Govinda Menon, J.
1. The second appeal and the memorandum ofcross-objections raise the same point as both theappellant and the cross-objector were plaintiffs 1and 2 respectively in the court of first instance.The suit was laid on the allegation that the firstdefendant as an assignee from the second defendant trespassed upon the suit properties while theywere in the possession of the plaintiffs and therelief claimed was that the plaintiffs may be givenpossession of the suit properties and a decreeagainst the first defendant for past and futuremesne profits. Both the lower courts have dismissed the suit and hence this second appeal andmemorandum of cross-objections.
2. The father of the plaintiffs and his brother were jointly running a chit fund as stakeholders. According to the terms of the chit fund transaction, the chit was to run for about a period of 12 years with one chit being auctioned every year. The subscription for a ticket was Rs. 750 and at the auction the person who bid for the lowest amount got the prize. It was in the nature of the usual auction chit fund, the details of which are unnecessary to elaborate here. Ex. D. 3 dated 14-3-1922 is the memorandum of agreement signed by the plaintiff's father and his brother and it contains the stipulations under which the chit was to run. Ex. B. 4 is the security bond executed by the stakeholders in favour of the ticket-holders giving the family property as security for the proper conduct of the chit and securing the subscribers the amount subscribed by them.
There was no complaint regarding the conduct of the chit till the 10th ticket and at the tenth auction the ticket was purchased jointly by two persons, the 2nd defendant Venkataramana Aiyar and another Palani Goundan who had each taken half a ticket in the chit. The amount of the bid was to be paid by both the plaintiff's father and his brother jointly. The plaintiff's father paid his hah' share to Palani Go under but his brother did not pay the amount due from him to Venkataramana Aiyar, the other half ticket holder. O. S. No. 132 of 1931 in the court of the Subordinate Judge of Coimbatore was filed by Venkataramana. Aiyar against the plaintiff's father and his brother for recovery of the amount due to him. Ex. D. 5 dated 8-10-1931 is a copy of the plaint in that suit. To that, suit the other stakeholder who had also an interest in the transaction and in the properties given as security were not impleaded, the only two defendants being the plaintiff's father and his brother.
While the suit was pending on 14-10-1931 a creditor of the plaintiff's father presented an insolvency petition (Ex. B. 12) to adjudge the plaintiffs father as insolvent, the allegation being that he had leased out his lands fraudulently to one Muthumarappa Goundan, thereby making it difficult for the creditors to realise the debts due from him. While this petition was pending and before 'the adjudication took place O. S. No. 92 of 1931 was decreed in favour of Venkataramana' Aiyar on 5-12-1031. On 19-2-1332, the plaintiff's father was adjudicated insolvent, the result being that according to the provisions of the Insolvency Act the adjudication was deemed to take effect from the date of the presentation of the insolvency petition, i.e., on 14-10-1931. The Official Receiver in whom the properties of the plaintiff's father vested was not made a party to O. S. No. 192 of 1931 at all. By E. p. No. 703 of 1034, Venkataramana Aiyar brought to sale the properties which were given as security and the sale was held on 23-1-1835, Venkataramana Aiyar himself being the purchaser at the court auction. Ex. D. 5 is the sale certificate issued to Venkataramana Aiyar on 25-2-1935. Thereafter Venkataramana Aiyar assigned his right in the properly to the first defendant who according to the plaintiffs is in unlawful possession of the suit properties, through the tenant the 11th defendant. As the plaintiffs' father did not apply for discharge the insolvency itself was annulled on 30-10-1935.
3. Another decree-holder, who was in a similar position like Venkataramana Aiyar, filed O. S. No. 41 of 1934 in the Sub Court, Coimbatore, making not only the stakeholder but the other subscribers, the present plaintiffs, the Official Receiver, Coimbatore and all parties concerned with the properties given as security as defendant. In that suit the present plaintiffs were defendants 25 and 26 their father being the first defendant. Ex. D. 11 is the plaint in the suit and Ex. D. 11 a the judgment, and Ex. O. 11-b the decree.
Venkataramana Aiyar was the 17th defendant in that suit. Issue 2 therein was whether the security bond executed by defendants 1 and 2 (stakeholders) was for illegal and immoral purposes is the security bond binding on defendants 23 to 36 of whom defendants 25 and 23 were the minor sons of the first defendant Krishnaswami Goundan? The finding of the learned Judge on issue 3 was that the security bond executed by defendants 1 and 2 therein was binding on defendants 23 to 26 and it was not executed for illegal or immoral purposes.
Paragraph 8 of Ex. D. 11-b further held that the decree in o. S. No. 192 of 1931 obtained by the 17th defendant Venkataramana Aiyar will not be of any avail to him as against the plaintiffs in that suit but would be subject to the rights of the plaintiffs under that decree. The lower court has held that the decree in O. S. No. 41 of 1934 will be binding on the plaintiffs as they were parties to it. Therefore they cannot now contend that the chit transaction was started for purposes not binding on the Joint family. But the real question for consideration is whether the decree in O. S. No. 192 of 1931 is null and void.
The question that has been elaborately argued before us is whether when once the insolvency is annulled, all the proceedings taken subsequent to the filing of the insolvency petition are completely wiped off except those which are specifically reserved under Section 37 of the Act. What is contended 6n behalf of the appellant is that since the Official Receiver who was the person entitled to represent the estate was not made a party to O. S. No. 192 of 1931 the decree in that suit would be null and void and cannot have any binding force so far as the properties are concerned. The fact that the insolvency was later on annulled would not affect the void nature of the decree. The respondents' contention is that the annulment of the insolvency creates a situation as if there had been no insolvency at all and therefore any infirmity in the non-impleading of the Official Receiver as a party would not affect the validity of the decree obtained. In our opinion on this aspect of the case there is some conflict of opinion in this court.
4. Mr. Muthiah Mudaliar for the appellant chiefly bases his argument on the observations of the Judicial Committee in -- 'Kala Chand Banerjee v. Jagannath Marwari' in which their Lordships held that where a mortgaged property has vested in the Official Receiver under the Provincial Insolvency Act of 1907, a mortgagee cannot continue a suit which had been filed prior to the insolvency and which was pending at the time the insolvency commenced, without impleading the Official Receiver on record, if he wants to make the Official Receiver and persons under him liable under the decree obtained in that suit. Therefore a decree obtained against the insolvent alone as a party would not be 'res judicata' against the receiver so as to affect his rights to redeem. The 'ratio decidendi' of that decision is that the equity of redemption vests in the Official Receiver by operation of law and he alone is entitled to transact in regard to it and not the insolvent. The relevant passage 'at p. 109' is as follows:
'That the rights of a secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent, is, of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the persons to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interests in the subject matter of the suit. To him, therefore, must have given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and might involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditors of the insolvent with whose interests the Receiver is charged'.
5. This has been taken as settled law in subsequent cases and has been followed recently by the learned Chief Justice and Panchapakesa Aiyar J. in -- 'Ammana v. Ramakrishna Rao', AIR 1949-Mad 836 (B). In that case, it was observed that there is no difference between a case in which the mortgagor was adjudicated insolvent on the date of the institution of the suit and the case in which the mortgagor is adjudicated insolvent during the pendency of the suit as in the present case. That a decree obtained against an estate which vested in the Official Receiver during the pendency of the suit without the Official Receiver being made a party would not be binding on him is-also clear from the decisions in -- 'Punithavem Mudaliar v. Bhashyam Aiyangar', 25 Mad 406 (C) and -- Tonnuthaye Ammal v. The Official Receiver, Coimbatore, AIR 1933 Mad 858 (D). In the latter case 'AIR 1927 PC 103 (A)' has been referred to.
6. How far the propositions laid down by the Privy Council would affect the validity of transactions where the insolvency has been annulled has to be considered. Prior to the insolvency Act of 1907 at the time of the decision in -- 'Ramaswami Kottadiar v. Murugesa Mudali', 20 Mad 452 (E), the law in force in India was the Insolvency Act, 11 and 12 of Vict. Ch. 21, which by Section 7 enacts the effect of the annulment of an insolvency. Subramania Aiyar and Benson JJ. held that the annulment under Section 7 was to revest the properly in the quondum insolvent and all the acts subsequent to the vesting and antecedent to the annulment are therefore null and void. This decision was followed in -- 'Kothandaram Ravuth v. Murugesa Mudaliar', 27 Mad 7 (F). The learned judges say that the vesting order shall become null and void when the insolvency petition is annulled. 'At p. 8', the learned Judges observe as follows:
'That Section (Section 7) provides that in case, after the making of any vesting order, the insolvent's petition should be dismissed, the vesting order shall from and after such dismissal become null and void, subject however to the condition that all acts done by the Official Assignee prior to the dismissal of the petition shall be good and valid, a saving which would be unnecessary if the revesting had not retrospective effect. We may observe that the section does not provide that the estate shall revest in the insolvent without any conveyance or assignment by the Official Assignee though a provision is made in the earlier part of the section for the vesting of the property in the Official Assignee without any reconveyance or assignment by the insolvent. In our opinion the use of the words 'null and void' has the effect of revesting the property in the insolvent retrospectively from the date of the vesting order.'
