracing character of the words in Section 51(3) of the Provincial Insolvency Act. It does expressly say that a person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title against the Receiver. But it must be borne in mind that Section 51 of the Provincial Insolvency Act comes under the heading 'effect of insolvency on antecedent transactions,' and although it has been pointed out by Waller, J., in Sivasami Odayar v. Subramania Aiyar (1931) 62 M.L.J. 68 : I.L.R. 55 Mad. 316 that Section 52 in its present form is entirely out of place under that heading, it has never been suggested that Section 51 is out of place. It would seem to follow that Section 51 can only govern transactions prior to insolvency, that is, prior to adjudication. If that is so, the words 'in all cases' in Section 51(3) can only mean in all cases prior to adjudication for no part of this section can have any bearing upon transactions subsequent to adjudication. This aspect of the matter has been more fully discussed by my learned brother whose judgment 1 have had the advantage of reading, and with whom I am in agreement.

5. Again it must be noticed that Section 51(3) deals with purchase of the 'property of a debtor'. Now upon adjudication the property of an insolvent vests immediately in the Official Receiver, that is, the property passes to the' Official Receiver, and in so far as the judgment-debtor is concerned, there is no property of his which can be sold by the executing Court. This was very clearly stated by their Lordships of the Privy Council in the case of Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.). The judgment of Lord Parker states that in their Lordships' opinion the sale in that case was altogether 'irregular and inoperative'. His Lordship goes on to state three grounds for this opinion:

In the first place the property having passed to the Official Assignee, it was wrong to allow the sale to proceed at all. The judgment-creditors had no charge on the land, and the Court could not properly give them such a charge at the expense of the other creditors of the insolvents. In the second place no proper steps had been taken to bring the Official Assignee before the Court and obtain an order binding on him, and accordingly he was not bound by anything which was done. In the third place the judgment-debtors had at the time of the sale no right, title or interest which could be sold to or vested in a purchaser, and consequently the respondents acquired no title to the property.

6. It will be seen that the first two grounds stated by Lord Parker relate to matters of procedure, namely, (1) the sale ought not to have been allowed to go on, and (2) the sale should certainly not have been allowed to go on without notice to the Official Assignee. These clearly are the grounds on which their Lordships held the sale to be 'irregular'. The third ground however is a matter of substantive right. The right, title and interest of the judgment-debtor having passed to the Official Assignee there was nothing left for the Court to sell in execution. That is why their Lordships say that the sale, besides being irregular was 'inoperative'.

7. This decision of their Lordships of the Privy Council is, in my judgment, conclusive. It has been referred to on many occasions, and in some of the cases quoted by Mr. Satyanarayana Rao as those upon which he relies, but in none of these cases has any attempt been made to explain away the third ground for the decision of their Lordships of the Privy Council. For example, beginning with the earliest case of Madhu Sudan Pal v. Parbati Sundari Dasya (1916) 65 I.C. 643, the learned Judges rely upon Section 34(3) of the Provincial Insolvency Act of 1907 corresponding to Section 51(3) of the Act of 1920, but they make no reference whatever to the decision of the Privy Council in Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.). The case of Rajagopala Aiyar v. Ramanujachariar (1923) 46 M.L.J. 104 : I.L.R. 47 Mad. 288 was not a case in insolvency. The question referred to the Full Bench in that case was one of limitation, and the Full Bench held that a sale held in execution without notice to the legal representative of the judgment-debtor under Order 21, Rule 22, Civil Procedure Code, was a nullity. The learned Chief Justice on page 300 expressly relies upon the Privy Council case of Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.) as authority for the proposition that a sale in execution without proper notice under the section of the old Code which corresponded to Order 21, Rule 22, Civil Procedure Code, was a nullity. The case of Sankaralinga Mudaliar v. Official Receiver of Tinnevelly : AIR1926Mad72 deals with an entirely different point, namely, whether an attachment before judgment followed by a decree prior to the judgment-debtor's death has the effect of precluding the accrual of title by survivorship as against the attaching creditor in the same way as an attachment after decree. There is no reference to Section 34(3) of the Provincial Insolvency Act and no reference to the Privy Council case of Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.). The judgment of Wallace, J., in Ramanatha Mudaliar v. Vijayaraghavalu Naidu : AIR1927Mad983 was delivered in a case which is hardly parallel. There the Court had ordered summary administration under Section 74 of the Act. Wallace, J., held that upon the order for summary administration the property of the debtor under Section 74(2) vests in the Court as a receiver on the date of the admission of the insolvency petition. It is clear that this is not an authority applicable to a case where the property has, vested in the Official Receiver. In the case of Dineshchandra Ray Chaudhuri v. Jahanali Biswas I.L.R. (1934) Cal. 457, the question dealt with was the effect of service or non-service of a notice under Order 21, Rule 22 Civil Procedure Code. On page 480 it is stated as follows:

