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Official Receiver of Ramanathapuram at Madurai Vs. Ar. Rm. Subramaniam Chettiar and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil;Family
CourtChennai High Court
Decided On
Case NumberLetters Patent Appeal No. 53 of 1964
Judge
Reported inAIR1969Mad382
ActsProvincial Insolvency Act, 1920 - Sections 4, 28A and 28(2)
AppellantOfficial Receiver of Ramanathapuram at Madurai
RespondentAr. Rm. Subramaniam Chettiar and ors.
Appellant AdvocateM.S. Venkatarama Iyer, ;N. Sivamani and ;M.V. Krishnan, Advs.
Respondent AdvocateR. Sethurama Sastry, ;V. Kannar, ;K. Parasaram and ;G.N. Chary, Advs.
DispositionAppeal dismissed
Cases ReferredVenku Reddi v. Venku Reddi
Excerpt:
provincial insolvency act (v of 1920), section 28a-scope of-- does not create any proprietory right over shares of sons- it only vests in official receiver power which hindu father might exercise in respect of sons' shares for particular purpose-father's power of sale of son's share brought to an end by creditor attaching son's share;one n was adjudged an insolvent. his creditors had laid suits and obtained decrees impleading therein his sons as well. some among them had put their decrees into execution and attached with a view to bring to sale the shares of the sons of the insolvent in the family properties. at that stage, the official receiver (the appellant) moved the insolvency court, the subordinate judge's court, devakottai, by a petition purporting to be under section 4, 28-a and.....1. on a petition filed by narayanan chettiar, which was admitted on 24-3-1959, he was adjudged an insolvent on 22-12-1959. his creditors had laid suits and obtained decrees, some among them had put their decrees into execution and attached with a view to bring to sale the shares of the sons of the insolvent in the family properties. it appears that in the case of at least one such proceeding, some properties had been brought to sale and the sale had also been confirmed. there were other attachments, and, at this stage, the official, receiver moved the insolvency court, the subordinate judge's court, devakottai, by a petition purporting to be under sections 4, 28-a and 28(2) of the provincial insolvency act. he sought a declaration that the right to sell the shares of the sons of the.....
Judgment:
1. On a petition filed by Narayanan Chettiar, which was admitted on 24-3-1959, he was adjudged an insolvent on 22-12-1959. His creditors had laid suits and obtained decrees, Some among them had put their decrees into execution and attached with a view to bring to sale the shares of the sons of the insolvent in the family properties. It appears that in the case of at least one such proceeding, some properties had been brought to sale and the sale had also been confirmed. There were other attachments, and, at this stage, the Official, Receiver moved the Insolvency court, the Subordinate Judge's court, Devakottai, by a petition purporting to be under Sections 4, 28-A and 28(2) of the Provincial Insolvency Act. He sought a declaration that the right to sell the shares of the sons of the insolvent in the family properties vested in the Official Receiver to the exclusion of all other persons by reason of the adjudication and that the decree-holders had no right to proceed with the execution petition filed by them against the assets of the two sons of the insolvent.

It was contended on behalf of the respondents that since the attachments were effected before the order of adjudication, the power to sell the shares of the sons could not vest in the Official Receiver. The Insolvency court considered the several decisions cited before it and came to the conclusion that though the insolvent's power to dispose of the sons' shares in the joint family property to discharge his, the insolvent's debt vested in the Official Receiver, that power came to an end, for before it was exercised, the decree-holders had lawfully attached the shares of the sons in the joint family assets. The court accordingly rejected the claim of the Official Receiver that the power to bring to sale the shares of the sons of the insolvent vested exclusively in the Official Receiver.

2. The correctness of this order was canvassed in appeal before the learned District Judge, who, however, declined to accept the contentions put forward on behalf of the Official Receiver. A further appeal to the High Court failed, Hence this Letters Patent appeal.

