1. This is an application by one Seth Tekchand Motiram for payment out of a sum of Rs. 7650 lying in Court deposit. The circumstances which have led up to this application arc these.
2. John Kuriakose was the owner of a tractor MSX. 2138. On 19-21-1959 he had to raise a sum. of Rs. 7500 and for that purpose he entered into a hire purchase agreement, Ex. A.1, with Motiram, the applicant herein. The agreement is in the usual form describing Motiram as the owner of the vehicle And Kuriakose as the hirer of the vehicle liable to pay 15 sums of Rs. 500 by way of rent, or hire, the tractor being allowed to remain in his possession. As pointed out by Rajagopalan and Rajagopal Aiyangar, JJ. in Commercial Credit Corporation v. Deputy Commercial Tax Officer, 1958 2 MLJ 316 : AIR 1958 Mad 561, that is the form usually adopted in hire purchase agreements in order to provide sufficient security to the person who lends money to the borrower. In order to enable the lender to figure as the owner of the vehicle the law presumes An earlier sale orally by the borrower, who was the owner of the vehicle, to the lender. It will be seen that this fact is very material for the decision of this case. To proceed with the recital of the term of the hire purchase agreement, it provides, that after the instalments are paid, the hirer may pay a sum of Rs. 10 and become the absolute purchaser. He is also given the option of paying up all the instalments and this sum of Rs. 10 even before the expiry of the period of 15 months, in the event of default of payment of any one of the instalments the owner, Motiram, was entitled to seize the vehicle.
3. It is the case of Motiram that Kuriakose only paid four instalments amounting to Rs. 2000 and left a balance of Rs. 5500 with interest. He had similarly borrowed money from Motiram under two other hire-purchase agreements and after payment of some instalments was liable to pay a sum of Rs. 3300 plus Rs. 2200 besides interest. On 23-9-1960, the sum due to Motiram on these three transactions was Rs. 12000 inclusive of interest. Ha filed the suit, O.S. No. 2278 of 1960 in the City Civil Court, Madras, for recovery of this amount. On the same day he filed a petition for attachment of the tractor MSX. 2138. in support of that petition for attachment:, he alleged that Kuriakose fraudulently removed the parts of the lorry MDH. 2057, and the trailer MSX. 2247 which were the subject-matter of the two other hire purchase agreements; and therefore those vehicles were really no' available as security to Motiram. The attachment of the tractor MSX 2138 was effected on 23-9-1960. The tractor came into the custody of the City Civil Court from that of Kuriakose. On 16-3-1962, Kunakose filed the petition I. P. No. 25 of 1962 in this Court for being adjudicated insolvent. He was so adjudged on the same day.
4. The applicant maintains that on the terms of the hire purchase agreement, he is the owner of the vehicle and in view of the default which occurred, he was entitled to seize the vehicle under the terms of the hire purchase agreement, and since the vehicle has been sold, he is entitled to the sale proceeds of the vehicle. His learned counsel Sri Ramasubramaniam asserts that he has this right in addition to the amount which he may claim as balance under the hire purchase agreement, namely a sum of Rs. 5500 with subsequent interest, so far as the hire purchase agreement relating to this tractor is concerned. He also contends that his client would be entitled to rank as a simple creditor in respect of the balance of the amount due to him under the other two hire purchase agreements, which has ripened into, a decree in the suit O.S. No. 2278 of 1960 in the City Civil Court.
5. In resisting this application, the Official Assignee contends that under the reputed ownership clause of the Presidency Towns Insolvency Act, Section 52(2)(c), the tractor passed to the Official Assignee for the benefit of the creditors, and that the applicant will only be entitled to prove as a simple creditor for whatever is due to him under the three hire purchase agreements or under the decree in O.S. No. 2278 of 1960.
6. The claim of the applicant that because the hire purchase agreement describes him as owner of the vehicle he must in law be treated as owner 1 and as such entitled on that ground alone to the sum of Rs. 7630 representing the full value of the vehicle is in my opinion, untenable It is nowhere claimed by the applicant that prior to the transaction of the hire purchase agreement. the applicant was the owner of the vehicle. On the other hand, Sri Ramsubramaniam himself' conceded that might proceed on the footing that prior to the hire purchase transaction the vehicle did not belong to the applicant, What he said was that Kuriakose owed same money to some other person and in order to discharge that debt took the loan of Rs. 7500 from the applicant Motiram. He stated also that the previous creditor to whom money was due from Kuriakose was also a lender under a hire purchase agreement. It seems to me that for the purpose of this case, I must proceed on the footing that when Kuriakose approached Motiram for the Joan of Rs. 7500 it was Kuriakose who was the owner of the vehicle, but in order to provide adequate security for the loan of Rs. 7500 which was going to be advanced by Motiram, their was an oral sale of the vehicle by Kuriakose to Motiram, and that is why Motiram was able to describe himself as the owner in the hire purchase agreement.
The importance of this lies in the fact that when it comes to a question of accounting between Motiram and Kuriakose, Kuriakose will be entitled to any surplus out of the sum of Rs. 7650, which would result after satisfying the claims of Motiram in respect of this transaction under the hire purchase agreement. It-has been stated that according to Motiram only a sum of Rs. 5500 and subsequent interest, would be due under the hire purchase agreement. I shall assume that it works out only to Rs. 6500. That would still leave a surplus of Rs. 1150, and on my interpretation of the relationship between the parties, it is the insolvent who would be entitled to this surplus confining ourselves to this transaction for a moment. The point can be illustrated even more forcibly by assuming that instead of Rs. 5500, the balance due from the insolvent under the hire purchase agreement was only a sum of Rs. 1000. In such a case, there would be a larger surplus available for the insolvent and he would be entitled to become the purchaser on payment of this balance of Rs. 1000 plus this sum of Rs. 10. That is all that can be claimed by Motiram.
