1. One Chidambaram Pillai was the owner of the properties which are sought to be redeemed in the suit out of which the above Letters Patent Appeal has arisen. On 6-2-1917 under Ex. P. 1 he usufructuarily mortgaged these properties to the defendant-respondent, the mortgage money secured being a sum of Rs. 2850/-. The stipulation in the deed was that the mortgagee was to remain in possession, enjoy the usufruct until the 15th May 1923 when the mortgage amount would be paid and redemption would take place. The document in question evidences an ordinary usufructuary mortgage without any complications. On 29-10-1923 under Ex. D. 1 Chidambaram Pillai sold the equity of redemption in these properties to one A. N. R. M. Ramasathan Chettiar and the consideration recited in the sale deed was a sum of Rs. 8500 of which Rs. 2850 was reserved for payment to the mortgagee under Ex. P. 1, Rs. 150 for discharging a promissory note debt due by the vendor to the same usufructuary mortgagee, and a sum of Rs. 5500 for discharging a promissory note debt due by the vendor to one M. L. M. Ramanathan Chettiar of Devakottal in respect of which debt C. S. No. 980 of 1922 has been filed in the High Court. No sum was paid in cash. It is common ground that Ramanathan Chettiar has not paid off the decree amount in C. S. No. 980 of 1922 or the promissory note debt due to the defendant. Obviously the mortgage has not been redeemed at all.
2. On 12-9-1930 Chidambaram Pillai filed I. P. No. 28 of 1930 in the Sun Court of Ramnad for getting himself adjudged an insolvent and he was accordingly adjudicated on 28-6-1931, vide Ex. D.4, with the result that his properties had become vested in the Official Receiver of Ramnad under Section 28(2) of the Provincial Insolvency Act. Pending his adjudication on 13-10-1930 Chidambaram Pillai borrowed a sum of Rs. 500 from the plaintiff by executing a promissory note, a copy of which is filed as Ex. D.14. It was renewed on 7-10-1933 by a promissory note, a copy of which is filed as Ex. D.15. On 28-4-1934 under Ex. D.8 Chidambaram Pillai obtained an order of discharge on condition that he would pay Rs. 15 per month till the proved creditors are paid at the rate of twelve annas in the rupee.
In October 1935 Chidambaram Pillai died and after his death the plaintiff who had obtained the promissory note, the originals of Exs. D.14 and D. 15, filed S. C. S. No. 287 of 1936 in the Sub Court of Tuticorin against the widow of Chidambaram Pillai for recovery of the amounts due under the promissory notes and the suit was decreed in favour of the plaintiff on 3-11-1936. In execution of that decree by E. P. No. 567 of 1939 dated 18-11-1940, the decree-holder plaintiff attached the equity of redemption in the mortgaged properties under Ex. P. l and purchased them himself. By E. A. 72 of 1941 the plaintiff obtained symbolical delivery on 6-2-1941 of the rights purchased by him, and the present suit is as the owner of the equity of redemption by the plaintiff to redeem the mortgage, Ex. P. 1.
3. The usufructuary mortgagee under Ex.- P. l was the only defendant and Ramanathan Chettiar in whose favour the equity of redemption had been sold for a consideration of Rs. 8500 under Ex. D.1 has not been impleaded as a party. Both the lower courts dismissed the suit for the following reasons : Firstly they held that Ex. D. 1 was not a void, sham or colourable transaction and therefore there was nothing to vest in the Official Receiver as the insolvent had parted with these properties before he filed the application to adjudge him as an insolvent. Secondly they also . held that there was no vendor's lien subsisting in favour of Chidambaram Pillai with regard to any portion of the unpaid purchase money; and lastly that the decree in S. C. S. No. 287 of 1936 without obtaining the leave of the Insolvency court and without obtaining the leave of the Official Receiver was void and unenforceable and such being the case the plaintiff did not obtain any title by his purchase.
4. In seocnd appeal before Rajagopalan J., the questions argued were whether Ex. D. 1 evidenced a sham and nominal transaction and whether the sale and execution in S. C. S. No. 287 of 1938 did not pass any title to the plaintiff to redeem the mortgage. The learned Judge held against the plaintiff on both these contentions. There was an application before him, C. M. p. 896 of 1949, to implead Ramanathan Chettiar as a respondent in the appeal with a consequent prayer in C. M. P. No. 1083 of 1949 under Order XXIII, Rule 1 C. P. C. to permit the plaintiff to withdraw the suit with liberty to file a fresh suit on the same cause of action. The learned Judge refused to allow the prayer. Rajagopalan J. held that the order of conditional discharge did not have the effect of revesting the property in the quondam insolvent and that the same should not be treated as an order of annulment which would have the effect of revesting the property in the quondam insolvent.