In support of the appeal to this Court it was argued before us that the sale sought to be avoided by the Receiver was a nullity in view of the non-compliance with the provisions of Order 21, Rule 22, Civil Procedure Code; it was contended that the property, having been sold on the 22nd September, 1932, after the judgment-debtor was adjudicated insolvent, and no notices having been served on the legal representative of the judgment-debtor as required by Order 21, Rule 22, the sale was void ab initio.

8. Their Lordships held that the sale in that case was not void because it was not the fault of the decree-holders that no notice had been served upon the Official Receiver. There is a reference to the Privy Council case but their Lordships held that it had no application to the case before them. Their Lordships dealt with the judgment of the Privy Council only on the question of the effect of want of service of notice to the representative of the judgment-debtor. They did not deal with the third ground upon which the judgment of the-Privy Council was based. The most recent case, and the one most strongly relied upon by Mr. Satyanarayana Rao is the case of Muthan Chettiar v. Venkituswami Naicken : AIR1936Mad819 . That was a case of a sale held after the admission of the insolvency petition but before adjudication and it was decided that the sale was good as against the receiver. Mr. Satyanarayana Rao relies upon certain observations made obiter by Sir M. Venkatasubba Rao, J. The learned Judge considers that Section 51(3) applies to all cases, whether the sale is held before the adjudication or after the adjudication. He holds that the Privy Council case of Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.) does not apply because in the Indian Insolvency Act there was no provision corresponding to Section 51(2). There is however no discussion by the learned Judge of what appears to me, I say it with great respect, to be the most weighty reason for the decision of their Lordships of the Privy Council, namely, that the insolvent's property having vested in the Official Receiver upon adjudication, there is nothing left which an. executing Court can sell as the property of the debtor.

9. On the other hand Mr. Govindarajachari is able to point to an explicit authority in this Court, Anantharama Aiyar v. Kuttimalu Kovilamma : (1916)30MLJ611 . This case is particularly important because it was decided under the Act of 1907 in which Section 34(3) corresponded precisely with the present Section 51(3). There is a reference to Section 34(3), and in spite of the existence of that provision, Sadasiva Aiyar and Moore, JJ., held that a sale after adjudication must be a nullity. This they held on two grounds, firstly, that the sale was altogether irregular having been made in violation of the provisions of Section 34(1) after the Official Receiver had notified the Court of the presentation of an insolvency petition. They go on to say that the sale was also wholly inoperative:

We are also of opinion that the judgment-debtor had at the time of the sale no right, title and interest which could be sold or vested in a purchaser, and that consequently the 2nd respondent acquired no title to the property, which had passed to the Receiver on the adjudication order being made. See Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.).

10. So far as I am aware there is no authority in this Court to the contrary and I am therefore bound to follow it. I do so with greater readiness because with due respect I consider it to be altogether sound. This decision is supported by the observations made by Waller, J., in the case of Sivaswami Odayar v. Subramania Aiyar (1931) 62 M.L.J. 68 : I.L.R. 55 Mad. 316. In that case, the Official Receiver who had been appointed interim Receiver of a debtor's land, applied to the Court under Section 52 of the Provincial Insolvency Act to adjourn the sale. The Court refused to adjourn the sale and the sale was held, and subsequently, on the Official Receiver's application to have the sale set aside, his application was dismissed by the executing Court, a decision which was finally upheld by the High Court in Subramania Aiyar v. Official Receiver, Tanjore (925) 50 M.L.J. 665. Waller, J., however held that

The Official Receiver was quite justified in declining to recognise the title of the auction purchaser under a sale that should not have taken place or been confirmed by a court which was required peremptorily by the statute to stay its hand and to transfer the attached property to the Receiver.

11. In Nainar Rowthen v. Kuppu Pichai Rowthen : AIR1929Mad609 , Odgers, J., though not referring to Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.) made certain observations which are in point. The learned Judge says on page 611:

It is perfectly obvious why notice is necessary to the Official Receiver in a special sense, because as the whole right, title and interest of the insolvent's property has after adjudication become vested in the Official Receiver, no title by sale or otherwise can be acquired without his concurrence.