7. When the estate of an insolvent vests in the Official Receiver, he alone can represent the estate in all proceedings in a suit and if any person has recourse to that estate for recovering money or property it cannot be done without the Official Receiver being made a party. In the case reported in 'AIR 1933 Mad 858 (D)', the facts were to the following effect: a widow sued her husband's relations, viz, brother and son of the husband as members of a Joint family for recovery of maintenance from the joint family. But pending the suit, the first defendant became an insolvent and his property vested in the Official Receiver. But a decree was obtained without the Official Receiver being brought on record. It was held in execution proceedings pursuant to the decree that the property of the insolvent cannot be sold at all because as the property vested in the Official Receiver pending the suit and he was not made a party to the decree, it was null and void so far as the Official Receiver was concerned.
8. In the same strain are the other decisions of this court of which- mention need tie made of -- 'Jethaji Peraji Firm v. Krishnayya', AIR 1930 Mad 278 (G). But there is a line of cases which take the view that where the insolvency is annulled the effect is as if there had been no insolvency whatever and any transaction entered into by the insolvent during the interim period would be valid and binding on the estate except to the extent mentioned in Section 37 of the Act, that is, sales and dispositions of property and payments duly made, and all acts done, by the court or receiver during that period shall be valid.
9. In -- 'Lingappa v. Official Receiver, Bellary' : AIR1937Mad717 , Beasley C.J. held after considering '20 Mad 452 (E)' and '27 Mad 7 (F)' that where after an ex parte order of adjudication of a person as insolvent was made on a creditor's petition, the insolvent transferred a promissory note of which he was the payee, in favour of a third person, and subsequently the insolvency petition itself was dismissed with the result that the insolvency was annulled, the effect of the subsequent order annulling the adjudication is to make the transfer of the note a good one as to entitle the transferee to maintain a suit on the promissory notice. The learned Chief Justice did not consider the full import of the expression 'null and void'. If, as a matter of fact, the annulment of the insolvency would make the adjudication null and void, the result would be as if there was no insolvency. In that case any act done by the person adjudged insolvent during the period he was an insolvent could not be said to be affected by the provisions of Section 28 of the Provincial Insolvency Act.
10. Similarly King J. in -- 'Dharmasamarajayya v. Sankamma', AIR 1943 Mad 453 (I) held that in a case where a person made a gift and was subsequently adjudged insolvent and the gift itself was set aside at the instance of the Official Receiver, and that insolvency was later on annulled, the gift would be a perfectly good gift and the donee got a valid title on account of the annulment of the insolvency, even though the gift was set aside during the insolvency proceedings. The learned Judge held that the annulment of the gift by the Insolvency court was solely in the interests of the insolvent's creditors and to the extent, that these interests did not require the annulment, the annulment was automatically cancelled by the annulment of the adjudication and therefore the rights under the gift deed were automatically restored by the annulment of the adjudication.
The question was considered at length by 'Somayya J. in --'Ratnavelu Chettiar v. Franciscu Udayar', AIR 1945 Mad 388 (J). The learned Judge referred to the earlier cases of this court and held that he was bound by the decision in --'20 Mad 452 (E)' and '27 Mad 7 (F)' followed by Beasley C.J. in ' : AIR1937Mad717 '. Horwill J. and Rajamannar J. as he then was referred to these cases in -- 'Peraya v. Kondayya', AIR 1948 Mad 430 (K) of the report the following passage is found:
'The validity of such a transfer has also been upheld upon an interpretation of Section 37 of the Provincial Insolvency Act as to the effect of an annulment of the. adjudication. The matter has come before this court on many occasions, the first being as early as -- '20 Mad 452 (E)' which was followed in 27 Mad 7 (P)'. Those decisions were at a time when the law governing insolvency was the Indian Insolvency Act 11 and 12 Vict. 1848. The learned Judges relied 'inter alia' on the use of the words 'null and void' in that statute. In subsequent legislation those words have not been used; but we find no reason to think that the effect of the later statutes was any different from what it was at the time when '20 Mad 452 (E)' and '27 Mad 7 (F)' were decided.
The effect of the present Section 37 has been considered by Beasley C. J. in : AIR1937Mad717 , by King J. in AIR 1943 Mad 453 (I) & by Somayya J. in -- 'A. I. R. 1945 Mad 388 (J)' and the learned Judges have held that the effect of the annulment of the adjudication relates back to the date or the adjudication and is as if no adjudication had taken place, except as regards the acts of the court and the Official Receiver which are validated by that section.'
11. A review of these authorities makes one feel as if the enactment of Section 37 of the Provincial Insolvency Act did not make any change in the law that was in force under Section 7 of the Indian Insolvency Act 11 and 12 Vict. 1848. That an order of annulment under Section 37 does not have the effect of validating an alienation made by the insolvent during the pendency of the insolvency is expressed in a recent judgment of Bose C.J. of the Nagpur High Court in -- 'Kisan v. Sitaram', AIR 1951 Nag 241 (L). The learned Chief Justice referred to '20 Mad 452, (E)' '27 Mad 7 (F)' as well as : AIR1937Mad717 and held that the wording of the present section being what it. is, the principle enunciated in those cases cannot be applied. That the property of the debtor shall revert to the debtor necessarily implies, according to the learned Judge, a question of revesting, whereas in the old section any transaction affecting property was declared null and void. This is the view taken in -- 'AIR 1930 Mad 278 (G)' and -- 'Lakshmanan Chettiar v. Srinivasa Iyengar', AIR 1937 Mad 131 (M). Venkataramana Rao J. observes in the latter case 'at p. 134' thus:
'Construing the analogous Section 81 of the English Bankruptcy Act of 1869, Kelly C.B. in -- 'Bailey v. Johnson', (1871) 6 Ex. 279 (N) observes thus: ...... the only sensible meaning which can be attached to the word 'revert' is, that what was apparently the property of the trustees at the time of the annulling of the bankruptcy shall thereupon become the property of the person whose bankruptcy has been annulled, as if it had always been his'. This observation, in my opinion, does not support Mr. Ramaswami Aiyangar. If the language of Kelly C. B. is to be given full effect, it is this. At the date of annulment it was the property of the trustee and on annulment it becomes the property of the debtor that is the property goes back to the debtor with the same character in which it was held by the Official Receiver while the bankruptcy continued.
The annulment would not completely wipe out the effect of a valid order of adjudication. The bankruptcy is wiped out to this extent, viz, that the property goes to the debtor free from all claims in bankruptcy so that the debtor can deal with the property as if it is his own, that is, with all the original powers and rights which he would have had had there been no bankruptcy. In the same case -- 'Biley v. Johnson', (1871) 7 Ex, 263 (O), it will be seen that Blackburn J. was not prepared to say that the effect of Section 81 in every case will be to go back to the beginning, and to place the bankrupt in the position of having always owned what is by the section to 'revert' to him.....'
The learned Judge concurred with the opinion of Reilly J. in -- 'AIR 1930 Mad 278 (G)'.
12. From these decisions it would appear that under the present Insolvency Act, the annulment would not wipe out the insolvency but would give back to the insolvent whatever remained after the administration of the estate by the Official Receiver.
13. At this stage it is useful to extract the relevant portions of Section 7 of the Indian Insolvency Act, 11 and 12, Vict. Ch. 21.
'And be it enacted, that upon the filing of any such petition as is aforesaid, it shall be lawful for the said court, and the said court is hereby authorised and required to order that all the real and personal estate and effects of such petitioner, whether within the territories within the limits of the Chapter of the East India Company or without except the wearing apparel, bedding, and other such necessaries of such petitioner and his family, and the working tools and implements of such petitioner and his family, not exceeding in the whole of the value of company's rupees three hundred for each petitioner with his family, and all debts due to him, and all the future estate, right, title, interest and trust of the said petitioner in or to any real or personal estate or effects within or without the said territories which such petitioner may purchase, or which may revert, descent, be devised or bequeathed, or come to him, and all debts growing due to him before the court shall have made its order in the nature of a certificate as hereinafter mentioned do vest in the Official Assignee for the time being of the said Court, & that all books, papers, deed & writings in any way relating to such petitioner's estate and effects in his possession, or under his custody or control, shall be deposited with such Assignee; and such order shall be entered on record in the said court and such notice thereof shall be published as the said court shall direct and such order, when so made, shall, by virtue of this Act, relate back to and take effect from the filing of the said petition and shall instantly and without any conveyance or assignment, vest all the real and personal estate, effects and debts as aforesaid in the said Official Assignee, who shall have full powers for the recovery thereof, and shall hold and stand possessed of the same for the purposes and in the manner hereinafter mentioned; provided always, that, in case after the making of any such vesting order, the petition of any such petitioner shall be dismissed by the said court, such vesting order made in pursuance of such petition shall, from and after such dismissal, be null and void to all intents and purposes; provided also, that in case any such vesting order as aforesaid shall become null and void by the dismissal of such petition all acts theretofore done by any assignee or other persons acting under his authority according to the provision of this Act, shall be good and valid, and no action or suit shall be commenced against any such Assignee, nor against any person duly acting under this authority, except to recover any property of such petitioner detained after an order made by the said court for the delivery thereof, and demand made thereupon.'