3. Mr. M.S. Venkatarama Aiyar, learned counsel for the Official Receiver, does not deny that the shares of the sons do not as such shares vest in the Official Receiver on the making of the order of adjudication. But he claims that the right to sell the sons' shares, taken in the light of the several other provisions of the Provincial Insolvency Act, places this right of the Official Receiver on a higher level than that of a creditor--decree-holder. He urges that as against the Official Receiver, the right of a creditor to proceed against the sons' shares of the properties by way of execution must take a second place. He further claims that the Official Receiver is a statutory authority authorised to protect the interests of all the creditors, so that in effect, when once insolvency intervenes, the Official Receiver occupies the position of a trustee, the creditors being the beneficiaries, and no single beneficiary can be permitted to so conduct himself that he can defeat the trust; that is to say, if the law gives power to the Official Receiver to sell the shares of the sons in discharge of the debts of the father, who is an insolvent, it so empowers him only to enable the creditors to receive a just payment of, their claims. The Official Receiver represents the interests of the creditors as a body and it will be against the law of Bankruptcy to permit any one creditor to proceed against the properties in order to realise his own decree to the detriment of the interests of the other creditors. These are the general lines upon which the argument proceeds.

4. By Section 28-A, introduced by the Provincial Insolvency Amendment Act, 1948, it was provided that the property of the insolvent shall be deemed to comprise also

"the capacity to exercise and to take proceedings for exercising of such powers, in or over or in respect of the property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge".

It is not in dispute that the power so indicated by this section takes in the power of a Hindu father to sell the shares of his sons in joint family property for the discharge of his own debts which are not tainted by illegality or immorality and which may be called the proper debts of the lather. Nor is it in dispute that this power is anything but a mere power. It docs not create a proprietary right over the shares of the sons. At any moment before the father actually exercises this power, the sons can put an end to the father's capacity to exercise that power either by selling their shares in the joint family property or by seeking a partition, both of which acts would effectively prevent the father from exercising the above power.

We are not now concerned with the question whether the shares of the sons could not be reached in execution by a creditor of the father even after partition, if the debts of the father are not illegal or immoral. At this stage. we are only concerned with distinguishing this power, which is a mere power, from the actual property itself, which belongs to the sons. It would therefore follow that when Section 28-A of the Provincial Insolvency Act declares that the power of the Official Receiver shall be deemed to include the power which the insolvent father had the power in the hands of the Official Receiver is obviously subject to the same limitations as it would be in the hands of the father. While the insolvency law vests in the Official Receiver the actual shares of the insolvent himself in the family property, it does not provide likewise in respect of the shares of the sons. It only vests the power which the Hindu father might exercise in respect of the sons' shares for a particular purpose. The intervention of insolvency docs not enlarge the scope of that power in the Official Receiver's hands. If, therefore, either the sons or any other person proceeding against the sons could put an end to the capacity of the father to exercise this power, it would appear to fellow logically that such action would have a similar effect upon the power in the hands of the Official Receiver.

5. Mr. Venkatarama Aiyar docs not deny that there is a long line of cases which have taken the view that the power so vested in the Official Receiver by Section 28-A of the Act could be validly brought to an end by an attachment over the sons' shares effected by a creditor. But he seems to claim that this line of cases has followed Subraya v. Nagappa. (1909) ILR 33 Bom 264, which in his view was wrongly decided. In that case, Chandavarkar J. said--

"Under the Hindu law, a father has the right to sell or mortgage ancestral property including the interests therein of his sons in satisfaction of his antecedent debts, provided those debts were not contracted for immoral or illegal purposes. This right to dispose of the ancestral property so as to include and affect the shares of the sons arises according to Hindu law in virtue of the pious obligations of the sons to pay the debts of the father which were not illegal or immoral. In other words, when the father alienates the property, he exercises the power of alienation which the sons would have exercised in discharge of their pious duty which they owed to him. He is virtually alienating the property for them and on their behalf in discharge of their duty in accordance with the power given to him by Hindu law."

In that case, the interest of the son in joint ancestral property was attached in execution of a decree against him. The learned Judges held that the son was therefore deprived of the power of private alienation and that being so, the father was equally deprived of the power of alienation of that interest in satisfaction of his own debts. Mr. Venkatarama Aiyar points out that the line of reasoning followed by the learned Judges in the above decision is not really in accord with the principles of Hindu law. The father's power to sell the sons' shares in respect of his own debts is not derived from the sons and when the father so sells the sons' interest in the family property, he is not alienating the property on behalf of his aons.

