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N.A. Aiyaswami Chetty Vs. Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1934Mad344
AppellantN.A. Aiyaswami Chetty
RespondentOfficial Assignee of Madras
Cases Referred and Venkata Beddi v. Ellappa Chetty A.I.R.
Excerpt:
.....a strong suggestion here that such availability is immediate on adjudication. i think that it can clearly be deduced from the authorities that the contention of the official assignee is a proper one, and that though the liability that arose as against the indian properties immediately on the penang adjudication had to be followed by the taking of steps to have those properties conveyed to the penang official assignee, the right of the official assignee over the properties has to be dated back to the date of the adjudication and is subject only to such liabilities as then existed......one, and that though the liability that arose as against the indian properties immediately on the penang adjudication had to be followed by the taking of steps to have those properties conveyed to the penang official assignee, the right of the official assignee over the properties has to be dated back to the date of the adjudication and is subject only to such liabilities as then existed. the official assignee, of madras, acting in aid of him, was therefore entitled to the order which has been granted to him under section 18, presidency towns insolvency act, staying further proceedings in execution against the attached property. the learned advocate for the respondent official assignee has argued that this case is analogous to one in which there has been a contract of sale. it has been.....
Judgment:

Beasley, C.J.

1. This appeal raises a very interesting questing of law which is not an easy one to decide.

2. The facts are that the insolvent was adjudicated an insolvent at Penang on 9th January 1931. Penang is a part of the Straits Settlements. On 15th March of the same year the appellant, who is a resident of Ramnad, filed a suit against the insolvent in the Sub-Court of Ramnad and obtained an attachment before judgment of his immoveable property on 24th July 1931, and a decree on 28th November 1931. On 19th July 1932 he attached in execution the insolvent's immoveable property in Ramnad. On 24th October 1932, the insolvent executed a conveyance in Penang of his property in British India including the property under attachment in favour of the Official Assignee in bankruptcy of Penang. On 5th December 1932, at the request of the Supreme Court of Penang, an order was made by this High Court for the Official Assignee of Madras to act as auxiliary to the Official Assignee of Penang and take possession and realise the properties of the bankrupt. The Official Assignee of Madras having heard of the proceedings in execution taken by the appellant applied to the Insolvency Court for an order under Section 18, Presidency Towns Insolvency Act, staying the appellant's execution-proceedings. On 1st May 1933, the learned trial Judge ordered a stay of those proceedings. Hence this appeal.

3. Stone, J., considered first of all whether the insolvent's property in India vested or should be deemed to have vested in the Official Assignee of Penang, subject to the performance of any act of transfer required by the law of India, as from the date of adjudication. If yes, then the attachment would be ineffective because it came into force after the date of the adjudication. It was argued in the insolvency Court and here that the effect of the adjudication in Penang was to vest in the Official Assignee there the immoveable property of the insolvent in British India, and in this connection the Bankruptcy Ordinance in the Straits Settlements vesting an insolvent's property in the Official Assignee there must be examined. This is Ordinance No. 44, Section 24, Clause 4, which reads:

When a debtor is adjudged bankrupt, his property shall become divisible among his creditors and shall vest in the Official Assignee.

4. In Section 2 property is defined as including, amongst other things, property whether real or personal 'and whether situate in the Colony or elsewhere.' Thus Section 24(4) and the latter definition correspond to Section 17, Presidency Towns Insolvency Act, except that in the former case it is property 'situate in the Colony or elsewhere' and in the Presidency Towns Insolvency Act, it is 'where-ever situate.' It was contended for the Official Assignee that the words 'situate in the Colony or elsewhere' are sufficiently wide to vest the immoveable property of the insolvent in British India in the Official Assignee of Penang merely by reason of the adjudication there. Stone, J., was of the opinion that this contention was wrong and I agree. The Straits Settlements Bankruptcy Ordinance is clearly without force in Madras-where the insolvent's immoveable property is, and if it purports to cause a vesting of extra-territorial immoveable property, it is ultra vires : Macleod v. Attorney-General, New South Wales (1891) A.C. 455. The insolvent's immoveable property, here did not vest in the Official Assignee of Penang vistatuti and the learned trial Judge correctly points out the distinction between this case and Callender Sykes & Co. v. Colonial Secretary of Lagos & Davies (1891) A.C. 460. In the latter case the English Bankruptcy Act of 1869 applied to all Her Majesty's Dominions and the insolvent's title to the property 'in England or elsewhere' vested in the trustee in bankruptcy by reason of the adjudication. That Act had operative force in Lagos ?which had no Bankruptcy Act of its own. The position is clearly quite different where the immoveable property is situate in a Colony or part of the Dominions which had a Bankruptcy Act of its own. The insolvent's immoveable property here, therefore did not vest in the Official Assignee of Penang on the adjudication by reason of the Straits Settlements Bankruptcy Ordinance.