5. Mr. K. Veeraswami for the appellant raised various points which were not attempted to be argued before Rajagopaian J. Despite the circumstance, we allowed him to argue the points in detail. Though we find ourselves in agreement with some of the arguments of the learned counsel still the coping stone to the edifice is wanting and such being the case the appeal cannot succeed.
6. At the very outset one has to decide whether the plaintiff has obtained any rights in the property by reason of the decree obtained in the small cause suit No. 287 of 1936 against the widow of the insolvent and the consequent execution proceedings which took place in E. P. No. 567 of 1939. The only kind of debts which are not provable in an insolvency court are those described in Section 34(1) of the Act, viz., debts which have been excluded from the schedule on the ground that their value is incapable of being fairly estimated and demands in the nature of unliquidated damages arising otherwise than by reason of a contract or a breach of trust. Therefore we have to see whether the promissory note debt is one which could have been proved in insolvency and if so, whether a decree obtained on foot of such a promissory note without the leave of the insolvency court and without the Official Receiver being made a party would be binding on the insolvent's estate.
In this connection, Sub-section (2) of Section 34 of the Act has also to be referred to and it says that save as prodded by Sub-section (1) all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is ad-Judged an insolvent, or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable under the Act. Section 28(7) says 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. Therefore can it be said that the promissory note debt which was Incurred after the filing of the insolvency petition but before the adjudication was a debt which could have been proved in insolvency under Section 34(2) of the Act by reason of the fact that under Section 28(7) the order of adjudication relates back to the date of the presentation of the petition? The argument of the learned counsel is that this being a post-insolvency debt, though it arose between the presentation of the petition and the adjudication is not provable In insolvency and therefore no leave is necessary for instituting a suit to enforce the debt; and as such the decree obtained in S. C. S. No. 287 of 1936 and the sale in execution and all subsequent proceedings are unaffected by the Insolvency law.
If the debt had been in existence on the date of the presentation of the insolvency petition but got barred by the time of adjudication, then this court has laid down in -- 'Subramania Aiyar v. Meenakshisundaram', AIR 1937 Mad 577 (A), that it is a debt provable in insolvency because the learned Judges have held that for the purpose of Section 34(2) of the Provincial Insolvency Act the material date in view of the provision of Section 28(7) of the Act as to "relation back" is the date of presentation of the petition. So if we take the crucial date as the date of presentation of the petition, then certainly a post-insolvency debt, as the suit debt, could not have been proved in insolvency, as argues learned counsel. He also invited our attention to a recent decision reported in -- 'Official Assignee, Madras v. Naiayana Mudaliar', (B), where it has been held that a suit
would lie against an undischarged insolvent for a debt contracted by him subsequent to the insolvency. Unless barred by other provisions of any other statute, there is nothing in the provisions of the Presidency Towns Insolvency Act which prohibits an insolvent from borrowing, or entering into contracts, giving rise to financial liability. The same is the case with1 regard to the Provincial Insolvency Act also.
What is sought to be argued from this decision is that an insolvent does not cease to nave his contractual capacity by mere reason of being adjudged insolvent and in this case the promissory note debt being one which, if the principle enunciated in -- ' AIR 1937 Mad 577 (A)', is applied is not provable in insolvency, there is nothing, illegal in the decree obtained in S. C. S. No. 287 of 1936. A similar principle is sought to be gathered from the Full Bench decision of the Lahore High Court in -- 'Kewal Krishna v. Special Official Receiver', AIR 1939 Lah 384 (C). In that case the Full Bench held that Section 28(7) governs Section 34. Both the rulings in -- 'AIR 1937 Mad 577 (A)' and -- 'AIR 1939 Lah 384 (C)', deal with situations which may be said to be converse to what happened in the present case. None of the cases decided the question of a debt incurred after the presentation of the petition but before adjudication and so it cannot be said that there is any direct authority on the point that has now arisen.