12. I cannot accept the contention that since the Official Receiver was given a notice in the execution proceedings in this case therefore he is bound by the sale. That, as I have already observed, is a question of procedure only. It is quite true that under the decision of the Privy Council the sale would have been bad if the Official Receiver had not been given notice; but it does not follow that since the Official Receiver was given notice the sale is good. If A is the judgment-debtor and the executing Court sells B's property in execution of the decree against A, the sale must be a nullity (it seems to me) whether it is held behind the back of B or before his face. The mere giving of a notice to B in the execution petition cannot confer upon the Court the power to sell his property to satisfy a decree against another.

13. I do not think that this interpretation leads to any great difficulties. Section 51(3) in my judgment can only refer to all cases of execution sales held before adjudication. Section 51(1) provides that no person shall be entitled to the benefit of execution against the Receiver except in respect of assets realised in the course of the execution by sale or otherwise before the date of the admission of the petition. If a sale is held before the insolvency petition is admitted, the judgment-creditor can retain the sale proceeds. If it is held after the presentation of the insolvency petition, the judgment-creditor cannot retain the sale proceeds as against the Official Receiver. But under Section 51(3) in all cases the purchaser of the property of the debtor acquires a good title as against the Receiver; in other words the sale cannot be set aside. It was necessary to make a provision like Section 51(3) by reason of the provisions of Section 28. By Section 28(7) an order of adjudication shall relate back to, and take effect from, the date of the presentation of the insolvency petition. This would have the effect of making the insolvent's property vest' in the Official Receiver with effect from the date of the insolvency petition and therefore if there were no such provision as Section 51(3), any sales held in execution between the date of presentation of the insolvency petition and the date of adjudication would have to be considered null and void. It is to prevent this effect of the doctrine of relation back that Section 51(3) is introduced: but it can clearly not operate in cases of sales held after adjudication for the two reasons which I have already indicated, namely, (1) that it comes in the Insolvency Act amongst a set of provisions dealing with the effect of insolvency (that is, adjudication) on antecedent transactions and (2) that after adjudication the debtor has no property which can be sold execution.

14. I would therefore hold that the decision of the learned Subordinate Judge is correct and that this appeal should be dismissed with costs of the first respondent.

Mockett, J.

15. The difficulty in this case is in my opinion due to the lax use of the word 'debtor' throughout the Provincial Insolvency Act. In many sections it is used as meaning the insolvent although in Section 55 it is used as meaning the debtor. It seems to be clear that a debtor and an insolvent are strictly speaking different persons. The use of the word 'insolvent' in the Indian Acts is represented by 'bankrupt' in the English Bankruptcy Act, but in England 'insolvency' is used in a rather general sense as indicating a stage prior to adjudication, for example, vide Section 94, Bankruptcy Act, 1914, where a trustee against whom a receiving order has been made has to vacate his office by reason of insolvency. Under the Bankruptcy Act, 1914, the word 'debtor' is dealt with in Section 1, Sub-section (2) and the meaning seems to be a person liable to bankruptcy proceedings who is under Section 1(2) amenable to the jurisdiction of the English Bankruptcy Court. Vide Williams Notes to Section 1, Bankruptcy Act. He is a person liable to adjudication but not yet adjudicated. Section 18 of the Bankruptcy Act emphasises the difference. The section says:

Where a receiving order is made against a debtor, then (if certain conditions are fulfilled) the Court shall adjudge the debtor bankrupt; and thereupon the property of the bankrupt shall become divisible among his creditors.

16. It seems to me beyond doubt that an insolvent under the Indian Insolvency Act means a person against whom an order of adjudication has been made and that a debtor is a person who has made himself amenable to adjudication but who hrs not yet been adjudicated. Can it be doubted that it might well be defamatory to describe a debtor against whom a petition was pending as 'an insolvent' as in England 'a bankrupt'? The fact that the draftsman of the Provincial Insolvency Act has had little regard to the special meaning of the words 'debtor' and 'insolvent' does not seem to me in any way to affect the matter. For instance, in Section 27(1) and (2), Provincial Insolvency Act, a person who has been adjudicated is referred to as a debtor, whereas in Section 28(2) he is quite correctly described as the insolvent and Section 28(2) says:

On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court....