14. The proviso makes it clear that the vesting order made in pursuance of the petition shall from and after the dismissal be null and void. So it is a case of the vesting order itself becoming null and void. Section 37 of the Provincial Insolvency Act, after making provision regarding the transactions made by the court and the Official Receiver, says that the property of the debtor who was adjudged insolvent shall vest in such person as the court may appoint, or, in default of any such appointment, shall revert to the debtor. This makes it clear that the properties of the debtor shall revert to him. When the expression 'revert' is used, does it not mean that what happened till then should be considered as valid and proper?
15. We are of opinion that the decision of Somayya J. in -- 'AIR 1945 Mad 388 (J)', as well as those of Beasley C. J. in : AIR1937Mad717 and of King J. in -- 'AIR 1943 Mad 453 (D)' and the decision in -- 'Venkataramakrishna Rao v. Sambamurti' : AIR1951Mad581 (P) do not give full weight and effect to the change of words from 'null and void' to 'revert'. In fact Somayya J. did not refer either to -- 'AIR 1930 Mad 278 (G)', or to -- 'AIR 1937 Mad 131 (M)'. The decision in -- 'AIR 1948 Mad 430 (K)', does not differentiate between the expression 'null and void' and the expression 'revert'. Nor does that Judgment refer to -- 'AIR 1937 Mad 131 (M)', or -- 'AIR 1930 Mad 278 (G)'. It seems to us that the observations in -- 'AIR 1951 Nag 241 (L)', run somewhat counter to what is contained in -- 'AIR 1948 Mad 430 (K)'. in our opinion that sounder view is the one contained in -- 'AIR 1930 Mad 278 (G)' and -- 'AIR 1937 Mad 131 (M)'.
16. In this state of conflicting decisions we think it necessary that the matter should be decided by a Full Bench and the conflict resolved thereby. The papers will be placed before the Hon'ble the Chief Justice for such orders as he deems fit.
17. Mr. Muthiah Mudaliar says that in addition to these, there are other points which he wants to argue.
Satyanarayana Rao, J.
18. This matter was referred to a Full Bench by Govinda Menon and Krishnaswami Nayudu JJ. ES the learned Judges felt that there were conflicting decisions regarding the interpretation of Section 37, Provincial Insolvency Act and that the conflict should be resolved by a Full Bench. From the order of reference, it is not clear whether the case itself is referred to the Full Bench or only the question on which there are conflicting decisions in this court. We, however, understand the order of reference to be restricted only to the decision of the question on which there are conflicting opinions in this court. The arguments before us, therefore, were restricted only to the single question concerning the proper interpretation of Section 37, Provincial Insolvency Act, It has, however, to be observed at the outset that pointed attention of the learned Judges was not drawn to the decision of a Full Bench of three Judges which considered the question on a reference made by the Bench consisting of Scuba Rao and Panchapakesa Aiyar JJ. The decision of the Full Bench is -- 'Arunachalam v. Narayanaswami' : AIR1951Mad63 (Q). Had the learned Judges been apprised of this Full Bench decision, this reference would probably have been unnecessary. We, however, out of deference to the learned Judges who made the reference, heard arguments fully on the question, and we have reached the conclusion that the Pull Bench case in : AIR1951Mad63 (Q)', was rightly decided. II' we had been of opinion, alter hearing the arguments, that the Full Bench decision required reconsideration, our only course would have been to refer the matter to a fuller Bench. But we think it is unnecessary to adopt that course.
19. The facts relevant to the decision of the question have been fully and exhaustively stated in the order of reference. We need not therefore cover the same ground elaborately, and it would be sufficient if we confine ourselves only to such facts as are relevant for a correct appreciation of the question that arises for decision.
20. The first plaintiff is the appellant before us. The father of plaintiffs 1 & 2, one Murugappa & Krishnaswami Gounden were brothers. On 7-12-1920, under Ex. D. 1 there was a division of family properties between the members of the coparcenary. In 1922, the two brothers started a chit fund, and the printed chit memorandum is Ex. D. 3 dated 14-3-1922. The chit, according to its terms was to run for a period of 12 years, one chit being auctioned every year. The subscription for a ticket was Rs. 750 and the person who bid at the auction for the lowest amount secured the prize. The two brothers, the stake-holders, executed on 7-4-1923, Ex. -D. 4, a security bond in favour of the ticket-holders, giving their respective properties as security, guaranteeing thereby the proper conduct of the chit fund, and also securing repayment of the amount subscribed by them. The chit ran smoothly without disputes till the 10th auction. At that auction, however, the ticket was purchased jointly by Venkataramana Aiyar, the 2nd defendant, and one Palani Goundan. Each was entitled to a half of the amount, and the amount had to be paid by Murugappa and Krishnaswami Goundan. Murugappa paid his half share to Palani Goundan, but Krishnaswami Goundan did not pay the amount to which Venkataramana Aiyar was entitled.
The result was, on 9-10-1931 Venkataramana Aiyar instituted O. S. No. 192 of 1931, Sub Court, Coimbatore, against the two brothers for enforcing 'payment of the amount due to him as per the terms of the security bond. Exhibit D. 5 is the certified copy of the plaint in that suit. On 5-12-1931, the suit was decreed, vide Exs. D. 5-a & D.5-b, the judgment and decree respectively in that suit. The decree, of course, was a mortgage decree. In the meanwhile, however, I. P. No. 311 Of 1931, Ex. D. 12, was filed on 14-10-1931 by a creditor of Murugappa to adjudicate- him an insolvent. An order of adjudication was made on 19-2-1932 which related back therefore to the date of the petition, 14-10-1931. The Official Receiver was not made a party to the suit, and in 1934 in E. P. No. 709 of 1934, Venkataramana Aiyar brought to sale the properties given as security, and they were sold on 21-3-1935. The decree-holder himself became the purchaser. Exhibit D. 5-c dated 25-2-1932 is the sale certificate obtained by Venkataramana Aiyar. Possession of the properties was also delivered to the 2nd defendant on 5-4-1935 as evidenced by Ex. D. 5-e, the delivery receipt. As the insolvent failed to apply for discharge, the insolvency was annulled on 13-10-1935 without making any vesting order. The 2nd defendant sold this property on 11-3-1940 under Ex. D. 7 to the 1st defendant for a large amount. The further facts which are adverted to in the order of reference are not essential and therefore need not be adverted to.
21. The question raised on behalf of the appellant was that as the Official Receiver in whom the right, title and interest of the judgment-debtor to the properties became vested after adjudication was not impleaded as a party to the decree and execution proceedings, the decree and execution proceedings were null and void and did not bind the properties. By reason of the annulment of adjudication without a vesting order, the plaintiff became entitled to the property as the title which the first and 2nd defendants claimed to have acquired was non-existent, as the proceedings in which such title is claimed to have been acquired were null and void. The contention of the respondents, defendants 1 and 2, was that the effect, of annulling the adjudication was to wipe out altogether the insolvency and to vest the title to the property restrospectively in the insolvent. The effect of annulment was as if there was no insolvency. It is further contended before us that whatever may be the view to be taken regarding the interpretation of Section 37 and the effect of annulment, the objection that the decree and the sale in pursuance thereof are null and void can be taken only by the Official Receiver and not by the insolvent himself who was a party to the proceedings. These contentions have now to be considered with a view to determine whether the title of defendants 1 and 2 should prevail against the title claimed by the plaintiffs. If either of the contentions urged on behalf of the respondents were to be accepted, their title should undoubtedly be upheld.