5. Stone, J., has based the order appealed against, on another ground, namely that this Court is acting in aid of and auxiliary to the Penang Court and that since it is clearly the duty of a Court within the Empire to aid other jurisdictions as effectively as possible, this Court will deem, pursuant to the rules of private International law, there to have been a vesting in other words, this Court will deem the insolvent's immoveable property here to have vested in the Official Assignee of Penang on the date of the adjudication just as other immoveable property of the insolvent in the Straits Settlements would have done. If this Court is entitled to deem such a vesting, then clearly the appellant's attachment of the insolvent's immoveable property was after the date of the vesting and is ineffective. In my view however it is not necessary for the Court to fall back upon any fiction as to the date of vesting. There is no direct authority upon the point. Galbraith v. Grimshaw (1910) A.C. 508 and Anantapadmanabhaswami v. Official Receiver, Seaunderabad , are different from the present case in a very important respect. In the former case the garnishee order and in the latter case the attachment were prior in date to the adjudication; in this case the attachment, was after. But there are observations in both cases which are of the greatest assistance to us upon this difficult question. In Galbraith's case (1910) A.C. 508, at p. 513, Lord Dunedin says:

Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of International law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution, and that I take to be the doctrine at the bottom of the cases of which Goetze v. Ader 2 R. 150 is only one example.

6. In the latter case Lord Thankerton, after referring to the before-mentioned observations of Lord Dunedin in Galbraith's case (1910) A.C. 508 says at p. 412:

This means that, after the date of the foreign adjudication order, it will be recognised as effective, but it is equally clear from the opinions expressed in Galbraith's case (1910) A.C. 508 that it will not be allowed to interfere with any process, at the instance of a creditor, already pending, even though such process is incomplete provided that at that date the bankrupt's freedom of disposal was so affected by the process that he could not have assigned the subject matter of the process to the Receiver.

7. The test therefore is whether at the date of the adjudication the insolvent was free to dispose of this property. Did this property form part of his free assets on that date or was there anything which affected his power of disposal over that property? If his power of disposal of the property was at that date unaffected, then the rule of International law will prevent any interference in the territory where the immoveable property is with the right of the Official Assignee to get hold of the property. If that test is to be applied here, then Stone, J., was right in making the order staying the appellant's execution having regard to the date of the adjudication and the fact that on that date the insolvent was free to assign this property though as I have already said it is not, in my opinion, a question of employing any fiction, but one of the Court acting in aid recognizing the foreign adjudication as effective from that date by a rule of International Law. Dicey in his 'Conflict of Laws,' Edn. 4, at p. 478, says:

While there is no provision in any Imperial Act, giving Colonial Acts as to the vesting of immoveables in the trustee of a bankrupt extraterritorial validity, the requirement in the Bankruptcy Act, 1914, that Courts throughout the Empire should aid each other in effect enables a bankrupt's immoveable property to be made available for his creditors in whatever part of the British Dominions it is situate subject of course to all charges on it valid by the lex situs.

8. This passage, it is true, doss not say whether regard is to be had only to such charges on the property as exist at the date of the adjudication, but Galbraith's case (1910) A.C. 508 and Anantapadmanabhaswami v. Official Receiver, Secunderabad are certainly authority for saying that it is the date of the adjudication and no later date. Being of this view, I think it is unnecessary for me to consider any other contention raised on behalf of the Official Assignee. This appeal must therefore be dismissed with costs, Rs. 250.

Bardswell, J.