7. At the same time it seems to me that in respect of whatever would be due to Motiram in respect of this transaction, namely, Rs. 5500, plus subsequent interest. Motiram could claim to be a secured creditor with security over this tractor and consequently over the sale proceeds of Rs. 7650.
8. It would still be necessary to give a finding on the other question raised by the Official Assignee that under Section 52(2)(c) of the Presidency Towns Insolvency Act, the Official Assignee became absolutely entitled to the tractor and was entitled to ignore altogether the security which Motiram could otherwise claim over the tractor under the hire purchase agreement. It would follow on the authority of In re Ginger, 1897 2 Q.B. 461, that if the reputed ownership clause could be availed of by the Official Assignee, Motiram could not claim the benefit of the security over the tractor. Vide Mullah's Insolvency at page 531. It is therefore necessary to discuss the question whether Section 52(2)(c) can be invoked by the Official Assignee.
9. Section 52(2)(c) runs as follows:
'Subject as aforesaid, the property of the insolvent shall comprise the following particulars, namely :
(c) all goods being at the commencement of the insolvency in the possession, order or disposition of the insolvent, in his trade or business by the consent, and permission of the true owner under such circumstances that he is the reputed owner thereof;' It will be seen that one of the essential conditions of this clause is that the vehicle should have been in the possession of the insolvent at the commencement of the insolvency, that is. on 16-3-1962. But that condition has not been satisfied in this case, because much earlier on 23-9-960. Motiram filed a suit, O.S. No. 2278 of 1960 and attached ,this vehicle for the sum claimed by him in that suit, in which the amount due under this hire purchase agreement, Ex. A.I, was also included. The filing of the suit and the attachment would take the vehicle out of the possession of insolvent legally, and even physically, the vehicle was taken from him into the custody of the City Civil Court for the benefit of Motiram. It has been held in Punitbavelu Mudali v. Bhashyam Aiyangar, ILR 25 Mad 406, that in a case like this, the very filing of the suit by Motiram would itself serve the purpose of taking the vehicle out of the possession of the insolvent, Kuriakose. Here there was the additional fact of attachment.
The Official Assignee on this part of the case cited Mulla's Insolvency at page 543. There by way of illustration reference is made to a case where the proprietor of a newspaper mortgaged the type and plant in his printing press to one M. The types and plant were subsequently seized by the Sheriff under execution taken out against the owner of the newspaper by another creditor of his. M demanded possession of the goods from the Sheriff, but the Sheriff refused to deliver possession. The owner of the newspaper was afterwards adjudged a bankrupt. In a contest between M and the trustee in bankruptcy it was in the earlier case that the seizure by Sheriff took the goods out of the possession of the bankrupt and that consequently the reputed ownership clause could not apply to defeat the1 claim of M and to pass the title to 'the Official Assignee. But a contrary view was taken in a later case, Ex parte Edey, (1875) 19 Eq. 264, the ground of the decision being that the Sheriff's possession being wrongful as against the true owner (the mortgagee M) it could not be taken to have disturbed the possession of the bankrupt. It is on this later view which the Official Assignee relies.
Now in the Calcutta High Court In the matter of R. Brown, ILR 12 Cal 629, Wilson, J. declined; to follow this later view and adopted the earlier view. For the purpose of this case, it is unnecessary to decide which of these views has to be preferred. So far as this case1 is concerned, it is sufficient to point out that the attachment effected on 23-9-1960 by which custody of the vehicle was removed from Kuriakose was an attachment effected at the instances of and for the benefit of Motiram. Therefore that attachment itself would mean that so far as Motiram was concerned, the insolvent had ceased to be in possession of the vehicle on 23-9-1960 itself, and the Official Assignee cannot rely on Section 52(2)(c).
10. The Official Assignee makes a point of the fact that the suit, O.S. No. 2278 of I960, was a claim for a bare sum of! money and was not a. suit to realise the amount by security of the vehicle under the terms of the hire purchase agreement. Actually paragraph 8 of the plaint states that it reserves the right of Motiram to return of the three vehicles. In my opinion to do substantial justice, to Motiram in insolvency, the proper view to take is that by filing the above suit, he did not deprive himself of the security which was clearly available! to him under the hire purchase agreement, Ex. A.I, in respect of the tractor, MSX. 2138, for the sum of Rs. 5500 and interest claimed to be due to him under that agreement.
11. Lastly the Official Assignee submits that in the written statement filed by the insolvent in O.S. No. 2278 of 1960 the insolvent contended that the applicant, Motiram's claim was excessive, and that he has made further payments and that Motiram might be directed to prove his claim before the Official Assignee. I think this request is just and proper.
12. In the result I hold that firstly Motiram can prove in insolvency his claim to the amount decreed to him in O.S. No. 2278 of 1960. Secondly, the Official Assignee must determine what portion out of that is properly attributable as amount due to Motiram under the hire purchase agreement, Ex. A.I because in respect of that Motiram can claim as a secured creditor over the sale proceeds of Rs. 7650, but he can rank only as a simple creditor in respect of the balance. The amount of Rs. 7650 will be transferred to the Official Assignee.