The above decision of the Bombay High Court was considered at some length in Diravyam Pillai v. Veeranan Ambalam, AIR 1939 Mad 702. In that case also, the same contention was put forward that the power to sell the sons' shares in joint family property vested in the Official Receiver must be deemed to have dome to an end when the interests of the sons were attached by certain creditors in execution of their decrees. In that case, the insolvents had entered into a contract of sale of the family estate long prior to the adjudication. In the course of the administration of the insolvents properties, the Official Receiver had executed a sale. Varadachariar J. observed that the Official Receiver could have no larger power than the insolvents themselves would have had. and if for any reason the insolvents had lost the power to sell their sons' interests, the conveyance executed by the Official Receiver could have no greater effect. Dealing with the Bombay decision, the learned Judges held that the basis of that decision did not appear to be correct in principle, for, from the Privy Council decisions dealing with the right of a father in a coparcenary, the position clearly emerged that under the Hindu law, the father and his creditors are entitled to ignore the sons' coparcenary rights in the family property to the extent required to satisfy the father's proper debts and that such power would override the powers of the sons, so that it would not be correct to say that when the father sold the property in discharge of his own debts, he was merely exercising the power of sale possessed by the sons themselves,

It is the contention of Mr. M.S. Venkatarama Aiyar that in all the cases which have decided that an attachment of the sons' shares by a creditor puts an end to the right of the Official Receiver to sell the sons' shares in discharge of the father's debts, the incorrect principle enunciated in the Bombay decision has been followed. If the attachment by the creditor of the sons' shares was held to be superior to the father's power to sell only on the basis that the father was exercising the sons' power, that has been pointed out to be incorrect in the Madras decision cited above. But the question however is whether even if the right principle is followed, the result would be in any way different.

6. There is also one other important factor in the present case, winch requires to be stated. In the case of the decrees put into execution in which the sons' shares were attached, the decrees were not only against the insolvent father but against the sons as well. The sons were eo nomine defendants in the suits and were also judgment-debtors and the decrees were against them as well. Here is accordingly a case where the decree-holders seek to attach the property of the judgment-debtors, though it is undivided joint family property. The fact that the father is also a judgment-debtor in the same decrees does not make the execution proceeding by the decree-holders one in which they seek to execute the decree against the insolvent. As against the action of the decree-holders who proceed against the properties which are not vested in the Official Receiver the Official Receiver only sought to exercise the power of the Hindu father to sell the sons' shares. If the sons could themselves sell their own shares in the property in the discharge of their own debts and any such transaction would not be hit by any provisions of the Insolvency Act, then equally the attachment of the sons' shares by the creditor must have a like effect.

7. The argument advanced by Mr. Venkatarama Aiyar is based upon what he claims is the effect of the combined operation of Section 28(2) and Section 28-A Under Section 28(2) of the Provincial Insolvency Act, the whole of the property of the insolvent vests in the court or in a receiver appointed by court, and this property becomes divisible among the creditors. When once the property is so vested, no creditor to whom the insolvent is indebted in respect of any debt provable under the Act shall have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, during the pendency of the insolvency proceedings, except with the leave of the court.

It would be seen that two ingredients are involved herein: (1) the whole of the property of the insolvent vests in the receiver and (2) the creditor is prevented from having any independent remedy against the property of the insolvent. Mr. Venkatarama Aiyar urges that the "property of the insolvent", which has been given an enlarged conception by Section 28-A of the Act, while It includes the capacity of the insolvent father to bring to sale in discharge of his own debts the shares of his sons, in effect really places the property itself that is to say, the share of the sons itself as property vested in the receiver. He concedes no doubt that it is only the power of the father to sell the sons shares that is comprised, but he would, principally for the reason that the insolvency law Is intended for the benefit of the body of creditors of the Insolvent, urge that in a broader sense one must assume that it is the shares of the sons that are comprised in the vesting. He points out that when the statute says that the creditor shall have no remedy except as provided under Section 28(2) it must necessarily have the consequence that no person other than the receiver can proceed to exercise the power of the father. He has referred to Halsbury Vol. II, 3rd Edn. where in paragraph 823, it is stated that the object of the Bankruptcy law is that every beneficial interest which a bankrupt has and everything belonging to him which can pass from him to his trustee and which can be turned to profit shall be divisible among his creditors. In paragraph 828 also it is stated that a general power of appointment over property, though not strictly speaking property, would, if exercisable by a deed, be within the extended meaning in which the term 'property' Is used in the Bankruptcy law and such a power can be exercised by the trustee for the benefit of the creditors. These general principles of Bankruptcy law are really comprised in the extended meaning of 'property of Insolvent' furnished by Section 28-A of the Act. There is however no warrant to our minds to assume that the power to deal with property, though not the insolvent's own property, will Rive dominion over the property itself in the hands of the receiver. The power exercisable by the Insolvent which stands by statute transferred into the hands of the receiver is rendered no larger than the power of the insolvent itself. It cannot be contended that If what the insolvent has. Is a mere power of disposition of property, the Intervention of the Bankruptcy law would enlarge that mere power into a dominion over the actual property itself. That is virtually the contention advanced by Mr. Venkatarama Aiyar. We are not convinced of the correctness of this plea. In re, Cooper;. Cooper v. Slight, (1884) 27 Ch. D. 565 has been cited.