22. The argument most strongly pressed on behalf of the appellant by his learned advocate, Mr. Muthiah Mudaliar, was that as the Official Receiver in whom the property had vested after adjudication was not impleaded as a party to the decree and execution proceedings, the proceedings which were carried on in the presence of the insolvent alone were null and void and further that the proper view to take of Section 37, Provincial Insolvency Act was that the vesting of the property takes place as on the date of the annulment of adjudication and not retrospectively. It is no doubt true that after an order of adjudication the property of the insolvent vests in the Official Receiver and becomes divisible among the creditors as provided by Section 28(2) of the Act; and as a result of the provision in Section 28(7), an order of adjudication relates back to, and takes effect from, the date of the presentation of the petition on which the adjudication order was made. The order of adjudication in I. P. No. 311 of 1931, which was made on 19-2-1932, therefore, dates back to 14-10-1931, the date of the petition, and vests the property in the Official Receiver on and from that date. What is the effect of the omission to implead the Official Receiver as a party to the mortgage action and execution proceedings?
23. The question was considered by the Judicial Committee in -- ' (A)', under the Provincial Insolvency Act of 1907. No doubt under the old Section 16(5) corresponding to the present Section 28(6), the power of a secured creditor to deal with the security in any manner he is entitled to realise is saved; but that does not mean, as pointed out by the Privy Council in the aforesaid case, that after adjudication the secured creditor was entitled to deal with the secured property as if there had been no vesting order in the receiver. Lord Salverson observed at p. 109:
'That the rights of the secured creditors over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is, of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has sole interest in the subject-matter of the suit. To him, therefore, must be given the opportunity of redeeming the property. The contrary view would encourage collusive arrangements between the secured creditor and the insolvent and may involve the sacrifice of valuable equities of redemption which ought to be made available for the benefit of the unsecured creditors of the insolvent with whose interest the receiver is charged.'
And it was further pointed out. that the ratification made by the insolvent Amulya was a nullity. It was observed:
'The ratification by Amelia of the deed of compromise on which the decree against him proceeded was therefore a nullity, and the whole proceedings by which lie was made a party to the suit were equally ineffective to bind the equity of redemption vested in the receiver.'
This sentence was strongly relied on in support of the contention urged on behalf of the appellant that the decree itself is a nullity if the Official Receiver in whom the property had vested was not impleaded as a party. the sentence does not at all warrant such an interpretation. What is declared to be a nullity was the ratification by the insolvent of the deed of composition when his status as an insolvent continued. As regards the validity of the proceedings, in the second half of the sentence, it was clearly stated that the proceedings in which the insolvent alone was made a party to the suit were 'ineffective' to bind the equity of redemption vested in the receiver. The reason is obvious. The person in whom the right of redemption was vested was not made a party and therefore the property could not be validly sold so as to confer a title on the purchaser. Such a sale in the absence of the Official Receiver has no effect on the property.
This was also the view taken in an earlier decision of this court in -- '25 Mad 406 (C)' and in a very recent case by the learned Chief Justice and Panchapakesa Aiyar J. in -- 'AIR 1949 Mad 886 (B)', following the decision in . These decisions, however, do not lend support to the argument that the decree and execution proceedings therein are null and void in the sense that they have no legal existence at all. Notwithstanding the insolvency of the mortgagor, the mortgagor under the law as it now exists is a necessary and proper party, as under Section 91, T. P. Act, the mortgagor is a person entitled to redeem the property, and under Order 34, Rule 1, Civil P. C. all persons having an interest either in the mortgage security or in the right of redemption have to be joined as parties in any suit relating to mortgage, so that even if a person has no interest in the mortgage security, if he has still the right of redemption he should be joined as a party to a mortgage action, and an insolvent mortgagor is no exception to the rule. As he is a person entitled to redeem under Section 91, T. P. Act, his right of redemption would become barred only if he is impleaded as a party and not otherwise. The effect of not impleading the Official Receiver in whom the entire interest in the property had vested was only to keep unaffected his right of redemption of the property, and the title to the property does not vest in the court auction purchaser.
The decision of -- -'Lloyd v. Lander', (1821) 5 Mad 282 (R), cited by Mr. Muthiah Mudaliar which holds that after a mortgagor became a bankrupt, a mortgage action is filed against the bankrupt and his assignee, to redeem, and the bankrupt demurs, the demurrer should be allowed, he not being a necessary party to the appeal, proceeds on the law relating to procedure in such actions obtaining In England and is no authority for holding that a mortgagor who became a bankrupt was not a necessary party to the action under the Indian law. It was, however, observed in that case that if hi a suit for foreclosure the bankrupt was not impleaded and the suit was proceeded only against the assignee the bankrupt could not impeach, the validity of such a decree.
24. This leads us on to the next question regarding the proper interpretation and the effect of reverter of property under Section 37, Provincial Insolvency Act. There are two earlier decisions of this court, -- '20 Mad 452 (E)' and -- '27 Mad 7 (F)', which interpreted a similar provision under the Indian Insolvency Act, 1848, 11 and 12 Vict. Ch. 21, Section 7, in which the language used was somewhat different. The learned referring Judges, and also in some cases, it was observed that by reason of the difference in the languages of the two sections the decisions in -- '20 Mad 452 (E)' and -- '27 Mad 7 (P)', cannot be treated as useful guides to interpret Section 37 of the Act. The relevant portion of Section 1 of the Indian Insolvency Act, 1848, is as follows:
'Provided always, that in case, after the making of any such vesting order, the petition of any such, petitioner shall be dismissed by the said court, such vesting order made in pursuance of such petition shall from and after such dismissal be null and void to all intents and' purposes:
Provided also that in the case of any such vesting order as aforesaid, shall become null and void by the dismissal of such petition, all Acts theretofore done by any Assignee or other person acting under his authority according to the provisions of this Act shall be good and valid, and no action or suit shall be commenced against any assignee, nor against any person duly acting under his authority, except to recover any property of such petitioner detained after an order made by the said court for the delivery thereof, and demand made thereupon;'
This proviso lays down that if the petition- is dismissed the vesting order becomes null and void to all intents and purposes, but the acts done by the assignee before that date shall be good and valid. This Act follows the language of the earlier Bankruptcy Acts in England. By 1869, however, in England, under the Consolidating and Amending Bankruptcy Act of that year, we find the language altered, and instead of the words 'null and void' the word 'revert' was used, which is the language followed in the Provincial and Presidency Towns Insolvency Acts of 1907 and 1909 respectively in India. Section 81 of the Bankruptcy Act of 1869 was as follows:
'Whenever any adjudication in bankruptcy is annulled all sales and dispositions of property & payments duly made, and all acts theretofore done, by the trustee or any person acting under his authority, or by the court, shall be valid, but the property of the debtor who was adjudicated a bankrupt shall in such case vest in such person as the court may appoint or in default of any such appointment revert to the bankrupt for his estate or interest therein upon such terms and subject to such conditions, if any, as the court may declare by order.'
The language of this section is also repeated in the present Bankruptcy Act of 1914.
25. Section 37(1), Provincial Insolvency Act with which we are now concerned, runs as follows:
'Where an adjudication is annulled, all sales and dispositions of property and payments duly made, & all acts theretofore done, by the court or receiver, shall be valid; but, subject as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the court may, by order in writing, declare.'
The language perhaps was altered by omitting the words 'null and void' and using the word 'revert' instead, for the reason that if the vesting order is once declared to be null and void to all intents and purposes, it may not be appropriate that the acts theretofore done by an assignee according to the provisions of the Act shall be good & valid. For, it would then result in upholding at least partly the vesting order for the limited purpose of validating the acts done by the assignee. It may be considered to be a contradiction in terms to say that a void thing is partly valid. Perhaps for that reason, in the later enactments, the word 'revert' was used, to import thereby 'to return to the former position, to go back to the former state' which is the meaning given by the Shorter Oxford Dictionary, of the word 'revert'. The dictionary meaning therefore of the word 'revert' is to go back, that is, to the former state, and riot like the word 're-vest', to vest again, in which case the vesting will be from the date from which the order operates. In other words, the object of using the word 'revert' seems to be to put the clock back, subject however to the extent of holding as valid sales and dispositions of property and payments made before that date by the receiver.
On a consideration of the two sections, that is, Section 7, Indian Insolvency Act, 1848, and Section 37, Provincial Insolvency Act, the difference in language does not connote any difference in the effect. The opinion of Cockburn C. J. expressed in the Exchequer Chamber in -- '(1871) 7 Ex. 263 (O)', has been adopted as still good Saw by Williams on Bankruptcy in the latest 16th Edn. At p. 265, the learned Chief Justice stated the effect of Section 81 of the Bankruptcy Act of 1869 in these terms:
'The effect of Section 81 is subject to any bona fide disposition lawfully, made by the trustee prior to the annulling of the bankruptcy, and subject to any condition which the court annulling the bankruptcy may by its order impose, to remit the party whose bankruptcy is set aside to his 'original situation'. Here the Court of Bankruptcy has imposed no condition; the general provision of the section has therefore its full effect, and that effect is to remit the bankrupt, at the moment the decree annulling his bankruptcy is pronounced, to its original powers and rights in respect of his property. We must therefore look at the money as though it were money paid in his name instead of in the name of Bullard, for having become his by virtue of the annulling of his bankruptcy, it is to be considered as his at the moment when it was paid in; as his, therefore, at the time of the bankruptcy of Harvey and Hudson.'
