1. The short facts lead-ing to this appeal, which arises out of insolvency proceedings, are follows:-
In Janqary, 1977, against the appellant fhe first respondent filed O. S. No. 23 of 1977 for the recovery of a sum of Rs. 9,500/-. A decree was passed on 13th September, 1977 against the appellant. In the meanwhile, it appears, he fell into arrears of sales tax recoverable under the Tamil Nadu General Sales Tax Act, 'concerning which notice of attachment under Sections 27 and 28 of the Tamil Nadu Revenue Recovery Act (Tamil Nadu Act II of 1864) was issued on 10th December, 1977. Consequent to this attachment, on 20-2-1978 the property, which was attached, was put in management of the Sales Tax Officer under Section 28 of the Revenue Recovery Act. Thereafter, in execution of the decree in E. P. No. 366 of 1978 in O. S. No. 23 of 1977, the property belonging to the appelan. Came to attacment on 14-2-1978. On 20-2-1978 the attachment was actually effected. When this attachment has been subsisting for a period of 21 days, 1. P. No. 20 of 1978 was filed on 12-4-1978 by the first respondent. After contest, our learned brother, Padmanabhan, J. adjudicated the appellant as insolvent in and by order dated 29-9-1978. It is to set aside this order, the present appeal has been preferred.
2. Mr. P. Venkataswami, learned counsel for the appellant urges the following contentions for our consideration. The effect of assumption of management under Section 28 of the Revenue Recovery Act would be to divest the title of the appellant in favour of the Government. Therefore, any attachment made thereafter could be of no effect and in such a case Section 9(e) of the Presidency, Towns Insolvency Act 3, 14 cannot be invoked and the learned Judge erred in holding that assumption of management merely means the administration of property without divestiture of title.
3. The only debt in favour of the petitioning creditor having been paid in full and satisfaction recorded during the pendency of the appeal, this subsequent event can be taken note of and the court - may consider whether this social stigma should be allowed to continue. In re Bhimaji Nanji and Co., (1969) 71 Bom LR 638, it has been held that where the only debt having been paid, it would be open to the court to annul the insolvency proceedings, and relieve the debtor of ' the rigours of insolvency law. In fact, it is for this very purpose C. M. P. 1775 of 1981 has been preferred in this appeal for annulment.
4. Lastly it is submitted that Section 9(e) of the Presidency Towns Insolvency Act must be strictly construed and that too in favour of the debtor.
5. This appeal being a continuation of the origination of the insolvency, the court may see whether the terms of Section 9(e) of the Presidency Towns Insolvency Act have been satisfied in the instant case. As submitted above, the only creditor has been paid off in full and if that be so, there was no possibility of attachment as on today, and if the facts do not show a subsisting attachment for a period of not less than 21 days in execution of a decree, the appellate court can the fact and come to the rescue of the appellant. In support of this strict construction of Section 9(e) of the Presidency Towns insolvency Act, Mr. P. Venkataswimi relies on two rulings reported in Ghulam Hussein Khatau v. Shahban Mohib, AIR 1938 Sind 2120 and in re Louis Thomas Pinto, AIR 1941 Sind 193.
6. As against these submissions, the learned counsel for the petitioning creditor (first respondent)would urge that the assumption of man agement under Section 28 of the Revenue' Recoverv Act does not divest the title of the debtor. The offi cer put in charge merely assumes the management for the proper custody and preservation of the property. Therefore. the finding of the insolvency court in this regard can well be supported.
7. It is true that the petitioning creditor had been paid in full. But, that does not mean there must be an annulment because on adjudication, the entire estate of the debtor (insolvent) comes to vest in the Official Assignee who represents the body of creditors. It is borne out in evidence that there are huge arrears of sales tax. Therefore, there is no question of annulling at this stage and the petition taken out for this specific purpose is liable to be dismissed.
8. As regards the construction to be placed on See. 9 (e) of the Presidency Towns Insolvency Act, what the court has to concern itself with is, on the date of the presentation of the insolvency. petition, whether the attachment was six . subsusting for a period of not less than 21 days in execution of decree of any court for payment of money.-In the case on hand, the attachment was effected on 14-2-1978 in execution of the decree in O S. No. 23 of the recovery of 1977 for a sum of 9,500/- as decreed. It was for this pupose E. P. No. 366 of 1978 came to filed. Therefore, in every respect, Section 9(e) of the Presidency Towns Insolvency Act has been fully satisfied. Under these circumstances, the question of liberal or strict interpretation and of any construction to be made in favour of the debtor do not arise. From this point of view, both the decisions cited, viz., Ghulam Husseini Khatau v. Shahban Mohib, AIR 1938 Sind 220 and In re Louis Thomas Pinto, AIR 1941 Sind 193, can easily be distinguished the former finding out the meaning of the decree of any court whether it could be extended to an award, the latter dealing with the attachment of a deposit made under the Excise Act with the Collector.