9. On 9th January 1931, M.P. Khader Ibrahim was adjudicated an insolvent in Penang of the Straits Settlements. After this the appellant, an unsecured creditor who was the respondent to Application No. 99 of 1933 in the insolvency side of this High Court to which this appeal relates, filed a suit (O.S. No. 29 of 1931 on the file of the Subordinate Judge, Ramnad) against Khader Ibrahim and obtained a decree. He got an attachment before judgment and applied in E.P. No. 81 of 1932 for sale of the attached properties. On 24th October 1932 the insolvent executed to the Official Assignee of Penang a transfer of his immoveable pro-party in the Madras Presidency. The learned Judge in insolvency has ordered on an application by the Official Assignee of Madras acting as auxiliary to the Official Assignee of Penang, that proceedings in E.P. No. 81 of 1932 be stayed, holding that he could implement the order under which the transfer had been effected by preventing the attachment from being realized. He took the view that in this case the Court when acting in aid should render available the insolvent's immoveable property situated in this Presidency as existing at the date of the adjudication in Penang subject to all charges then on it valid by the lex situs. He emphasised that at the date of the adjudication the attachment had not been made. Alternatively he was of opinion that the assignment though in form a transfer from an insolvent to an Official Assignee was not a private transfer and was effective to defeat the claim enforceable under an attachment.

10. To deal first of all with the alternative finding. There has been little argument as to this and the learned advocate for the respondent, Official Assignee of Madras, is not relying upon it. The judgment under appeal was passed on 1st May 1933, and subsequently to it there has been published in 56 Mad. (June Part) the Privy Council decision in Anantapadmanabhaswami v. Official Receiver, Secunderalad A.I.R. P.C. 134 in which, reversing the decision of the two learned Judges of this High Court as reported in Official Receiver, Secunderabad v. Lakshmi Narayana A.I.R. 1931 Mad. 474 to the contrary it was held that a transfer effected under a foreign adjudication order was a private order in that it operated in British India not vi statuti but only under the rule of private International Law. That the transfer to operated in the present case had indeed been held by Stone, J., in the case now under notice and there can be no doubt but that such is the fact. The insolvent was adjudged by the Supreme Court of Penang which is in respect of British India, a foreign Court within the definition of Section 2(5), Civil P.C. It cannot therefore be a case of Section 64, Civil P.C., having no application in that the transfer was not of the nature of a private transfer.

11. This case really turns upon a decision of from what date the transfer by the insolvent of his property to the Official Assignee took effect. It is as to this point that much learned argument has been addressed to us on the hearing of this appeal. There appears to be no decided case that directly bears upon it. As pointed out by Stone, J., there is an important distinction between this case and the cases of Galbraith v. Grimshaw (1910) A.C. 508 and Anantapadmanabhaswami v. Official Receiver, Secunderabad . They relate respectively to a garnishes order taken and an attachment effected prior to the adjudication in a foreign Court and it was held that the adjudication was subject to the garnishee order in the one case and to the attachment in the other. But here we have an attachment taken out in British India after there had already been an adjudication in the foreign Court of Penang. What is the position in such a case? Stone, J., in the course of his judgment, remarks:

It appears to me that there can be no vesting of property here by force of an ordinance, passed by the legislature of the Straits Settlements. It follows that unless some other law having binding force here can be prayed in aid there is no vesting vistatuti and as to this being the correct view there is no dispute. It is true that by Section 24, Ordinance 44 which lays down the law as to bankruptcy in the Straits Settlements, the property of a debtor on his being adjudged bankrupt vesta in the Official Assignee and that in Section 2 of the same ordinance property is defined as including 'money, goods, things in action, land and every description of property, whether real, or personal, and whether situate in the Colony or elsewhere.'

12. The words however 'or elsewhere' if they are intended to apply to property outside the Straits Settlements are ultra vires of the Colony's legislature jurisdiction on the principle of 'extra territorium jus dicenti impune non paretur.' There is clear authority for this in Macleod v. Attorney-General, New South Wales (1891) A.C. 455. That was a case in which a man was convicted of bigamy at the Court of Quarter Sessions at Sydney, Now South Wales, the bigamy having been committed in the United States of America. The Privy Council in reversing the conviction held that the words whosoever being married in the Colonial Statute could only be taken as meaning for the purposes of the Statute, whosoever being married and who is amenable, at the time of the offence committed, to the jurisdiction of the Colony of new South Wales.