The title of the bankrupt to the money was taken back to the date when the money was paid in and not to the date when the bankruptcy was annulled. No doubt, Blackburn J. in that case was not prepared to go to the extent to which Cock-burn J. was prepared to go, but the other learned Judges agree with the opinion of the learned Chief Justice. Brett J. expressed his concurrence with the opinion of the learned Chief Justice and observed that it was logically impossible to 'stop short of giving to the word 'revert' in Section 81 the full interpretation he has placed upon it.' This decision on the interpretation of the word 'revert' in Section 81 of the English Act and the two decisions of our court in -- '20 Mad 452 (E)' and -- '27 Mad 7 (F)', which were concerned with Section 7 of the Indian Insolvency Act, 1848, interpret the section in the same manner, though the language of course is different. And we see no reason to differ from that interpretation and to brush aside the earlier Decisions of this court on the simple ground that the language employed in the section considered by the learned Judges in those cases was different from the present. The difference in the language does not lead to any difference in the interpretation. In fact, in the decision of Horwill J. and Rajamannar J. (as he then was) in -- 'AIR 1948 Mad 430 (K)', the learned Judges saw
'no reason to think that the effect of the later statutes was any different from what it was at the time when '20 Mad 452 (E)' and 27 Mad 7 (F) were decided'.
With these observations of the learned Judges, we respectfully agree.
In 20 Mad 452 (E)' it was held that the attachment made after the insolvency of a partner of the property belonging to him was valid by reason of subsequent annulment. Though the properties in that case were outside Madras, the adjudication of Tawker was at Madras under the Act of 1848. The Act of 1848, applied only to Presidency Towns of Madras, Bombay and Calcutta. In '27 Mad 1 (F),' it was held that
'the use of the phrase 'null and void' has the effect of re-vesting the property in the insolvent retrospectively from the date of the vesting order, and provision is therefore made for validating all acts done by the Official Assignee in the interval between the date of the vesting order and the dismissal of the insolvency petition.'
The same argument would equally apply to the present section, for if the annulment had the effect of vesting the property in the insolvent only from the date of the annulment order and not retrospectively, there was no need for making a provision validating the sales and dispositions and payments made by the receiver upto that date. This, in our opinion, is a very strong circumstance in support of the retrospective operation of the vesting of the property in the insolvent after an order of annulment. In our court, this section was considered by the learned Judges under different and varying circumstances. In : AIR1937Mad717 , Beasley C.J. upheld the transfer by the insolvent of a promissory note after an order of adjudication when subsequently the adjudication was annulled, as the effect of annulment was to make the transfer of the promissory note valid so as to entitle the transferee to sue and recover the amount due under the promissory note, and the learned Judge followed the two earlier decisions already referred to. The learned Judge adverted to the fact that after adjudication an insolvent had no power to deal with the property as it has vested in the Official Receiver as a result of adjudication; but still the annulment of adjudication had the effect of vesting the title in the property retrospectively. It is as if the insolvency was wiped out by reason of the annulment order.
On a similar principle King J. upheld a gift by an insolvent in 'AIR 1943 Mad 453 (I)'. In 'AIR 1945 Mad 388 (J)', Somayya J. in an elaborate judgment considered the question in detail and held that a suit instituted without leave of the court after an insolvency without even making the Official Receiver a party to the suit or execution proceedings was valid and that the decree and the sale were operative. The learned Judge was of opinion that once the adjudication was annulled without imposing any conditions, it must be taken that there was no insolvency at ail and by reverter the prior state of things was restored and the property vested in the' insolvent with retrospective effect. The decision of Wallace J. in ' Ponnusami Chettiar v. Kaliaperumal Naicker', AIR 1929 Mad 480 (S), on which strong reliance was placed by Mr. Muthiah Mudaliar in the argument before us to the effect that if a suit was instituted without leave of the court during the pendency of insolvency proceedings it was not maintainable and it does not cease to be so even after insolvency proceedings terminated, was wrong, as the learned Judge's attention was not drawn to the earlier cases on the point. We think that this view of the learned Judge, somayya J. of the judgment of Wallace J. is correct . On similar facts, this decision was followed by me in -- 'Somanna v. Ramachandra Chowdari' : (1947)2MLJ572 .
26. The learned referring Judges placed reliance on the view of Venkataramana Rao J. in 'AIR 1937 Mad 131 (M)', for doubting the correctness of the earlier decisions. Venkataramana Rao J. held in that case that if the share of an insolvent coparcener reverts back to the family after the annulment of adjudication, it becomes separate property. But apparently, the learned referring Judges were not apprised of the fact that this view was overruled by Wadsworth and Patanjali Sastri JJ. in the later decision in -- 'Suryanarayana Murthi v. Veerraju', AIR 1945 Mad 257 (U), where it was held that the property when it reverts continues to be joint family property. In that case, it was also pointed out that the vesting of the property in the receiver was only to facilitate administration for the purpose of satisfying the claims of the coparcener's creditors and that there was no reason to hold that the interest ceased to be joint family property or was lost to the family. Patanjali Sastri J. observed at p. 259:
'When the purpose for which the law places a fetter on the coparcenary interests has been fulfilled, the surplus of such interest must as it seems to us partake of the same character as the interest originally attached or divested, as the case may be. We are accordingly of opinion that on the annulment of the adjudication the surplus assets in the hands of the official receiver reverted to the first defendant as Joint family property.'
This decision was followed in -- 'Hanumantha Gowd v. Official Receiver, Bellary', AIR 1946 Mad 503 (W). The question received exhaustive consideration again by Horwill J. and Rajamannar J. (as he then was) in -- 'AIR 1948 Mad 430 (K)' which related to a sale by the insolvent. The deed was executed on 10-8-1931 but was registered on 1-12-1931, In the meanwhile, on 18-11-1931, on a creditor's petition, one of the executants was adjudged an insolvent. The document was attack ed in the insolvency proceedings, but finally the adjudication itself was annulled in August 1944. On 6-8-1943, the executant who was not an insolvent filed a suit against the purchaser impleading the insolvent also as a party for recovery of balance of price from the purchaser. The purchaser claimed a set off for the amount due to him as mesne profits for the period he was kept out of possession. The transaction was sought to be supported under Section 37, Provincial Insolvency Act and Section 43, T. P. Act as well. The case was considered from a twofold aspect as the registration of the document after the insolvency even would date back to the date of execution and validate the sale deed it could not be treated as a document executed during the course of insolvency.
Leaving the opinion on that aspect of the case, as we are not now concerned with it, what is relevant is the view expressed by the learned Judges on the alternative case that even if the sale took place during the course of the insolvency, the sale became valid by reason of the subsequent annulment of adjudication. The earlier decisions were followed and the opinion was expressed that it was valid under Section 37, Provincial Insolvency Act also. They also applied Section 43.
27. In ' : AIR1951Mad581 (P)' the matter again came up for consideration before a Division Bench consisting of Horwill and Balakrishna Aiyar JJ. The question arose under the Madras Agriculturists Relief Act, 4 of 1938; the judgment-debtor under a decree in a suit of 1933 was adjudged insolvent on 16-4-1937. The adjudication was subsequently annulled on 5-3-1941. He thereafter applied under Section 19, Madras Agriculturists Relief Act to scale down the debt. As in between the dates of adjudication and annulment, the property had vested in the Official Receiver, the question that arose for consideration was whether on the material dates the judgment-debtor was an agriculturist or not under Act 4 of 1938. If the effect of annulment was to vest the property retrospectively in the insolvent on the material dates under Act 4 of 1938, namely, 1-10-1937 and 22-3-1938, the insolvent would be an agriculturist owning agricultural lands. If it has no such operation, he would not be entitled to relief under the Act, as on the material dates Re was not an agriculturist.
The earlier decisions were considered by the learned Judges, and following them, they upheld the contention of the judgment-debtor that by reason of the annulment the title to the property vested in him retrospectively and that therefore he was an agriculturist. Before the Pull Bench in ' : AIR1951Mad63 (Q)' also, the question raised was similar, and the contention of the judgment-debtor was upheld.
28. It has therefore been uniformly held in this court from '20 Mad 452 (E)' onwards that the effect of annulment is to vest the property retrospectively in the insolvent, in other words, the consequence of annulling an order of adjudication is to wipe out altogether the insolvency and its effect except to the limited extent reserved under the section. The Legislature introduced the fiction of vesting the title retrospectively in the insolvent. In view of this, the alienations made of property, moveable or immoveable, by the insolvent after adjudication, the decrees and execution proceedings suffered by him, during such insolvency, the: status of an agriculturist notwithstanding the property is taken away and transferred from him are all restored and validated with effect from the date on which the insolvency petition was filed, In Which the subsequent adjudication and the vesting of the property in the Official Receiver followed.