9. The learned Official Assignee submits that merely because the petitioning creditor (first respondent) has been paid in full, it is not open to this court to annul since as laid down in theOfficial Assignee of Madras v. The Trustees of the Port Trust, Madras, JLR (1937) Mad 178 : (AIR 1936 Mad 789), even Crown's debts are provable in insolvency. The evidence discloses in this case that there are arrears of sales tax to the tune of rupees one lakh though the precise amount cannot be stated in the absence of proper records.' Till those claims are satisfied, the question of annulment does not arise.
10. Then again, it is submitted what is relevant for the purpose of adjudication is, as per the terms of Section 9(e) of the Presidency Towns Insolvency Act, the subsistence of an attachment for a period of not less than 21 days in execution of any decree for the payment of money before the presentation of the petition for insolvency. That is fully satisfied in this case. Under thes6 circumstances, it is not correct to state, the appeal is merely a continuation of the original insolvency proceedings and the court could have regard to the subsequent events and annul the application and relieve the appellant of the rigours of insolvency or the social stigma.
11. We have given our utmost consideration. to the above submissions. In the instant case, firstly we have to consider the scope of Section 28 of the Revenue Recovery Act. That section reads as under -
"28. It shall be lawful for the C01lector, when attaching the land of a defaulter, or at any time during such attachment, to assume the management of the property attached. In such case he shall appoint an agent with a proper establishment of officers to manage the property, and shall give the agent certificate of appointment with written instructions under his seal and signature, and the expenses of management shall be defrayed out of the income of the property; provided always, that where the property may be too inconsiderable to admit of its being charged with the salary of. an agent, shall be committed to the care of such Revenue Officer as the Collector may select, who shall be subject to all the provisions herein contained in reference to agents."
A careful reading of this section clearly discloses that there is no divestiture of title from the debtor (appellant herein in favour of the Government. On the contrary, it is for the specific purpose of managing and preserving the property for the ultimate realisation of the arrears of land revenue.
12. In this case, no doubt, the arrears are those falling under the Tamil Nadu General Sales Tax Act. Section 26 of the Tamil Nadu General Sales Tax Act provides for a mode of recovery of any money due under the Act, which would obviously include tax as well. Sub-sec. (6) of Section 20 of the Tamil Nadu General Sales Tax Act is important for our consideration. That reads
"Any amount which a person is required to pay to the assessing authority or for which he is personally liable to the assessing authority under this section shall, if it remains unpaid, be a charge on the properties of the said person and may be recovered as if it were an arrear of land" revenue."
It uses the words 'as if', which will obviously be a deeming provision. Once It is deemed to be an arrear of land revenue, all provisions of Recovery Act would get attracted. It is not open to boggle when it comes to the inevitable consequences of the said state of affairs.
13. Now, we will refer to the eloquent dictum of Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council, 1952 AC 109. At p. 132, it was observed -
"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed must inevitably have flowed from or accompanied it. One of those in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."
It may also be stated that this dictum met with approval in the hands of the Supreme Court as seen from M. K. Venkatachalam I. T. O. v. Bombay Dyeing and Mfg. Co. Ltd., . Therefore, by virtue of these provisions, the assumption of management came to be effected. But, that does not mean there is any divestiture of title. We have no hesitation in upholding the finding of our learned brother Padmanabhan, J. in this regard.
14. The next point for our consideration is, when the only debt having been paid, whether it would be open to us to relieve the appellant of the rigours of insolvency law and the social stigma. Re Bhimji Nanji & Co., (1969) 71 Bom LR 638, states that the debt, on the basis of which a petition for adjudication is presented by the creditor under the Presidency Towns Insolvency Act 1909, must be subsisting not only at the date of the presentation of the petition but also at the date of its hearing as well as at the date when the adjudication order is proposed to be passed. In dealing with this aspect of the matter at page 641, it is stated
"In my view, the principle that the Limitation Act ceases to apply upon the commencement of the insolvency will come into play only after an adjudication order is proprly the that the adjudication relates back to the act of insolvency arises onlyupon the passing of the adjudication order and the said principle is as to whether an adjudication order itself. should be made or not when the debt on the basis of which the petition is presented has become Aime-barred on the date of the hearing of the petition. The ruling in Byramji Talati v. Official Assignee, Bombay, (1936) 38 Bom LR 71 : (AIR 1936 Bom 130) is applicableonly to a case where after the passing of an adjudication order proceedings for administration and distribution of the insolvent's property are pending, and in such proceedings the question arising whether a creditor can prove his debt which had become barred at the date of the adjudication order but had not be come barred when the act of insolven cy had been committed and the deci sion says, he would be entitled to prove such debt in those proceedings. That decision is no authority for the proposition that the debt need not be a sub sisting debt at the time of the hearing of the creditor's petition for an adjudi cation order."