The reasoning of the Bench in -- ' (B)', may be
invoked in support of the view that there is no legal objection to an undischarged insolvent being again adjudicated bankrupt on the basis of debts not covered by the prior insolvency and the cases cited by the learned Judges show that the contractual capacity of an undischarged insolvent is not lost. All that the insolvency effects is to vest all the properties belonging to the insolvent in the Official Receiver and since Section 28(7) of the Act governs Section 34, the date of adjudication will have relation back to the date of the presentation. If there is no prohibition under the Insolvency Act from an Insolvent borrowing or entering into contracts giving rise to a liability, then it necessarily follows that the promissory note debt in question is a post-insolvency debt. The only restriction that is cast upon the insolvent is that contained in Section 72(1) of the Act, that is that if an undischarged insolvent obtains credit to the extent of Rs. 50 or upwards from any person without informing such person that he is an undischarged insolvent, then he shall on conviction, be punishable with imprisonment for a term which may extend to six months, or with fine or with both. If a person borrows money or enters into a financial liability, it cannot be said that the transaction is void 'ab initio'. Following the above decisions, we are inclined to hold that the promissory note debt and the subsequent decree and execution proceedings cannot be said to be absolutely without any effect.
7. But what exactly has been the subject of purchase in E. P. No. 567 of 1939 in S. C. No. 287 of 1936 has next to be considered. The various steps in the argument of the learned counsel whereby he attempted to show that something real and tangible was sold and purchased in execution of the decree may now be noticed. Unless there is some right in the property which has been the subject of purchase, the plaintiff though he has obtained a decree, has acquired nothing. But if it is shown that what was attached and sold in execution of the decree is a thing which does not exist or inhere in the judgment-debtor, then by his purchase, the present plaintiff has not gained anything at all. Realising this, the learned counsel for the appellant has attempted to show with great skill and ingenuity that there is some interest in the property which the decree-holder acquired as a result of which he is entitled to redeem.
The various steps may now be stated : Under Section 55(4)(b) of the Transfer of Property Act where the ownership of the property has passed to the buyer before payment of the whole of the purchase money the seller is entitled to a charge upon the property in the hands of the buyer for the amount of the purchase money, or any part thereof remaining unpaid, and for interest on such amount or part, from the date on which possession has been delivered. Therefore when Chidambaram Pillai sold the property to Ramanathan Chettiar under Ex. D.1 directing him to pay the sum of Rs. 2850 to the defendant and redeem the mortgage, pay another sum of Rs. 150 in liquidation of a promissory note debt and a third sum of RSi 5500 in payment of the decree debt in O. S. No. 980 of 1922, so long as Ramanathan Chettiar does not fulfil the conditions imposed in the deed and pay off the various secured and unsecured creditors of Chidambaram Pillai, the seller has a lien for the unpaid consideration over the properties sold in the hands of the buyer. With regard to the sum of Rs. 5500, and Rs. 150 the learned counsel for the respondent does not dispute the existence of a vendor's lien; but it is conceded for the plaintiff that this vendor's lien not having been enforced during the period of twelve years from the date of Ex. D. 1 has now Ceased to exist and has become unenforceable, so tar there is agreement between the parties.
But the appellant contends that with regard to the payment of Rs. 2850 enjoined upon the vendee, who has a period of 60 years from the date of the mortgage to redeem the usufructuary mortgage, Ex. P. 1, unless and until the mortgage is tedeemed the vendor's lien subsists. That is, according to the plaintiff the vendor's lien will enure for a period of 60 years from 6-2-1917 and thereafter for a further period of twelve years from its enforcement.
The second step in the argument is that this vendor's lien never vested, or could have vested, In the Official Receiver for it is not property over which the insolvent had a present disposing power. In order that the vendor's lien should vest In the Official Receiver it should be property capable of division among the creditors as property over which the insolvent must have a disposing power and that being absent in this case the vendor's lien would not, and could not. have vested in the Official Receiver. It therefore remains the property of the insolvent which was gold and purchased in execution of the decree in O. S. NO. 287 Of 1936.
The third step in the argument is that since the vendor's lien has been purchased by the plaintiff that is sufficient interest within the meaning of Section 91 of the Transfer of Property Act which would enable the purchaser-plaintiff to redeem the mortgage.
Lastly. It is contended that even if the equitable lien vested in the vendor had become vested In the Official Receiver, still in view of the conditional discharge and since there was nothing to administer at least after the death of the insolvent, this property has reverted back in favour of the quondam insolvent's representatives and the same has been sold and purchased in S. C. No. 287 Of 1936.
8. Taking up the question regarding the existence of vendor's lien what we have to see is whether a vendor of the equity of redemption of a property usufructuarily mortgaged has got a lien, to the extent of the mortgage money over the property and for this purpose learned counsel drew our attention to the note in Mullah's Transfer of Property Act, at pages 329 and 330.
