1. The second appeal comes before us on a reference by Ismail, J. He considered that the point of limitation arising in this case in it covered by any authority, and should, therefore, be decided by a Division Bench.
2. The plaintiff are the appellant who are the mortgagees. The mortgage was executed on 10th June 1948, by the third defendant in favour of one Nachiarammal, whose heirs are the appellants. On 10th September 1948, certain creditors of the mortgagor filed I. P. 37 of 1948 to adjudicate him as an insolvent. That petition was dismissed on 28th November 1948. But the appeal arising from that order was allowed on 24th October 1950. A revision therefrom failed, this court indicating, while disposing it of, that the appellants should be treated as secured creditors. The properties of the insolvent mortgagor having vested in him the Official Receiver on 10th July 1961, sold the property, subject to the mortgage in favour of the appellants. The suit to enforce the mortgage was laid on 23rd October, 1961, which was beyond 12 years. The appellants, however, relied on two acknowledgment, dated respectively 22nd November 1949 and 23rd March 1959. The defence that the mortgagor could not validly acknowledge the mortgage debt between the date of filing of the petition for and the date of the order of adjudication was not accepted, and the suit was decreed. But the defence, however, prevailed on appeal. The mortgage are, therefore, before this court in second appeal.
3. The only question on which the second appeal turns is whether the mortgagor, who had been adjudicated as an insolvent could validly acknowledge the debt between the date of the filing of the petition for and the date of the order of his adjudication. The first of the acknowledgment was contained in the deposition the insolvent made in the insolvency proceedings, and the other was contained in another deposition made by him in O. S. 101 of 1957. The lower appellate court found the factum of the two acknowledgment, but its view was that they were not valid acknowledgments. It though that because Section 28(2) of the provincial Insolvency Act provided that on the making of an order of adjudication, the whole of the property of the insolvent vests in the court or in a receiver and Section 28(7) stated that an order of adjudication should relate back and take effect from the date of the presentation of the petition of which it was made, owing, to this doctrine of relation back, it must be held that the acknowledgment in Ex. A. 2, which was the first of the two acknowledgments, was not valid and could not save the suit from the bar of limitation. The lower appellate court, in support of its view, relied on certain decisions which, as we think, do not directly bear on the point.
4. Section 28 of the provincial Insolvency Act deals with the effect of an order of adjudication. It has seven sub-section, of which we are concerned with sub-section (2), (6) and (7). The first of these sub-sections operate to vest the property of the insolvent on the making of an order of adjudication in the court or in a receiver so that it may become available for distribution among the creditors. Sub-section (6) leaves a secured debt outside the purview of the insolvency proceedings. In facts, nothing in the section affects the power of any secured creditor to realise or otherwise deal with this security in the same manner as he would have been entitled to realise or deal with it if the section had not been passed. Sub-section (7) is that 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; that is to say, that an order of adjudication shall virtually be regarded as one made on the date of the presentation of the petition for adjudication. We do not propose to decide in this case whether after the vesting of the property of the insolvent in the Official Receiver pursuant to an order of adjudication, the insolvent could validly acknowledge a debt, secured or not. We are content in this case to confine ourselves to the question which we have set out at the start of this judgment namely, whether this theory of relation back contained in sub-section (7) of Section 28 would affect an acknowledgment validly made at the time it was.
5. On 22nd November 1949, there was nothing to prevent the mortgagor from acknowledging the debt. When he made it, it was perfectly valid and it would have the effect of extending the period of limitation. This result flowed from the provisions of the Limitation Act. But, it there anything is Section 28, particularly sub-section (7) of that section, to render invalid an acknowledgment which was valid when it was actually made? In our opinion, the fiction forged by sub-section (7) of Section 28 should be confined to be purposes of the Provincial Insolvency Act, more especially to effectuate the objective of vesting all the properties of the insolvent under sub-s. (2) of S. 28. Undoubtedly, the doctrine of relation back will affect any transfer of the property effected by the insolvent between the date of the presentation of the petition and the date of the order of adjudication. Such a transfer will defeat the purpose of Section 28(2). For instance, if between the two dates, the insolvent transferred to equity of redemption in relation to the property subject to the suit mortgage, it will not be binding on the Official Receiver. But in an acknowledgment of liability, there is no transfer involved. There is no conceivable reasons why, therefore, the relation back doctrine should affect its validity. We are unable to see any difference between an acknowledgment, and a part payment made by an insolvent within the said two dates. Acknowledgment and part payment and their effect upon limitation are regulated by the provisions of the Limitation Act. When once the facts are established which prove the acknowledgment at once the provisions of the Limitations act will operate on it, with the result that the time will stand extended. It does not appear to be the intention of Section 28(7) of the Provincial Insolvency Act to obliterate the effect of the provisions of the Limitation Act on such acknowledgment and render it invalid. It does not also appear to us what purpose of the Provincial Insolvency Act will be defeated if such acknowledgment is not held to be invalid.
6. Though there is no direct authority on the point, it seems to us that A. Venkata Gopal Rao v. Y. Kantamma, supports the view we have expressed. In the judgment in that case, there is no reference to the provisions of the Provincial Insolvency Act. But Rajamannar, C. J. and Venkatarama Iyer, J. Were inclined to think:
There is nothing in the plea that the payment made by the father on the promissory note were all on the 4th March 1933, two days after the presentation of the insolvency petition. It was admitted that the father was not adjudicated till several months later. Simply because, an insolvency petition had been filed against the father, he does not lose his right to make a part-payment towards a debt or to acknowledge a debt so as to enlarge the period of limitation not only against himself but also against his sons''.
This is authority for the proposition that the pendency of the petition for adjudication does not by itself deprive the insolvent of the right to acknowledge a debt or to make a part payment in order that I may serve to enlarge the period of limitation. We find from the judgment that in that case the insolvent was adjudicated after he made the acknowledgment. Though it appears that the Official Receiver was made a party to those proceedings, it is not clear whether a decree had been made against him. But all the same, the observation in that case had been made without any reservation. Quite apart from this authority, we are satisfied that the mortgagor being the owner of the property at the time he made the acknowledgment, the mere pendency of the petition for his adjudication did not render the acknowledgment invalid because eventually there was an order of adjudication which would relate back to the date of the petition.
7. For the respondents, Mr. Sundaram Iyer contends that the acknowledgments said to be contained in the deposition dated 22nd November 1949, is vague with reference to the time and therefore, it cannot be regarded as an acknowledgment such as to serve to save limitation. As we said earlier, the deposition in which the acknowledgment was made was in the adjudication proceedings themselves. In the cross-examination this is what the mortgagor said:
''On the date of the petition, I was in a position to pay my debts. Rupees 23,000 were owing to me as outstandings on the date of this petition. My debtors were able to repay my debts. I told the contesting respondents that I would collect those debts and pay. Each of those debts was owing in big sums.''
At first sight, the extract may appear to be somewhat vague, and this is what Mr. Sundaram Iyer has taken advantage of to contend that with reference to this deposition, one cannot say from what date the debt was acknowledged and, therefore, it will be useless to save time. But it seems to us that in the context the acknowledgment served as a present acknowledgment. The context was that the was deposing in the adjudication proceeding and if the mortgage debt was not outstanding, there would be no occasion for the insolvent to make any reference to it. We think therefore, that having regard to the circumstances and context, the extract of the deposition does amount to an acknowledgment made on 22nd November, 1949.
8. The second appeal is allowed with costs.
9. Appeal allowed.