In that case, one James Cooper was entitled to a certain income during his life time from certain trust funds created by a will; but the document creating the trust provided that with the consent writing of James Cooper during his life, the trustees under the will could convert part of the trust property for the benefit of another person. Cooper became bankrupt and to the proposed action of the trustees under the will to effect the conversion for tha benefit of the other person. Cooper was willing to consent. The only question was whether the intervention of the bankruptcy deprived him of his power of consent. The decision was that where a power of appointment is given to the tenant for life, which power might defeat his own interest, then if he becomes bankrupt the power is not extinguished, but he cannot exercise that power so as to defeat the interest of his trustee in bankruptcy. Since the property of the bankrupt is vested in the trustee in bankruptcy for the benefit of the creditors, the power possessed by the bankrupt cannot be permitted to be so exercised as to destroy the part of the estate vested in the trustee in bankruptcy. This decision does not carry us very far and along the lines of the argument advanced by Mr. Venkatarama Aiyar.

8. We shall now refer to a series of decisions which have dealt with some of these aspects. In Swarupchand Rayanji v. Janakiramayya. 1942-1 Mad LJ 318 : (AIR 1942 Mad 330) it was decided by a Bench of this court that the father's power to sell his son's interest in joint family property would continue to subsist until division. The insolvency of the father does not per se put an end to the joint family status and till that status is severed, the power of the father would vest in the Official Assignee. In that case, the properties had been attached before the insolvency, but the creditor did not bring the properties to sale in pursuance of the attachment. The question was whether the Official Receiver could be permitted to exercise the power of the father on behalf of the general body of creditors. It was held that he could, but that should be subject to the rights arising under the attachment. It would be seen therefore that the attachment of the interests of the sons by the creditors was in effect held to prevent the exercise of the father's power of sale. The power itself was held not destroyed; that would happen only if the property had already been sold, The learned Judges observe--

"It would be open to the father to exercise the power of sale, but the alienee would get a defeasible title as the alienation under the attachment' would prevail. Therefore, If the power of disposal subsisted, I do not see any reason why It could not vest in the Official Receiver, subject to the same disabilities It was subjected to In the father's hand at the time of vesting. During the pendency of the attachment, if the Official Receiver chooses to exercise the right of sale, the alienees will get a title which will prevail against the son, though it cannot prevail against the claims enforceable under the attachment; that is, if the sale lakes place in pursuance of the attachment, the purchaser under that sale will get an indefeasible title and the purchaser from the Official Receiver will not get any In these cases, it will not be open to the alienee from the Official Receiver to resist the claim of the 16th defendant (attaching creditor) to bring the property to sale, nor to contest the right of the purchaser under that sale. But the son would have no right against the alienee, as his Interest must be held to have been validly sold".

The learned Judges refer to an earlier case Gopalakrishnayya v. Gopalan ILR 51 Mad 342 :(A1R 1928 Mad 479). The judgment is a short one and it emphatically lays down that the power of the father to sell the shares of the sons, which passes to the Official Receiver, is subject to the same qualification as it has in the father's hands. It is stated--

"In this case, the son's shares have been attached, and after such attachment, the Official Receiver cannot exercise the power of sale. It is true that in respect of such properties which were sold by the Official Receiver prior to the attachment of the son's shares by the decree-holder above observations do not apply. Except as to such properties, the appellant is entitled to proceed with the execution by selling the son's shares".