29. Reference was made to the decision in --'AIR 1930 Mad 278 (G)' by the learned referring Judges and also by Mr. Muthiah Mudaliar, in the course of his arguments before us. In our opinion that decision does not concern itself with the question which arises now before us. In that case after adjudication an application under Section 54 was made to annul a mortgage made by the insolvent. While these proceedings were pending, the adjudication was annulled, without making any vesting order, overlooking the fact that proceedings under Section 54 which were hotly contested were pending. There were appeals against the unconditional order of annulment and other connected matters. The learned Judges allowed the appeals and set aside the order of the District Judge annulling adjudication of the insolvent unconditionally, and instead passed an order upholding the annulment but vesting the property in the Official Receiver, the object being to have the proceedings under Section 54 enquired into and disposed of Venkatasubba Rao J. discussed the scope of Section 37 and Section 43 of the Act, but he did not express any opinion on the import of the word 'reverter'.
The observations of Reilly J. in the same case that it cannot be suggested that an annulment of adjudication puts the clock back as if the adjudication had never been have been misunderstood, if we may say so with respect, in some cases. Section 37 does not provide that in all cases the clock is put back, but the setting back is always subject to the conditions which may be imposed by the court, and the property may be vested even in the receiver or other person. It is in that sense that the learned Judge used the expression, as is clear from the sentence which follows it, in which he refers to the opening sentence in Section 37 of the Act which validates what has been done while the adjudication has been in force. This is enough to dispose of any such suggestion that the clock is put back by annulment of adjudication as if the adjudication had never been, which is not correct.
30. It only remains to deal with decisions of the other High Courts. The case which most strongly supports the contention Of the appellant and adverts to all the arguments that might possibly be urged against the view taken by this court in the decisions already referred to is the decision of Boss c. J. of the Nagpur High Court, as he then was in -- 'AIR 1951 Nag 241 (L)'. The learned Judge addressed himself to the question whether as a, result of the order of annulment the acts performed by the insolvent during the period of insolvency were revived. The learned Judge refers to the decision in '20 Mad 452 (E)' and '27 Mad 7 (F)' as well as the later case in : AIR1937Mad717 decided by Beasley C. J. He does not, however, refer to the subsequent decisions of this court, as they were not probably cited before the learned Judge. He observes that one cannot put the clock back as if the adjudication had never been made, using the words of Reilly J. in -- 'AIR 1930 Mad 278 (G)1 which were quoted with approval by Venkataramana Rao J. in --'AIR 1937 Mad 131 (M)1. As has been already observed, Reilly J. does not go to the length of holding that as a consequence of an annulment, the clock is put back In its entirety, but only subject to the exceptions recognised in Section 37. The decision of Venkataramana Rao J. was overruled in -- 'AIR 1945 Mad 257 (U)' and this Bench decision was followed in the later Bench decision in -- 'AIR 1916 Mad 503 (W)'. Presumably, these decisions were hot brought to the notice of the learned Judge.
He holds the opinion that the insolvent was altogether incompetent to alienate the property while the insolvency was continuing and that he was during that period in the same position as a lunatic with intervals of sanity or as a minor.
Notwithstanding the fact that the order of adjudication divests the insolvent of all rights, title and interest in the property, it must be observed that there is no statutory prohibition against the -transfer by the insolvent during the continuance of insolvency and the vesting of the property under Section 23 of the Act does not affect in any manner his capacity to deal with the property. The capacity of a person, legally speaking, implies legal competency or legal qualification or ability to take in or hold property, as in the case of a minor. A distinction must be drawn between the capacity of a person to deal with property when there is a statutory prohibition either because he is a minor or a person governed by the Court of Wards Act.
Under Section 7, T. P. Act which speaks of persons competent to transfer, it is stated that every person competent to contract and entitled to transferable property or authorised to dispose of or transfer property not his own, is competent to transfer such property. The competency of a person, therefore, to transfer property is co-extensive with his competency to enter into a contract. As there is no statutory prohibition against alienation by an insolvent in the insolvency Act and as he is not a minor, there is no reason to hold that his competency is affected by reason of insolvency. Competency to deal with property is one thing and the power to transfer is another. A man may be competent to enter into a contract to transfer, but he may not have the power to dispose of the property, either because it is not his own, or because there is a prohibition against transfer as in Section 6, T. P. Act.
A, a person 'sui juris', may transfer to B property not his own, but the deed of transfer is inoperative because he had no power to deal with the property. The conveyance he executed however, is valid in the sense that the covenants contained therein can be enforced as he had agreed to such covenants when he transfers property not his own with a warranty of title, express or implied. The alienation therefore by an insolvent when his status as an insolvent continues is not altogether void but is only voidable at the instance of the Official Receiver in whom the property had vested by reason of an order of adjudication. The effect of annulling the adjudication is to revert the property as stated in Section 37 and not merely re-vest it. Re-vesting implies that the vesting takes place at the moment the order of re-vesting is made; but reverter is to take back the title to the date on which it was taken away from the person.
The learned Judge in the Nagpur Case, --'AIR 1951 Nag 241 (L)' stated that the position of the insolvent after an order of annulment was like that of a person who transfers property to another by sale with a right to re-purchase and then purchase it again. It is only the re-purchase that re-vests the title in him, and dealing with the property in the interval would not have the effect of vesting the title in the purchaser, for he had none in himself. The analogy, in our opinion, does not Hold good in view of the language in Section 37 of the Act, The legislature introduced a fiction by which the title is taken back to the original date when it was divested from the insolvent.
The transactions by the insolvent, when the adjudication was annulled without vesting the property in the receiver or some other person, may also be supported under Section 43, T. P. Act, in cases to which that section applies, as was done in -- 'Diwan Chand v. Manak Chand', AIR 1934 Lah 809 (X) and -- 'Rupnarain Sing v. Hargopal Tiwari', AIR J933 All 449 (Y). The importance of the Allahabad decision however is that the learned Judges consider that notwithstanding the order of adjudication an insolvent was not 'incompetent to enter into a contract and that there is no statutory provision prohibiting the insolvent .from transferring his property. He was competent to enter into a composition with his creditors and he can therefore enter into a contract with his creditors. The transfer, therefore, as pointed out by the learned Judges, was not wholly void but is voidable at the option of the receiver or the court, for as long as the order of adjudication continues in force, the property vests in the receiver of the court, who had the option of refusing to recognise the validity of the transfer. See the observations at pp. 450451 of ' : AIR1933All449 '.
In our opinion, the reasoning adopted by the learned Judge in the Nagpur case to come to a contrary conclusion is not warranted by the language of Section 37 and the scheme of the Insolvency Act. Further, the learned Judges' attention was not drawn to the several decisions of this court in which the matter was fully considered. Probably, if the learned Judge's attention was drawn to those cases, he would have considered the matter more fully. For these reasons, with great respect we are unable to follow the decision of the learned Judge.
31. The Patna High Court has also adopted the same view as our High Court in -- 'Jokhiram Surajmal Firm v. Chouthmal Bhagirath', : AIR1931Pat70 (Z) and -- 'Chouthmal Bhagirath v. Jokhiram Surajmal', : AIR1933Pat84 (Z1): it may be Edded that under Section 55 of the Insolvency Act, notwithstanding the adjudication once made relates back to the date of the petition, the transactions which take place between the insolvent and other persons before the date of the order of adjudication and the presentation of the petition if bona fide are protected, thereby implying that his power to deal with the property is not affects ed by reason of the relation back of the order of adjudication to the date of the presentation of the petition.
32. 'In re Mirja Md. Nasur AH Khan', : AIR1942Cal150 (Z2) does not throw much light, though it construes Section 23, Presidency Towns Insolvency Act. It is assumed that the property reverts to the debtor unless the court appoints some other person in whom it shall vest. Perhaps it may not be without significance that the Legislature used in Section 37 the words 'shall vest in such person as the court may appoint' whereas in the case of the debtor it used the word 'reverts', so that in the former case the vesting is only from the date of the order, while in the latter case it is a reverter to the debtor who is restored back to his original position.
33. From the foregoing, it is clear that the weight of authority in this court is in favour of the view that the effect of annulling the adjudication is to wipe out the effect of insolvency altogether and to vest the property in the insolvent debtor, subject however to the exceptions provided in Section 37. In our view, therefore, the decision of the Full Beach in -- ' : AIR1951Mad63 (Q) was rightly decided and does not require reconsideration. It settles the conflict in this court.