9. On behalf of the respondent Mr. A. Sundaram Aiyar raises the point that the plaintiff did not put forward the plea that he had a vendor's lien in the plaint or even in the reply statement filed by him, but that the point was only raised for the first time in the course of arguments in the court of first Instance and that therefore the appellant should not be allowed to raise it in this appeal. We do not think that we can shut out the plaintiff from raising the question at this stage for sufficient basis has been laid for the contention in the arguments put forward in the courts below.
No specific authority showing that in such circumstances a vendor's lien exists has been cited before us. The statement at page 330 of Mullah that if part of the purchase money is left with the buyer to pay off creditors of the seller, there the seller is entitled to a charge for the amount left with the buyer if the latter omits to pay off the creditors is relied upon. But the question is whether there can be such a charge in the case of an usufructuary mortgage. The only case where a part of the purchase money was reserved with the vendee or payment of an usufructuary mortgage on the property to which our attention was drawn is a very recent decision in -- 'Gangaram v. Raghubans', 27 Pat 898 (D), and there the learned Judges were of opinion that since the money which remained in the hands of the vendee for payment of the usufructuary mortgage was not money payable to the vendor under Section 55(5)(b) of the Transfer of Property Act, it could hardly be said as remaining unpaid within the meaning-of Section 55(4)(b) and therefore could not be the subject of a statutory charge contemplated by the section. Section 55(5)(b) is reciprocal or complementary to Section 55(4)(b). Whereas Section 55(4)(b) defines the rights of the vendor as against the vendee, Section 55(5)(b) speaks of the obligations of the vendee towards the vendor. In these circumstances, the learned Judges of the Patna High Court have held that since the amount of the purchase price left with the vendee for payment of an usufructuary mortgage is not money that is due to the vendor, under Section 55(5)(b) there cannot be a statutory charge or a vendor's lien on the property.
At pages 913 and 914 of the report, the learned1 Judge, Mahabir Prasad J. discusses the question of construction of Section 55(4)(b) and 55(5)(b) of the Transfer of Property Act and he concludes as follows:
"The part of the purchase money which remained in the hands of the vendees, defendants in the present case, for payment to the usufructuary mortgagee, it has been seen, was not payable to the plaintiff under Section 55(5)(b) and could hardly be said as 'remaining unpaid' within the meaning of Section 55(4)(b) of the Act."
Again there is discussion at page 915 and there the learned Judge is of opinion that what was sold was just the equity of redemption and what the vendor was entitled to receive as purchase money was only that part of it which was in excess of the amount of the mortgage money existing on the property. The final conclusion arrived at by the learned Judge is stated thus:
"It is plain therefore that in cases of sales of properties having encumbrances existing on them, if the amount of encumbrance is not paid to the seller and remains in the hands of the buyer to be paid to the person entitled thereto, no part of the purchase money remains unpaid for which the charge under Section 55(4)(b) can possibly arise."
We are inclined to agree with this decision. In the present case the sale has not been free of any encumbrance because Ex. D-1 specifically states that the vendee is directed to redeem the usufructuary mortgage. It is not as if the vendor has agreed to redeem the mortgage and deliver the property free of any encumbrance to the vendee after receiving the consideration from the vendee. If that had been the case, then it would have been money remaining unpaid to the vendor and a charge might possibly have arisen. In our opinion the existence of a statutory charge can arise only if there is a contract between the vendor and the vendee, that the latter would pay the consideration into the hands of the vendor who would redeem the mortgage and deliver the property free of encumbrance to the vendee. In such a case it can be said that there is really a vendor's lien but such a statutory lien cannot be said to exist where the agreement is that the vendee should himself discharge the mortgage and recover possession of the property.
10. But where the encumbrance of the property was a simple mortgage which the vendor was bound to pay and for which the mortgagee could have sued the vendor for realisation by sale of the property. In such a cage, on account of the default of the vendee in paying off the encumbrance, if the person in whose favour as encumbrance exists brings a suit and recovers the money either by the sale of the property or otherwise, then the vendor has got a cause of action against the vendee to indemnify him for the damages caused to him by such payment. In such a case the suit is governed by Article 83 of the Limitation Act. See -- 'Ramchander v. Ram Chander', AIR 1936 All 870 (B). But that is not the case here. Under Ex. P-1, the usufructuary mortgagee cannot bring a suit for sale against the mortgagor. His only remedy is to remain in possession of the property and enjoy the usufruct and nothing more. Therefore it cannot be said that the vendor Chidambaram Pillai has in any way been damnified by the non-redemption by Bamanathan Chetti of Ex. P-1. Though learned counsel for the respondent also referred to -- 'Ram Adhar v. Shanhar Baksh Sing', AIR 1935 Oudh 139 (F), we do not think there are any observations there which can be of any help in deciding the present case.
