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Chengayya Vs. M.V. Swaminatha Mudaliar and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Case NumberCivil Revn. Petn. No. 1091 of 1975
Judge
Reported inAIR1979Mad116
ActsProvincial Insolvency Act, 1920 - Sections 10, 59 and 68; Code of Civil Procedure (CPC), 1908 - Order 21, Rule 90; Indian Companies Act - Sections 153-C
AppellantChengayya
RespondentM.V. Swaminatha Mudaliar and ors.
Cases ReferredNarayana Iyer v. A. C.
Excerpt:
.....sum - x adjudicated itself as insolvent - respondent no. 1 demanded setting aside of auction sale by official receiver - appellate court set aside auction sale by official receiver as it was affected by serious irregularities, illegalities and infirmities - appeal - power of revision by high court under section 75 (1) is narrow and interference possible by court only on question of law - revision dismissed. - - if the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks fit. provided that no application under this section shall be entertained after the expiration of twenty one days from..........in i. p. 8 of 1968, on the file of the subordinate judge, vellore, cannot be characterised as a 'person aggrieved; within the meaning of s. 68 of the act. the learned counsel points out that the first respondent is a share-holder and director of a company which is under voluntary liquidation and all or whatever grievances the said company may have as a creditor of the insolvent, could be ventilated only by and through the liquidator appointed for the company and the first respondent can never come within the definition of a 'person aggrieved' under section 68 of the act.4. it would be relevant to extract s. 68 of the act :'68. appeal to court against receiver: if the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply.....
Judgment:
ORDER

1. The question that come up for consideration in this revision is with reference to the scope and import of the expression 'any other........ person aggrieved ' occurring in S. 68 of the Provincial Insolvency Act (Act V of 1920), hereinafter referred to as the Act.

2. The question arises under the following circumstances. A concern by name Sivanandam Palayakot Co., Guidyattam, which is under voluntary liquidation, filed C. S. No. 14 of 1947 on the Original Side of this Court against A. Kaliappan, the second respondent herein, to recover a sum of Rs. 1,61,000/-, and obtained a decree. In execution of that decree, the house property of the judgment-debtor was brought to sale on several occasions, but the sale could not take place for one reason or other. Pending the above proceedings, the judgment-debtor got himself adjudged an insolvent in I. P. No. 8 of 1968 on the file of the Subordinate Judge, Vellore, obviously under S. 10 of the Act. The result was all his properties, including the house property which was sought to be sold in execution of the decree in C. S. No. 14 of 1947 came to vest in the Official Receiver, Vellore, the 3rd respondent herein. The consequence was the execution proceedings in C. S. 14 of 1947 could not be further prosecuted. In the course of administration of the estate of the insolvent, the Official Receiver, Vellore, brought the house property situated in Gudiyattam Town belonging to the insolvent to sale in public auction by virtue of the provisions of S. 59 of the Act. Several times the property was brought to sale, but the sale could not take place for some reason or other. Ultimately, the sale took place on 14-3-1973, for a price of Rs. 26,000/-, to and in favour of the petitioner in this revision. The first respondent in the revision is a shareholder of Sivanandam Palayakot Co., Gudiyattam, the decree-holder in C. S. 14 of 1947. He filed on application under S. 68 of the Act, to set aside the auction sale held by the Official Receiver on 14-3-1973, urging several grounds. The auction purchaser, viz. The petitioner herein, mainly contested the application. The application I. A. No. 30 of 1973 in I. P. 8 of 1968 was enquired into by the Additional Subordinate Judge of Vellore and by judgment and decree dated 10-1-1974, he dismissed the application negativing the pleas of the first respondent herein. There was an appeal by the first defendant C. M. A. 30 of 1974 which was heard and disposed of by the District Judge Vellore by his judgment and decree dated 6-1-1975. The appellate Court chose to reverse the findings of the first court and held that the sale held by the Official Receiver, the 3rd respondent herein, on 14-3-1973, is affected by serious illegalities, irregularities and infirmities and in that view, the appellate court set aside the sale concerned and allowed the application, I. A. No. 39 of 1973, referred to above. The auction purchaser has now preferred this revision challenging the judgment and decree of the appellate court.