The decree and execution proceedings in the present case are valid and binding on the insolvent. In case of transfers of property by an insolvent during his insolvency such transfers are retrospectively validated by reverter under Section 37 and if the conditions of Section 43, T. P. Act are fulfilled they may also be supported under that section.
34. It remains to consider one other aspect of the case presented by Mr. Rajah Aiyar, the learned advocate for the respondents, namely, that whatever may be the position regarding the position of the Official Receiver, the insolvent cannot now take the objection that by reason of the non-joinder of the Official Receiver in the decree and execution proceedings they do not bind him. In other words, the contention is open only to the Official Receiver whom the proceedings do not bind and is not available to the quondam insolvent. In support of this position, he relied upon the decision in -- 'Wood v. Surr', (1854) 52 ER 465 (Z3).
The' facts in that case were: under a deed of 1830, Sun and Brooking obtained a first mortgage of a real estate. Davis was the mortgagor. In 1838, Davis instituted a suit against the mortgagees to set aside certain deeds and to take an account of what was due. In 1843, a redemption decree was made, and the matter was referred to the Master for ascertaining the amount. While these proceedings were pending in 1844 Davis was adjudged an insolvent. The assignees, however, were not made parties to the suit, and the matter proceeded, and in 1848 the Master made his report ascertaining the amount due. 21-8-1848 was fixed for the payment, which was subsequently extended to 1-8-1849. As default was made in payment, the suit was ultimately dismissed, the effect of which was the mortgagor became foreclosed.
During the pendency of these proceedings, there were further transactions of Davis. In October 1841, he mortgaged equity of redemption of the same property to one Mrs. Cuppage with a power to sell, and in January 1849, Cuppage under the power of sale sold the property to the plaintiff Wood. Neither Cuppage nor Wood nor the assignees in insolvency of Davis were made partlies to the earlier suit for redemption by Davis. But Cuppage and Wood had notice of the proceedings. Wood thereafter filed the suit out of which the appeal arose to set aside the proceedings and the foreclosure made earlier in the suit of Davis. It was held that though the assignee in insolvency was not bound by the foreclosure, as the assignment in favour of wood and Cuppage was pendente lite, they were bound by it and that they were not entitled to raise the objection of the absence in the suit of the Assignees in insolvency of Davis. Sir John Romilly M.R. observed:
'There can be no question but that the suit (Davis's suit) was defective, by reason of no notice having been taken of the insolvency. The proceedings having gone on exactly as if no insolvency had taken place, the subsequent proceedings would, in my opinion be wholly inoperative against the assignee in insolvency and if he thought fit to contest the validity of the decree or foreclosure against Davis, it could not be held to be binding on such assignee. But that does not conclude the question, which really is, whether the plaintiff who, but for this, would in truth have been bound, can take advantage of this objection? I am of opinion that, although the suit was undoubtedly defective, by reason of this insolvency the assignee alone could take advantage of this defect. It is obvious that Davis himself could not take advantage of it, or if from any subsequent cause, or any subsequent circumstance, the insolvency or bankruptcy had been superseded or annulled, he could nothave said that the foreclosure was not absoluteagainst him.'
This statement of law exactly applies to the present case, as Murgappa who was a party to the suit and the execution proceedings could not take advantage of the defect of non-joinder of the Official Receiver in the proceedings.
This position was noticed and followed on the question of lis pendents in -- '25 Mad 406 (C)', at pp. 422 and 423. In -- 'Inamulla Khan v. Lala Shambu Dayal', : AIR1931All159 (Z4) Sulaiman and King JJ. applied the principle, though they did not refer to the case. In that case, a mortgagor was adjudicated in insolvency after the preliminary decree but before the final decree. The Official Receiver was not impleaded as a party to the final decree and therefore his right to redeem was not extinguished. The decree was followed by a sale, and the judgment-debtor objected to the auction sale on the ground that the Official Receiver was not a party to the proceedings. It was held that the judgment-debtor could not get the sale set aside on that ground. Nothing is shown as to why we Should not apply the principle of -- '(1854) 52 ER 465 (Z3)', to the present case. We think that even on this ground Murugappa is precluded from contending that the decree and the sale are not binding on him and are inoperative to convey title to the second defendant.
35. We answer the reference accordingly.
Subba Rao, J.
36. I have had the advantage of reading the Judgment prepared by the learned brother Satyanarayana Rao J. I am glad that my learned brother has come to the same conclusion arrived at by another Pull Bench of this court in --- ' : AIR1951Mad63 (Q)', of which I was a member. I have nothing more to add to what has already been stated therein. But, I would like to express my view in regard to the alternative contention raised by the learned counsel for the respondents. The relevant facts have been fully stated in the judgment of my learned brother and it is unnecessary to restate them. The argument of the learned counsel may be put thus. The decree and sale are not a nullity. They may not be effective against the Official Receiver in whom the property of the insolvent vests. But the mortgagor who is a party to the decree as well as the sale, will be precluded from questioning the same. To appreciate the contention, the relevant statutory provisions may be extracted and considered.
37. Section 28(2) of the Provincial Insolvency Act:
'On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the court and on such terms as the court may impose.'
Section 23(6): 'Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed.'
Under this section the property of the insolvent vests in the receiver on the date of the adjudication and no creditor, in respect of a debt provable at the insolvency, can proceed against him or his property without the leave of the court. But, a secured creditor stands out in insolvency, us when the mortgagor becomes insolvent it is only the equity of redemption that vests in the receiver. It is open to him to come in under the insolvency by surrendering his security and proving for the whole debt, or after exhausting the security by proving for the balance of the debt due to him. But he is not bound to do so. The section does not any way affect his undoubted right to pursue his remedies to realise his debts from his security. He can institute a suit against the mortgagor without the leave of the court.
38. But the insolvency of a mortgagor does not clothe the mortgagee with rights, either substantive or procedural, which he did not already possess. For instance, before insolvency he would be bound by the provisions of Order 34, Rule 1, Civil P. C. The insolvency of a mortgagor would not obviously have the effect of exempting him from the said provisions. Order 34, R. 1, Civil P. C. reads:
'Subject to the provisions of this Code, all persons having an interest either in the mortgage, security or in the right of redemption shall be joined as parties to any suit relating to the mortgage.'
Under this Order, all persons having an Interest in the mortgage security or the equity of redemption should be made parties to a mortgage action. All persons in whom the equity of redemption vests either by transfer 'inter vivos' or by operation of law are necessary parties to such an action. The order of adjudication operates as a statutory transfer to the Official Receiver of all the properties of the insolvent. As the entire property of the mortgagor vests in the receiver by operation of law, any decree made in the suit or a sale held pursuant thereto without impleading him as a party and behind his back would not bind him. They would be ineffective against him. His right to redeem the mortgage would remain intact, just as in the case of a purchaser of equity of redemption who was not made a party to the suit. The aforesaid legal position is well established.
The more difficult question is, whether a mortgagor can question the decree and the sale on the ground that the Official Receiver in whom his properties vested was not impleaded as a party in the mortgage action? It is an elementary principle of law that a person who is a party to a decree or a sale cannot question the same, except in the manner provided by law, unless the decree and sale are nullities or made without jurisdiction. The question, therefore, is whether a decree against an insolvent mortgagor without impleading the Official Receiver is a nullity or one made without jurisdiction. To put it differently, what is the legal status of an insolvent after adjudication? Does he undergo a process of civil death and, therefore, has no legal capacity to sue or to be sued? These questions have been satisfactorily answered by some of the leading decisions cited at the Bar which I will now proceed to consider.
39. The leading case on the subject is -- '(1854) 52 ER 465 (Z3)'. The facts in that case were, pending a suit by a mortgagor for redemption, the plaintiff became an insolvent, and he also alienated the property. Neither the Official Assignee nor his alience were made parties, and in their absence an order was made foreclosing the plaintiff. It was held that the decree was binding on the insolvent and the alience who was claiming under him. When it was contended that the plaintiff should be treated exactly in the same way as if he had died, in which case, the decree of foreclosure made against him after his death would have been a mere nugatory proceeding & of no value, Sir John Romilly countered that contention with the following observations:
'The proceedings having gone on exactly as ir no insolvency had taken place, the subsequent proceedings would, in my opinion, be wholly inoperative against the assignee in insolvency, and if he had thought fit to contest the validity of the decree of foreclosure against Davis, it could not be held to be binding on such assignee. But that does not conclude the question, which really is, whether the plaintiff who, but for this, would in truth have been bound, can take advantage of this objection? I am of opinion that, although the suit was undoubtedly defective, by reason of this insolvency, the assignee alone could take advantage of this defect. It is obvious that Davis himself could not take advantage of it, or if from any subsequent cause, or any subsequent circumstances, the insolvency or bankruptcy had been superseded or annulled, he could not have said that the foreclosure was not absolute against him. The plaintiff purchased voluntarily, pending the suit, and does not, like the assignee, claim under an assignment taken 'in invitum' against Davis. The plaintiff having purchased pending the suit, with a full knowledge of all the proceedings in it, my opinion is, that he can no more object to the orders than Davis himself could have done, and that he must stand exactly in his place, and in the same situation as if there had been no insolvency or bankruptcy to take away the interest of Davis.'