13. Similarly it was held that 'wheresoever' should be read as 'wheresoever in this Colony the offence is committed.' To give to the words 'whosoever' and 'wheresoever' an extended extra-colonial application would be to allow to the Colony a legislative authority that it did not possess. It has also been held in Waite v. Bingley (1882) 21 Ch. D. 674 that real estate in England does not vest in an assignee under an insolvency adjudged in Victoria in accordance with the law of bankruptcy in force in that colony, though it might have been got at by some separate and, independent proceedings to be taken in Australia under which the insolvent could have been called upon to make it over to the Australian Assignee. It would be different if there had been an adjudication under the English Bankruptcy Act arid if there was no local legislation to be considered as to insolvency and as to the passing of property. Such was the case in Callender Sykes & Co. v. Colonial Secretary of Lagos & Davies (1891) A.C. 460, but the circumstances are altogether different here where the adjudication has been under a Colonial Ordinance and British India had its own laws as to insolvency and the transfer of property.

14. We must take it then that there was no vesting of the immoveable property of the insolvent situated in British India by the mere fact of the adjudication, but that there was such vesting only after the insolvent had effected a transfer of it to the Official Assignee. But the question remains whether any right which the Official Assignee of of Penang can have over the insolvent's property in British India is to date only from the date of the conveyance, or whether it is to be dated back to the time of the adjudication. What is argued for the Official Assignee of Madras, as respondent to this appeal, is that the Official Assignee of Penang got some sort of title to the Indian property at the time of the adjudication in that the insolvent from that time was in such a position that he could be compelled to execute a conveyance of it at any time and that the conveyance is only a perfecting of this title. This line of argument receives some support from what appears in the judgment of Kap, J. in In re Levy's Trusts (1885) 30 Ch. D. 119, that the real estate in England of a man who had been adjudged insolvent in New South Wales became liable at once, or rather would have so become liable if it had belonged to him indefeasibly for his life, to be attached and taken possession of by the proper authority in New South Wales for the purposes of his bankruptcy there.

15. But the judgment does not say that the rights of the Official Assignee date from the time when the liability began or whether it could only have begun later after the necessary steps had been taken. It is however important to observe that the liability was held to have begun at the time of the adjudication and that the bankruptcy in the Colony was recognised in an English Court as being a bankruptcy even though no English Court of Bankruptcy had been called upon to act in aid in respect of it. We have been referred to Gibbs & sons v. Societe Industrielle et Commerciale des Metaas (1890) 25 Q.B.D. 399, and Bartley v. Hodgers (1861) 30 L.J.K.B. 352, the effect of which two decisions is that the discharge of a bankrupt adjudicated under a foreign law in the one case and under a Colonial Law in the other is no answer to an action against him as a party to a contract made and to be performed in England. These decisions however have no direct bearing on the point that is now before us. The strongest authority quoted for the appellant is to be found in para. 80 of Mulla's Law of Insolvency, 1930, Edition, in which he discusses Section 122, English Bankruptcy Act of 1914. That is the section under which all British Courts acting in. insolvency are bound to give effect to the orders of every other British Court in bankruptcy matters. He remarks that an order in aid, in order to help an official assignee in India in the realisation of the property

would be made as a matter of course, but the title of the Official Assignee in such oases would commence from the date of the order of the English Court of Bankruptcy.

16. But this view of the learned Commentator though entitled to very great respect is only his own opinion and is not supported by reference to any decided case. And along with it and by way of contrast to it must be considered the view of that very eminent authority, A.V. Dicey, at p. 478 of his Conflict of Laws, (1927 Edition.):

It may, indeed, be laid down, in broad terms that, according to the doctrine maintained by English courts, a Bankruptcy in one country has no effect as an assignment or otherwise (except, of Course, where the bankruptcy takes place under an Act of Parliament) on land in another country. But this statement is a little broader than the facts warrant. There is no reason to suppose that English Courts would decline to recognise the extraterritorial effect, as an assignment, of a bankruptcy in one country, e g., Victoria, on land of the bankrupt in another country, e.g., New Zealand which was given to a Victorian bankruptcy by the lex situs, i.e., by an Act of the New Zealand legislature. Further, while there is no provision in any Imperial Act giving Colonial Acts as to the vesting of immoveables in the trustee of a bankrupt extra-territorial validity, the requirement in the Bankruptcy Act, 1914, that Courts throughout the Empire should aid each other in effect enables a bankrupt's immoveable property to be made available for his creditors in whatever part of the British Indian Dominions it is situate, subject; of course, to all charges on it valid by the lex situs.