The Madras High Court decision relied on by Mr. Shah undoubtedly supports his contention; however, it may be pointed out that that was a case under the Provincial Insolvency Act and relying upon the provisions of Section 9 of the Provincial Insolvency Act the Madras High Court took the view that once a creditor had fulfilled three conditions set out in Section 9 at the time when he filed the insolvency petition, there was no question of further fact being proved by the creditor that this debt was subsisting at the hearing of the petition. It would be pertinent to note the difference between the phraseology used in Section 24(1) of the Provincial Insolvency Act and the phraseology used in Section 13(2) of the Presidency Towns Insolvency Act. Both the provisions state what facts are required to be proved before the court at the hearing of the petition- but whereas under Section 13(2) of the Presidency T6wns Insolvency Act, the court requires proof of 'the debt of the petitioning creditor', under Section 24(1) of the Provincial Insolvency Act, the court requires proof of the rather 'that the creditor is entitled to present the petition. In view of these provisions, namely, Sections 9 and 24(1), the Madras High Court has taken the view that the debt must be subsisting at the date of the presentation of the petition. Section 13(2) of the Presidency Towns Insolveney Act, with which I am concerned requires proof of the debt at the hearing of the petition which must mean proof of a subsisting debt subsisting at the date of hearing as also up to the time of the passing of the adjudication order. I must, however, point out that in the Madras decision it has been observed that even if the creditor satisfied all three requirements of Section 9. it is within the discretion of the court acting under Section 25 of the Provincial insolvency Act, whether to pass the adjudication order or not; in other words, if for any sufficient reasons the court feels that the debtor should not be adjudicated insolvent, the court has the power to refuse the relief sought by the creditor."
This ruling, in our considered view, does not advance the case of the appellant so as to enable us to hold at merely because the petitioning creditor had been paid in full, the former could be relieved of the 'stigma' of insolvency. On the contrary, it is well settled that an adjudication is an order in, rem. On adjudication, the entire estate comes to, vest in the Official Assignee, who represents the body of creditors. It is not denied before us that the appellant is in arrears of sales tax. It does not matter what the quantum is for the pur-1 pose of our discussion. So long as he is in arrears and as rightly contended by the learned Official Assignee, the Crown's debts are also provable in insolvency as has been held in the Official Assignee, Madras v. Trustees of the Port Trust, Madras, ILR (1937) Mad 178: (AIR 1936 Mad 789), we do not annul the order of adjudication taking note of the subsequent events. We are 'concerned with the position as it existed on the date of the presentation of the petition and on the date of the hearing of that petition as well as on the date of the adjudication which is now the subject matter of appeal.
15. Lastly, as regards the construction of Section 9(e) of the Presidency Towns Insolvency Act, that sub-section says as follows-
"9 (e). If any of his property has been sold or attached for a Period of not less than twenty one days in execution Of the decree of any court for the payment of money.
16. The attachment in this case took place on 14-2-1978. The order of attachment was in E. P. No. 366 of 1978 in O. S. No 23 of 1977. The decree in O. S. No. 23 of 1977 is for the recovery of a gum of Rs. 9,500/-. Therefore, every aspect of Section 9(e) of the Presidency Towns Insolvency Act extracted above is fully satisfied. The question of construing Section 9(e) of the Presidency Towns Insolvency Act strictly and that too in favour of, the debtor, does not arise here at all. In fact, we are not called upon to place any interpretation on this sub-section. We merely go by the strict letter of law, viz., the requirements of Section 9(e) of the Presidency Towns Insolvency Act, which as we observed above, are fully satisfied in this case.
17. Ghulam Hussein Khatau v. Shahban Mobib, AIR 1938 Sind 220, was a case in which the question arose in relation to the construction of the words 'in execution of the decree of any court for the payment of money', whether they would include an award as well. The learned Judge (Lobo, J.) held that it was not open to the court to rewrite the section. It means only a decree and not an award. The situation here is entirely different and we are not, as seen above, called upon to determine the scope of the decree since the decree here is that of the court and that too for the payment of money. Equally, we should hold that the decision in In re Louis Thomas Pinto, AIR 1941 Sind 193 will have no application to the facts of this case, because there the question arose whether the deposit made under the Excise Act with the Collector was attachable. The court held in favour of the debtor that it was not attachable and even if there was a declaration as such, it would not fall strictly within the terms of Section 9(e) of the Presidency Towns Insolvency Act, viz., attachment in execution of a decree for the payment of money. Therefore, neither of these cases advances the arguments of Mr. P. Venkataswami learned counsel for the appellant.
18. For all these reasons, we agree with the learned Judge, uphold the order of adjudication and dismiss the appeal as well as C. M. P. 177-9 of f981. There will be no order as to costs.
19. Appeal dismissed.