3. Two contentions were urged before me by Mr. Padmanabhan, learned counsel appearing for the petitioner in this revision. The first contention is that the first respondent herein, the applicant in I. A. No. 39 of 1973 in I. P. 8 of 1968, on the file of the Subordinate Judge, Vellore, cannot be characterised as a 'person aggrieved; within the meaning of S. 68 of the Act. The learned counsel points out that the first respondent is a share-holder and director of a company which is under voluntary liquidation and all or whatever grievances the said company may have as a creditor of the insolvent, could be ventilated only by and through the liquidator appointed for the company and the first respondent can never come within the definition of a 'person aggrieved' under Section 68 of the Act.

4. It would be relevant to extract S. 68 of the Act :

'68. Appeal to court against receiver: If the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the receiver, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order as it thinks fit.

Provided that no application under this section shall be entertained after the expiration of twenty one days from the date of the act or decision complained of.'

There is no dispute that the company, Sivanandam Palayakot Co, Gudiyattam is a creditor of the insolvent and the company has large amounts to be realised out of the estate of the insolvent now in the hands of the Official Receiver, Vellore, the 3rd respondent herein. It cannot be stated that the first respondent herein is not interested in the amounts to be realised by the creditor company out of the estate of the insolvent. By realising the maximum benefit out of the estate of the insolvent in administration of the same by the Official Receiver, the first respondent stands to gain in his own interest. If the property of the insolvent fetches a fair and proper price, it will be available in the hands of the Official Receiver for the purpose of satisfying the creditors of the insolvent and the company in which the first respondent is a shareholder is one such creditor. If the above features are considered, it cannot be ruled out that the first respondent is not a 'person aggrieved' within the meaning of Section 68 of the Act, if other grounds for interference by the court under the said section are made out.

5. Mr. P. Sivaramakrishniah, learned counsel appearing for the respondents drew my attention of the dictums laid down by the Judicial precedents in this behalf. In Khasim Sahib v. Official Receiver, Guntur : (1945)2MLJ553 Yahya Ali J. recognised that it is not merely the insolvent, or the creditors, or any other aggrieved person, who can take action to bring the conduct of a Receiver in any particular respect to the notice of the court, but the receiver being an officer of the court, when it comes to the knowledge of the court that his action in any particular respect is objectionable, the court has inherent powers to rectify his errors or mistake or to reverse or modify his acts or decisions. The learned Judge further held, relying on Hanseswar Ghosh v. Rakmal Das Ghosh (1913) 20 Ind Cas 683, that when a Receiver had been appointed, he becomes an officer of the court and if he is about to act in excess of his authority, it is competent even to a stranger to bring that fact to the notice of the court, which has inherent power to review the conduct of the receiver, so that the stranger may not be prejudiced by an unlawful act of its own officer.

6. In Venkatakrishna Ayyar v. Official Receiver : AIR1950Mad311 , it has been recognised, an insolvency court has inherent powers vested in it outside the provisions of S. 68 of the Act, to rectify the defects, mistakes or errors committed by the Official Receiver; it can not be said that the court is powerless to prevent an injury being done to the general body of creditors and the insolvent in consequence of a mistake committed by the Official Receiver in the conduct of an auction sale held by him, merely because the person who applies to the court to have the mistake rectified is the Receiver himself and not a creditor or the insolvent.

7. Mr. Padmanabhan, learned counsel appearing for the petitioner, wants to derive support for his case from the ratio of certain decisions. He brings to my notice a decision of a Bench of this court reported in Ramaswami Reddiar v. Official Receiver South Arcot : AIR1941Mad827 . There, the question in issue in the present case did not come up for consideration at all.