17. There is at least a strong suggestion here that such availability is immediate on adjudication. Mr. Duraiswami Ayyar quotes a passage from the judgment of Lord Macnaughten in Galbraith v. Grimshaw (1910) A.C. 508.

It may have been intended by the legislature that bankruptcy in one part of the United Kingdom should produce the same consequences throughout the whole Kingdom. But the legislature has not said so. The Act does not say that a Scotoh Sequestration should have effect in England as if it were an English bankruptcy of the same date. It only says that the Courts of the different parts of the United Kingdom shall severally act in aid of and be auxiliary to each other in all matters of bankruptcy.

18. But these remarks by no means conclude the matter. They were made with particular reference to an attachment that had taken place before the adjudication. Loreburn, L.C. in his judgment in the same case has remarked:

If the attachment is prior in date, then I do not think it will be affected by the title of the trustee in a foreign bankruptcy.... I think in each case the question will be whether the bankrupt could have assigned to the trustee, at the date when the trustee's title accrued, the debts or assets in question situated in England. If any part of that which the bankrupt could have then assigned, is situated in England, then the trustee may have it; but he could not have it unless the bankrupt could himself have assigned it.

19. And to supplement this we have in the further judgment of Lord Dunedin:

Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of International Law that if the Court finds that there is already pending process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution.

20. This passage has been quoted by the Privy Council in Anantapadmanabhaswami v. The Official Receiver Secunderabad , in which it has been shown to mean that after the date of the foreign adjudication order it will be recognised as effective though it will not be allowed to interfere with any process, at the instance of a creditor, already pending, even though such process is incomplete, provided that at that date the bankrupt's freedom of disposal was so affected by the process that he could not have assigned the subject matter of the process to the receiver. Lord Macnaghten, too, in another part of his judgment above referred to, has said that the foreign Court

must take the assets of the bankrupt such as they were at that date (i.e., of the Scotch Sequestration) and with all the liabilities to which they were then subject.

21. Now the only liability to which the properties in British India was subject in the present case was their liability to the Official Assignee of Penang. That there was this liability has already been shown. I think that it can clearly be deduced from the authorities that the contention of the Official Assignee is a proper one, and that though the liability that arose as against the Indian properties immediately on the Penang adjudication had to be followed by the taking of steps to have those properties conveyed to the Penang Official Assignee, the right of the Official Assignee over the properties has to be dated back to the date of the adjudication and is subject only to such liabilities as then existed. The Official Assignee, of Madras, acting in aid of him, was therefore entitled to the order which has been granted to him under Section 18, Presidency Towns Insolvency Act, staying further proceedings in execution against the attached property. The learned Advocate for the respondent Official Assignee has argued that this case is analogous to one in which there has been a contract of sale. It has been held in Savithri Animal v. Ramaswami : (1898)8MLJ266 , and Venkata Beddi v. Ellappa Chetty A.I.R. 1917 Mad. 4, that a mere contract of sale, though it does not confer an interest in the subject matter of the contract, still creates an obligation (annexed to the ownership of the property within the meaning of Section 40, T.P. Act) that it should be convoyed to the promisee under the contract so that a creditor who attaches the property subject to that obligation is prima facie entitled to sell the property subject only to that obligation. But the analogy does not hold as an adjudication does not create an obligation annexed to the ownership of the property which obligation can be enforced by an action taken on that behalf.

22. On the contrary if the insolvent fails in his duty of making over, his property to the Official Assignee or the Official Receiver or similar official however named, the only remedy is to proceed against him for contempt. There are provisions as to this, in language that is almost identical in each case, alike in Section 22, English Bankruptcy Act, Section 33; Presidency Towns Insolvency Act, and Section 27, Straits Settlements Bankruptcy Ordinance. With the main contention however put forward for the respondent I am in agreement for the reasons above stated and therefore agree with my Lord,, the Chief Justice, that the decision of the learned Judge in insolvency should be upheld and that this appeal should be dismissed with costs.


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