11. Another way of looking at the question is by application of the principle laid down by the Judicial Committee In -- 'Izzatunnlssa Begum v. Partab Singh', 31 All 583 (G), where certain properties were sold subject to encumbrances, which were mortgages. As a result of subsequent litigation It was declared that the mortgages were invalid and as such not, binding on the property. After such declaration the vendor brought a suit against the vendee for the amount due on the mortgages as unpaid purchase money in the hands of the vendee and their Lordships negatived the contention raised on behalf of the vendor and held that he is not entitled to realise that amount. The discussion at page 589 of the report is instructive and may be extracted here;
"On the sale of property subject to encumbrances the vendor gets the price of his interest, whatever it may be whether the price be settled by private bargain or determined by public competition, together with an indemnity against the encumbrances affecting the land. The contract of indemnity may be express or Implied. If the purchaser covenants with the vendor to pay the encumbrances, it is still nothing more than a contract of indemnity. The purchaser takes the property subject to the burden attached to it. If the encumbrances turn out to be invalid, the vendor has nothing to complain of. He has got what he bargained for. His indemnity is complete. He cannot pick up the burden of which the land is relieved and seize it as his own property. The notion that after the completion of the purchase the purchaser Is in some way a trustee for the vendor of the amount by which the existence, or supposed existence, of encumbrances had led to a diminution of the price, and liable, therefore, to account to the vendor for anything that remains of that amount after the encumbrances are satisfied or disposed of, is without foundation. After the purchase is completed, the vendor has no claim to participate in any benefit which the purchaser may derive from his purchase. It would be pedantry to refer at length to authorities....."
If the above observations are followed, then the vendee Ramanathan Chettiar would get all the benefits as a result of either the usufructuary mortgage becoming barred by lapse of time or the mortgagee relinquishing or giving up his rights in portions of the property. Chidambaram Pillai, the vendor, could not gain any advantage from it. It is also clear that under such circumstances there cannot be any vendor's lien so far as Chidambaram Pillai is concerned, because the gain or loss as a result of the mortgage accrues to the vendee Ramanathan Chettiar and there will be nothing left for the vendor. If it is a burden charged on the land which the vendee has to discharge, then it would be meaningless to say that it is property belonging to the vendor which on his insolvency would vest in the Official Receiver.
12. Even if it is granted that there was a vendor's lien in favour of Chidambaram Pillai, what is the period of limitation for enforcing it? Admittedly more than 12 years have expired from the date of Ex. D-1 and therefore the time fixed under Article 132 of the Limitation Act has passed by efflux of time. The learned counsel for the appellant contends that since the vendee is entitled to redeem the usufructuary mortgage within sixty years of its execution, i.e., before 1977, the vendor's lien will be subsisting till that date and when it is seen that the vendee has not redeemed the mortgage, then the vendor gets a further period of 12 years thereafter under Article 132 of the Limitation Act, because according to the third column the money sued for becomes due only when the vendee has made it impossible for him to redeem.
Even on this point the decision in -- '27 Pat 898 (D)' is against the appellant's contention. According to the learned Judges in that case, the purchase money becomes due on the date of the sale itself and if a suit is not brought within 12 years of that date, it is barred by limitation under Article 132. In our opinion that decision is right. If we accept the argument put forward on behalf of the appellant it comes to this, that though the vendor and the vendee, both of them, have only a period of sixty years from the date of the mortgage to redeem the same, by the transfer, the vendor gets an extended period of twelve years after the lapse of sixty years for bringing the property to sale and realise the money. What he can realise thereby it is difficult to understand because the amount of the mortgage money is a burden so far as he is concerned and the property cannot be sold for that purpose.
The same view is deducible from the observations of the learned Judges in -- 'Ramakrishna Aiyar v. Subramania Aiyar', 29 Mad 305 (H), where the learned Judges held that the Article of Limitation Act applicable to a suit for enforcing the statutory charge is Article 132 of the Limitation Act. There are observations in -- 'AIR 1936 All 870 at p. 873 (E)' to the same effect. It seems to us therefore that the plaintiff cannot obtain any relief in this suit. In the view that we take the other points raised by the learned counsel for the appellant do not arise for consideration.
13. The judgment of Rajagopalan J. is therefore right and this letters Patent Appeal is dismissed with costs.