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Ravalapalli Venkatrayudu and ors. Vs. Alapati Narasimham and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1944Mad150; (1943)2MLJ655
AppellantRavalapalli Venkatrayudu and ors.
RespondentAlapati Narasimham and anr.
Cases ReferredGuntur v. Secretary of State
Excerpt:
.....i fail to see how the rights of persons who were creditors even before the insolvency commenced can be refused to be entertained by the court. in this case seeing that the moneys have not yet been distributed and the administration by the official receiver even under the insolvency act is subject to an appeal to the court, i think it is better that the court itself deals with all questions relating to the claims of these appellants......1938. as part of the same order there was a vesting order passed under section 37 of the act. the official receiver of the district who is the second respondent before me was appointed under section 37. subsequently, the three appellants in this appeal alleging that they are the creditors of the first respondent claimed that they should also be paid the amounts due to them. they approached the official receiver who is the appointee under section 37 and tendered proof. their claim, was investigated by the official receiver and he admitted their claims. at that stage the first respondent; (the insolvent) approached the subordinate judge arid sought an: order restraining the official receiver from paying the amounts due to the three appellants. the view that is put forward which has.....
Judgment:

Somayya, J.

1. The question in this case, is in my opinion, really concluded by the decision of the Full Bench in Veerayya. Srinivasa Rao : (1935)69MLJ364 and by the later decision reported in the same volume in Official Receiver, Gunlur v. Secretary of State for India (1935) 69 M.L.J. 58 : I.L.R. Mad. 1014. The first respondent Alapati Narasimham was adjudicated an insolvent and his adjudication was finally annulled under Section 43 of the Provincial Insolvency Act for failing to apply for discharge. It would appear that he was granted time on several occasions and that finally for the reason that he, did not apply for discharge within the time granted, his adjudication was annulled on the 1st November, 1938. As part of the same order there was a vesting order passed under Section 37 of the Act. The Official Receiver of the District who is the second respondent before me was appointed under Section 37. Subsequently, the three appellants in this appeal alleging that they are the creditors of the first respondent claimed that they should also be paid the amounts due to them. They approached the Official Receiver who is the appointee under Section 37 and tendered proof. Their claim, was investigated by the Official Receiver and he admitted their claims. At that stage the first respondent; (the insolvent) approached the Subordinate Judge arid sought an: order restraining the Official Receiver from paying the amounts due to the three appellants. The view that is put forward which has evidently been accepted by the two lower Courts is that after the annulment of the adjudication, the Official Receiver (the appointee under Section 37) has no right to receive fresh proofs or to admit any claim of any person who had not already proved his claim in the insolvency. This, in my opinion, is clearly set at rest by the decision of the Full Bench in Veerayya v. Srinivasa Rao : (1935)69MLJ364 King, J., who delivered the leading judgment in that case said this on page 924:

The whole significance of the Court's action in vesting the insolvent's property in some one else seems to us to be that the Court is intended to preserve its control over that property, just as a similar control is always retained when a receiver is appointed to administer the property which is the subject-matter of a suit.... We, therefore, think that the Insolvency Court retains full power to give directions under Section 37 as to the realization and disposal of the debtor's assets. That power should not, of course, be used arbitrarily, but should be used in the interests not of this or that individual creditor, but of the whole body of creditors, which means in other words that the only proper order for the Court to pass is that the appointee should continue to realise and distribute the debtor's property in accordance with the provisions of the Insolvency Act.

2. In the later decision reported in the same volume, Official Receiver, Guntur v. Secretary of State for India1, Beasley, C.J., makes the following remarks on page 1019:

But in the opinion of the Full Bench the legal effect of the vesting order will be different from the legal effect of the reversion of the property to the debtor. The whole significance of the Court's action in vesting the debtor's property in some one else is that the Court is entitled to preserve its control over that property just as a similar control is always retained when a receiver is appointed to administer the property which is the subject-matter of a suit. In the opinion of the Full Bench, the Insolvency Court retains full power to give directions under Section 37 as to the realisation and disposal of the debtor's assets and that power should not, of course, be used arbitrarily but should be used in the interests not of this or that individual creditor but the whole body of creditors which means, in other words, that the only proper order of the Court to pass is that the appointee should continue to realise and distribute the debtor's property in accordance with the provisions of the Insolvency Act.

3. Then the learned Judge dealt with an argument addressed to him that it is only those who would be entitled to the distribution under the provisions of the Insolvency Act that could be paid later on by the appointee under Section 37. Dealing with that argument it was pointed out that there was no indication by the Legislature as to who are all the creditors that were entitled to be paid under Section 37 and the conclusion was that the Grown whose debt came into existence subsequent to the annulment was entitled to put forward its claim before the trustee under Section 37 and to be paid in accordance with the rule that the Crown is entitled to priority over all other creditors. These decisions clearly lay down that the Court when passing the order under Section 37 retains control over the property of the debtor to the extent required to see that the distribution of the assets is made fairly between all the creditors of the insolvent. If the claim of the person whose debt came into existence subsequent to the annulment was really to be entertained, I fail to see how the rights of persons who were creditors even before the insolvency commenced can be refused to be entertained by the Court. The case before me seems to be analogous to that dealt with by the learned Judges in Official Receiver, Guntur v. Secretary of State for India : (1935)69MLJ856 . There are other questions to be dealt with by the lower Court such as the plea of limitation. If the debt of the appellants was alive on the date when the insolvency petition was filed whether it is kept alive without anything more or whether they are entitled merely to a deduction of time under Section 78 of the Provincial Insolvency Act of the period between the date of the presentation of the insolvency petition and the date of the annulment has to be considered. If the truth of the debt or of the amount of the debt is denied, the Court will have to go into the question whether the debt is true and to what extent. I do not wish to go into the question whether the appointee under Section 37 can receive proof from creditors and investigate it or whether it is the Court that has got to do it. In this case seeing that the moneys have not yet been distributed and the administration by the Official Receiver even under the Insolvency Act is subject to an appeal to the Court, I think it is better that the Court itself deals with all questions relating to the claims of these appellants.

4. The orders of both the lower Courts are set aside and I remand the matter to the trial Court with directions to, proceed according to law in the light of the observations made above. The appellants will have their costs in all the Courts from the assets of the first respondent in the hands of the second respondent and the further costs will abide the result.

5. Leave refused.


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