That the power to sell the son's share does not amount to vesting the share Itself in the Official Receiver is almost a self-evident proposition, but authority for it is available in a Full Bench decision of this court in Balavenkata Seetharama Chettiar v. Official Receiver Tanjore, ILR 49 Mad 849 :(AIR 1926 Mad 994) (FB). Though this decision was prior to the introduction of Section 28-A which was only more or less clarificatory of the law with regard to the extent of the property that vested in the Official Receiver, it clearly distinguishes between the mere power and the actual property.

In Puthayya v. Suramma, , this distinction was clearly pointed out in a very short judgment by Balakrishna Aiyar J. where the learned Judge pointed out that in a Joint Hindu family there are three categories of rights-(1) the share of the father (2) the share of the sons, and (3) the capacity of the father to sell the share of the sons in certain circumstances. The learned Judge pointed out that when the father is adjudicated an insolvent, it is only the first and the third categories of rights that vest in the Official Receiver and not the second category, that is, the share of the sons. It was decided herein that it is open to the decree-holder to proceed against the share of the sons so long as such share has not been disposed of by the Official Receiver in the exercise of the right comprised in the property vested in him. The learned Judge further held that in such a case, when the sons' share is being proceeded against by the decree-holder, the sons, as judgment-debtors, cannot compel the decree-holder to implead the Official Receiver in such execution proceedings. This makes the distinction I have indicated earlier clear.

In Venkatasuryanarayana v. Official Receiver East Godavari Dist, , the same view was taken. It was held that the

father's power to Bell the son's shares for his personal debts comes to an end when the son files a suit for partition or his share is attached by a creditor and that the power of the Official Receiver being co-extensive with that of the father would equally come to an end at the point of time.

9. There are several other cases which have consistently adopted the like view. We may refer to Mullah's Hindu law, 13th Edn., where again the principles of these cases have been set down succinctly in para 264 at page 301. It is pointed out here that the power of the father to sell his son's share in discharge of his own debts (which is under Section 52 of the Presidency Towns Insolvency Act, vested in the Official Assignee) is by the Provincial Insolvency Amendment Act 1948 statutorily included in the enlarged definition of the insolvent's property so as to include that right. The question is dealt with by the learned author thus--

"As the interest of the son does not vest in the Official Assignee or the Receiver, it may be attached after the insolvency of the father by a creditor of the father in execution of a decree obtained by him against the father or against the father and the son in respect of a personal debt of the father, unless it has been sold by the Official Assignee or Receiver, and leave of the Insolvency court is not necessary for attaching the son's shares. After attachment, the Official Assignee or receiver cannot exercise the power of sale as the father himself could not have done so".

This passage in effect is a statement of the law with regard to this position as can be gathered from the numerous cases.

10. It seems to us to be hardly necessary to pursue the matter further. The law is quite clear that it is open to a decree-holder to attach the son's share. We have already pointed out that the mere existence of a power in the father to sell the son's share in discharge of his own debts does not prevent the son from putting an end to that power at any point of time. He can do so by filing a suit for partition or by selling his share on his own account. When a creditor attaches the share of the son and brings it to sale, he is in effect compelling the son to sell his share in discharge of the decree and looked at from that point of view, it would follow that thereafter the power to sell the son's share can no longer survive in the father in or in the receiver. To take a different view as urged by Mr. M. S. Venkatarama Iyer would be to equate what is nothing-more than a mere power to sell a proprietary right over the share itself. It is impossible to accept this view.