17. In Section 31(1) a person who has been adjudicated is described as an insolvent, whereas in Sub-section (2) he is spoken of as a debtor and in Sub-section (3) again he is referred to as an insolvent. It is unnecessary to give further examples but perhaps Section 59 is another striking example of an adjudicated person being called both a debtor and an insolvent in the same section. It is, therefore, necessary, in order to ascertain what meaning is to be given to the word 'debtor' in a particular section, to examine that section having regard to its context and we have to consider in this appeal what is its meaning in Section 51(3) of the Provincial Insolvency Act. If the word 'debtor' is to be used as meaning an insolvent, that is, a person who has been adjudicated, then in spite of the decision of the Judicial Committee in Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp 251 : I.L.R. 42 Cal. 72 (P.C.) where no provision similar to Section 51(3) of the Provincial Insolvency Act had to be considered, 1 should feel constrained to hold that the Indian legislature intended to give sanctity to sales by the Court in all cases and that 'all cases' means sales both before and after adjudication. But, can such a meaning be attached to the word 'debtor' in Section 51(3)? I think not. In such a case as this, it is necessary to call in aid the rules of construction of statutes and in this matter I derive from them considerable assistance. Section 51, Provincial Insolvency Act, is the first of five sections under the heading 'effect of insolvency on antecedent transactions' which, paraphrased, means 'the effect on transaction which took place before the order of adjudication of the insolvent had been made'. In Eastern Counties, etc., Cos. v. Francis Marriage (1860) 9 H.C.L. 32 : 11 E.R. 639 which concerns the construction of two sections of the Land Clauses Consolidation Act, Baron Channel in order to ascertain the meaning of the section, discusses the value of headings in interpreting statutes. He says at page 41:

In different parts of the Act there are to be found classes of enactments applicable to some special object. Such enactments are in many instances preceded by a heading, special, no doubt in one sense, as addressed to the object or purpose, but, where not otherwise provided for, general in its application to the enactments passed to accomplish the object. These various headings are not to be treated as if they were marginal notes, or were introduced into the Act merely for the purpose of classifying the enactments. They constitute an important part of the Act itself. They may be read, I think, not only as explaining the sections which immediately follow them, as a preamble to a statute may be looked to, to explain its enactments, but as affording, as it appears to me, a better key to the constructions of the sections which follow than might be afforded by a mere preamble.

18. Baron Channell was recording his opinion as one of the Judges summoned to the House of Lords. Lord Wensleydale says at page 68:

I am of opinion that an Act penned as this is, cannot be read as a continuous enactment would be; various clauses relating to each separate subject are collected under various heads, with an appropriate heading to each class, which must apply to the whole of that class to which it is the heading, and the meaning of this heading, 'and with respect to small portions of intersected land, be it enacted as follows,' is equivalent to saying, that all the enactments or sections of the statute contained under that head relate to small portions of intersected land, and they must, therefore, be construed so to relate.

19. Lord Wensleydale approves the observations of Baron Channell:

It is a rule of construction that where in the same Act of Parliament and in relation to the same subject-matter, different words are used, the Court must see whether the legislature has not made the alteration intentionally, and with some definite purpose; prima facie such an alteration would be considered intentional.

20. Thus Lord Esher, M.R., observes in Guardians of Parish of Brighton v. Guardians of Strand Union (1891) 2 Q.B. 156.

21. Applying these rules this case seems to me to be free from any difficulty. The words 'the property of a debtor' in Section 51(3) read with the heading can only mean the property of a person which has been sold previous to adjudication, the 'transaction' being the sale. This leads to a reasonable result, namely, that all sales both before and after the presentation of a petition but before adjudication by the Court are protected so far as passing a good title to a purchaser is concerned. It would have the effect of overriding in such cases the 'relation back', Section 28, Sub-section (7). To hold that Section 51(3) applies to sales by the Court after adjudication would lead to a most anomalous position. Such a sale must prima facie be inoperative because a bankrupt has nothing to sell, his property having vested in the Official Receiver which position is emphasised by the Judicial Committee in the case above cited. So far from extending the meaning of a word in order to produce such a result I should require unequivocal words in constraining me to arrive at a result so wholly opposed to principles of Insolvency Law.

22. I have had the advantage of reading my learned brother's judgment with which I entirely agree. I have arrived at the same conclusion approaching it from a somewhat different angle which makes it unnecessary for me to deal with the authorities which have been cited and which have been discussed by my learned brother. I would dismiss this appeal with costs of first respondent.


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