8. In Kasi Chettiar v. Secretary of State, (1941) 53 MLW 79 : AIR 1941 Mad 577, Abdur Rahman J. was concerned with a case where the suit by the Official Receiver to set aside a sale of the insolvent's property was dismissed; the Official Receiver refused to prefer an appeal and a creditor wanted to prefer an appeal agaisnt the dismissal. The learned Judge, held that the creditor was not entitled to prefer an appeal on the principle that a right of appeal is not a mere right of procedure and it is a substantive right and is primarily a creature of statute.

9. In Vaidyanatha Ayyar v. Indian Band Ltd. : AIR1955Mad486 , a Division Bench of this court was concerned with a case of sale of immovable property belonging to a limited company, in execution of a decree and the filling of an application to set aside the sale by a shareholder of the company under O. 21 R. 90, C. P. C. The Bench observed as follows (at page 102 of Mad LJ) : (at Pages 488, 489 of air) :-

'A shareholder is no doubt interested in the property of the company in which he holds shares; if the property is not properly looked after and administered, the shareholder would naturally suffer in his pocket. But this does not mean that every shareholder, who apprehends that the property of the company is being mismanaged or is even fraudulently disposed of, is entitled to come in the manner the petitioner has done. It is easy to see that if such a course were permitted, the business of the company can be brought to a complete standstill when difference of opinion exists among the members of the company. One legal effect of incorporation is to vest the ownership of the property in the company which acquired a separate legal existence. The property has to be managed by the directors, subject to the control of the shareholders and the provisions of the constitution of the company. If the directors misbehave, they can be removed. If they are able to get the backing of the majority and threaten to use the majority to oppress the minority, that will be an occasion when the court will interfere. The petitioner alleges that the managing director has perpetrated a fraud on the company in collusion with Chellappa Chettiar. In respect of such a conduct, the petitioner has a specific remedy provided under S. 153-C of the Indian Companies Act.'

10. In Kuttalingam v. Chinnakannu AIR 1958 Mad 260. Ramaswami Gounder J. was concerned with a case where in a winding up proceedings the District Judge allowed 6 per cent per annum interest to the shareholder who had overdrawn the company money and the learned Judge held that it is only the Official Receiver who is competent to file an appeal and an appeal by another shareholder is not competent.

11. In Shyamlal v. Jagannath : AIR1969Cal424 , a Bench of the Calcutta High Court was concerned with the question as to whether a shareholder in process of compulsory winding up of company has locus standi to apply for setting aside sale of property belonging to the company. The Bench was concerned with the expression 'whose interests are affected by the sale' occurring in O. 21 R. 90 C. P. C. and in the context of the case before them, observed as follows at p. 430 :-

'The words 'or whose interests are affected by the sale' in O. 21 R. 90 are no longer confined to an interest in immovable property or to proprietary or possessory rights. The word 'interest' must be given a wide meaning, and may include a contingent interest, but the right may be exercised by one who is directly and immediately affected by the sale of an immovable property. Rights which are likely to be affected or interest which may hypothetically or remotely be affected cannot be considered as coming within the four corners of Order 21 Rule 90.'

Ramanujam J. in Belli Gowder v. Govindan : (1970)2MLJ303 had occasion to deal with the case of a lessee of the insolvent's property who wanted to resort to S. 68 of the Act and in those circumstances, the learned Judge laid down the proposition as follows (at p. 304):-

' In this case, no creditor has come forward to challenge the sale conducted by the Official Receiver. It is not possible to say that any lessee of the property of the insolvent will be a person aggrieved within the meaning of S. 68 of the Provincial Insolvency Act. On a close reading of S. 68 of the Provincial Insolvency Act, it is seen that 'any other person' cannot be construed to include any person unconnected with the insolvent's property or its administration. The words 'any other person' has to be understood in the light of the words following them, that is 'is aggrieved'

Even if the learned counsel's contention is accepted that a lessee will come within the scope of 'any other person' in Section 68, it should further be shown that he is aggrieved by the order sought to be challenged by him. As already stated, except to protect his position, he is not interested in the insolvent's property or the administration thereof.'