11. The true principle, it seems to us, on the basis of which the father's power of sale of his son's share vested in the Official Receiver is brought to an end, on an attachment of the son's share by the creditor, is that the sale by the Official Receiver has no higher status than a private sale. What the Insolvency law seeks to achieve is only to deprive the insolvent of his properties and to arm the receiver with the power to sell those properties on behalf of the insolvent. When the Receiver sells the properties, under the authority of the law, he transfers the title of the insolvent to the purchaser. No higher title than what the insolvent himself can pass to the purchaser can be transferred by the Receiver. The transfer by the Official Receiver cannot be equated to a transfer by operation of law. If the legal effect of a transfer by the Official Receiver cannot be anything more than that arising from a transfer by the insolvent himself, each transfer can be nothing more than a private sale. The power of control exercised by the insolvency court over the insolvency proceedings cannot serve to enhance the character of such a sale to one, such as an enforced conveyance by decree of court. If that should be correct view, Section 64 C. P, Cede steps in and prohibits a private sale and renders it void as against all claims enforceable under the attachment.

12. Mulla in his Hindu law, 13th Edn. at page 302, comments thus:

"Where the son's share is attached after the insolvency of the father, the proper procedure is to carry out execution proceedings in combination with the Official Assignee or receiver so that the entire property may be sold at the same time to the benefit of the attaching creditor and the father's creditors".

It being settled law that the Official Receiver cannot exercise the father's power of sale after the attachment of the son's share by a creditor, how the Official Receiver can obtain any benefit from the sale by the creditor of the son's share may be a matter for investigation in the light of the provisions of the insolvency law. It may be open to the Official Receiver to apply to the insolvency court under Section 4 of the Provincial Insolvency Act for suitable relief. On that, we express no opinion. But in the present case, the only declaration sought by the Official Receiver being that he alone was competent to sell the son's share and not the attaching creditor, the further question indicated above does not arise.

13. A decision of Venkataraman J. in Thirupathiswami Chetti, Official Assignee v. N. Venkayya,1964-2 Mad LJ 563 :(AIR 1965 Mad 60) has been cited. In that case, after referring to the numerous cases and reaching the conclusion that the creditors who had effected an attachment of the son's share must have precedence over the Official Assignee, the learned Judge observed thus--

"But there is another principle which comes into play in the present case, according to which, the attaching creditors are not entitled to such precedence over the Official Assignee. The principle is that the purchaser of the share of the son in a joint Hindu family has only the equity to step into the shoes of the son and enforce partition. But when such partition comes to be effected, provision has first to be made to the discharge of the just debts of the father, that is, debts not tainted with illegality or immorality. For instance, if the properties of the father and son are worth, say, Rs. 50000, and the father has got debts to the extent of Rs. 20,000 not tainted with illegality or immorality, provision has to be made for the discharge of this debt of Rs. 20000 and only the remainder of Rs. 30000 will be available for division between the father and the son. This position never seems to have been in doubt and is expressly laid down in Venku Reddi v. Venku Reddi, ILR50 Mad 535 :(AIR 1927 Mad 471) (FB). ..."

The learned Judge proceeded to issue some directions with regard to the matter, on the application by the Official Assignee for directions for the sale of the share of the minor son. Whatever the effect of those directions might be, the principle that the attaching creditors have the precedence over the Official Receiver was accepted. This decision to our minds does not give any support to the arguments on behalf of the appellant.

14. We noticed at the commencement of this judgment that the proceedings in this Letters Patent appeal are the result of an application made by the Official Receiver under Section 4 of the Act in which he sought a declaration that his right to sell the shares of the sons in the exercise of the power of the father was superior to that of all other persons including the attaching decree-holders. That declaration cannot be granted to him in the light of the principles enunciated in the numerous decisions, We are also not convinced of the correctness of the argument on behalf of the appellant, that a species of trust has come into existence by the vesting in the Official Receiver of the father's power to sell and that that trust cannot be defeated by any attaching decree-holder. We have pointed out that the right of the father to sell his son's share is lost when once the son himself sells his share or puts an end to that right by destroying the joint family status, which is the foundation of that right. The attachment and sale of the son's share by a creditor is in effect a transaction by the son himself over his own share and which power of sale he can exercise to set at naught the father's power of sale. Whether the principle indicated by Venkataraman J. in 1964-2 Mad LJ 568 : (AIR 1965 Mad 60) can have any application in this case or not, we are not concerned with as the stage for any such determination has not been reached. On the point that is before us, we are satisfied that the courts below rightly rejected the Official Receiver's petition under Section 4 of the Act.

15. The Letters Patent Appeal also fails and is dismissed, but, in the circumstances, there will be no order as to costs here.


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