12. I do not think that the decisions relied on by the learned counsel for the petitioner could be considered as negativing the case of a shareholder or a creditor company which is under liquidation to seek the process under S. 68 of the Act as a 'person aggrieved'. Hence, in my view, the first respondent will come within the ambit of a 'person aggrieved' under S. 68 of the Act.

13. It was then submitted by the learned counsel for the petitioner that no tenable grounds for interference under Section 68 of the Act have been made out. In Srinivasa Naicker v. Engammal : AIR1962SC1141 the power of court under S. 68 of the Act to set aside sale by a Receiver and the grounds on which the sale can be set aside have been explained. It will be pertinent to extract the relevant passage occurring in the decision. At p. 1143):-

'It may be accepted that the power of the court under S. 68 is not hedged in by those considerations which apply in cases of auction sales in execution proceedings. Even so, the power under S. 68 is a judicial power and must be exercised on well-recognised principles, justifying interference with an act of the receiver which he is empowered to do under S. 59(a) of the Act. The fact that the act of the receiver in selling properties under Section 59(a) is subject to the control of the court under S. 68 does not mean that the court can arbitrarily set aside a sale decided upon by the official receiver. It is true that the court has to look in insolvency proceedings to the interest in the first place of the general body of creditors; in the second place to the interest of the insolvent, and lastly, where a sale has been decided by the Official Receiver to the interest of the intending purchases in that order. Even so, the decision of the Official Receiver in favour of a sale should not be set aside unless there are good grounds for interfering with the discretion exercised by the Official Receiver. These grounds may be wider than the grounds envisaged in auction sales in execution proceedings. Even so, there must be judicial grounds on which the court will act in setting aside the sale decided upon by the Official Receiver. These grounds may be, for example, that there was fraud or collusion between the receiver and the insolvent or the intending purchaser; the court may also interfere if it is of opinion that there were irregularities in the conduct of the sale which might have affected the price fetched at the sale; again, even though there may be no collusion, fraud or irregularity, the price fetched may still be so low as to justify the court to hold that the proeprty should not be sold at that price. These grounds or similar other grounds depending upon particular circumstances of each case may justify a court in interfering with the act of the Official Receiver in the case of a sale by him under S. 59(a) of the Act.'

14. The dictum of the Supreme Court has been followed by Maharajan J. in Narayanan v. Kannabiran Mudaliar : (1974)2MLJ303 . Keeping the above principles in mind if the facts of the present case are considered, I find that the appellate court, on a proper appraisal of the factual materials, came to the conclusion that there had been no due proclamation of sale for the auction held on 14-3-1973; that the petitioner herein has entered into some colourable arrangement or agreement with a view to knock away the property for a low price and accordingly purchased the same for Rs. 26000. Though the property, in fact, is worth more than that. The appellate court relied on the evidence adduced on behalf of the first respondent herein an other materials on record to come to the conclusion that there was no due proclamation of sale of the property in question. The appellate court has also taken into consideration the fact that the petitioner herein is the tenant of the property concerned for the past several years and the property would definitely fetch a higher price if the sale had been properly adverted and due publicity given thereof. These considerations are purely factual and as laid down in Hallal Naicker v. Seth Mohanraj, the court ought not to interfere under S. 75(1) merely because it thinks that possibly the Judge who heard the case may have arrived at a conclusion which the High Court would not have arrived. The powers of revision of the High Court under S. 75(1) of the Act are narrow and interference is possible by this Court only on a question of law. The findings of fact rendered by the Tribunals created under the Act are findings which are final as provided for in S. 75(1) itself. The above is the view expressed by Ramaprasada Rao J. in Dist. Official Receiver v. Lakshmi Ammal : (1974)2MLJ397 . The same principal has been followed by me in C. R. P. No. 107 of 1975 (Mad), Narayana Iyer v. A. C. A Funds. In view of the above, it is not possible for this court to come to a conclusion different form that arrived at by the lower appellate court on the factual questions involved. The judgment and decree of the appellate court cannot be characterised as 'not according to law' so as to warrant interference in revision. Hence this revision is dismissed. But, there will be no order as to costs.

15. Revision dismissed.


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