The correctness of the principle of law so clearly enunciated by the Master of the Rolls has not been questioned by any later decision. No such decision has been cited to us. In -- '25 Mad 406 (C)', a similar View has been expressed by Bhashyam Aiyangar J:
'The decree, as a mortgage decree directing the sale of the chattels, including the debt in question is void and inoperative as against the Official Assignee, inasmuch as the whole right, title and interest of the defendant therein devolved by operation of law upon the Official Assignee during the pendency of the suit and before the decree was passed'.
The word 'void' here must have been used only in the sense that it is voidable at the instance of the Official Assignee; the decree would be ineffective and would not bind the Official Assignee. It is obviously not used in the sense of nullity. Strong reliance was placed by the learned advocate for the appellant on the decision of the Judicial Committee in --- ' (A)', in support of his contention that the decree and the sale were nullities. There, one Amulya Krishna Bose was adjudicated an insolvent on 21-2-1914. His father Tara Prasanna Bose had executed a mortgage in February 1913 in favour of the defendants over certain properties that belonged to him. He failed to pay the mortgage interest. On 11-1-1915 the mortgagees instituted a suit for foreclosure of mortgage. Pending the suit, there was a compromise in and by which it was agreed that the time for payment of the mortgage debt should be extended on the undertaking of the mortgagor to pay the interest regularly every year within the month of Chaitra. It was also agreed that in default of payment, the mortgagees were to be entitled to foreclosure. But before the compromise was recorded, Prasanna Bose died & Amulya Krishna Bose, the insolvent, succeeded to his estate.
Instead of bringing the Official Receiver on record, the defendants chose to transact with the insolvent and obtained from him a ratification of the deed of compromise. As the interest stipulated was not paid in time, a preliminary decree was passed and in due course a final decree was pronounced. The Official Receiver brought a suit to set aside the decree for foreclosure of the mortgage upon the property which had devolved upon the insolvent and to redeem the property. The Judicial Committee held that he was entitled to redeem the same. Their Lordships' reasons for the conclusion are found at p. 109:
'That the rights of the secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is, of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. The latter alone is entitled to transact in regard to it, and he and not the insolvent, has the sole interest in the subject matter of the suit. To him, therefore, must be given the opportunity of redeeming the-property.'
They proceeded to state:
'The ratification by Amulya of the deed pf compromise on which the decree against him proceeded was therefore a nullity, and the whole proceedings by which he was made a party to the suit were equally ineffective to bind the equity of redemption vested in the receiver.'
The Judicial Committee held that the Official Receiver in whom the estate of Amulya vested was not bound by the decree to which he was not a party and that the whole proceedings were ineffective, so far as he was concerned. As the decree was not binding on him, it follows that he would be entitled to redeem the mortgage. It is true that they used the word 'nullity' in dealing with the question whether the ratification of the compromise by the insolvent was binding on the receiver. But they clearly stated that the proceedings would be ineffective to bind the equity ot redemption vested in the receiver. In that case, the Judicial Committee was not considering the question, whether and how far a mortgagor who was a party to the decree would be bound by the decree and would be in a position to question the same, for, in that case the insolvency did not terminate and the Official Receiver himself questioned the decree as not binding on him. I cannot, therefore, consider this decision as an authority for the position that a decree obtained in circumstances mentioned therein would be a nullity and, therefore, the mortgagor who was a party to the decree could question the same.
In -- 'Muthukumaraswami Pillai v. Muthuswami Thevan', AIR 1927 Mad 394 (Z5) the question whether the sale of a property belonging to a third party as if it belonged to a judgment debtor was void, arose for consideration. The appellant there obtained a decree against one Muthuswami Thavan. In execution of that decree he brought to sale certain property and purchased it, 'bona fide' believing that it belonged to his judgment-debtor. It has turned out that it really belonged to a third party. The court sale was confirmed and the satisfaction of the decree was recorded. The decree-holder discovering his mistake applied to the executing court to have the sale set aside. The learned Judges stated:
'It has been invariably laid down in this country and elsewhere that a court sale carried no guarantee, that the property is the property of the judgment-debtor and that the auction purchaser takes the risk, and bears the loss if it is subsequently discovered not to be the property of the judgment-debtor. There is therefore no warrant for the proposition that a sale by the court of property which subsequently turns out not to belong to the judgment-debtor is void, and, in this view, it makes no difference that the auction purchaser is the decree-holder. The principle of 'caveat emptor' will apply to the decree-holder auction purchaser equally as to any other auction purchaser.'
This Judgment clearly indicates that the sale of a property on the basis that it belongs to the judgment-debtor is not void, if it turns out at a later stage that the property in fact belonged to a third party.
In -- ' : AIR1931All159 (Z4)', Sulaiman and King JJ. have answered a similar question in a way favourable to the respondents in this case. In that case, the mortgagor has been adjudicated an insolvent after the preliminary decree but before the final decree, and the Official Receiver has not been impleaded as a party to final decree proceedings on a mortgage. The property was sold in execution Of the decree. The mortgagor sought to question the sale on the ground that the Official Receiver was not a party. The learned Judges negatived the right of the mortgagor in the following words:
'We find that this interpretation of the provisions of Sections 16(4) and (5), Provincial Insolvency Act, 1907, has been laid down by their Lordships of the Privy Council in the case of -- ' (A)'. The language of the corresponding Section 28 of the new Act is practically identical. But this can only mean that the right of the Official Receiver to redeem the property has not been extinguished by the sale. It may be open to him still to sue for redemption, and it may be possible for him to object to the mortgagee's name being entered in the schedule of creditors if the security is given up; but it is quite clear that the judgment-debtor cannot get the sale set aside on that ground.'
This judgment also supports the view that the sale was not a nullity, indeed, the learned Judges interpreted the decision of the Judicial Committee in -- ' (A)', in the manner I have done in this case.
In -- ' : AIR1933All449 (Y)', Iqbal Ahmed and Kisch JJ. held that an alienation by an undischarged insolvent of property belonging to him is not altogether void but only voidable at the option of the receiver. At pp.
450-451 the learned Judges stated the principle in support of the decision as follows: 'There is no statutory prohibition with respect to the transfer of the property of the insolvent. A. transfer of his property by the insolvent cannot, therefore, be wholly void. It is, no doubt, voidable at the option of the receiver or the court, for the simple reason that so long as the order of adjudication is in force the property vests in the receiver or the court, and it is open to them to refuse to recognise the validity of the transfer by a person in whom, at the time of the transfer, the property did not vest. A distinction must be drawn between cases in which because of a statutory prohibition a person is incompetent to contract or to transfer his property and cases where the person entering into a contract of transferring his property is under no such disability. In the former case the contract or the transfer would be wholly void, but in the latter class of cases it would only be voidable and not 'ab initio'.' This judgment is an authority for the position that notwithstanding an insolvency, the legal competency of an insolvent is not put an end to, but the transaction entered by him would be voidable only at the option of the Official Receiver.
A similar view was expressed by a Bench of this Court by Horwill J. and Rajamannar J. as he then was, in -- 'Perayya v. Kondayya', AIR 1948 Mad 430 (K) and the learned Judges observed:
'We do not agree with the learned Advocate for the appellant that the transaction was void for all purposes, merely because under Section 28 of the Insolvency Act the property vested in the Official Receiver. Admittedly, there is no statutory prohibition against the sale of property by an insolvent after insolvency proceedings have been initiated; and so the argument can only proceed on the basis that the insolvent had no property with which he could deal. The vesting of the property in the Official Receiver is for the benefit of the creditors and so does not purport to effect transactions between an insolvent and other persons, except in so far as they affect the administration of the insolvent's estate for the benefit of the creditors. As far as the parties to the transaction are concerned they are binding on them.'
The status of an insolvent in connection with his right to prefer an appeal under Sections 68 and 75 Provincial Insolvency Act came up for a judicial scrutiny by a Pull Bench of this Court in -- 'Narasimham v. Ramayya' : AIR1950Mad492 (Z6). The learned Judges held that an appeal would lie to the High Court at the instance of the insolvent under certain circumstances. They accepted the doctrine that the position of an insolvent is not that of a person who is 'civilitur morthus'. They also acted upon the following passage of Farwell J. in -- 'Bird v. Philpott', (1900) 1 Ch. 822 (Z7). Farwell J. put the position of an insolvent in the following words:
'.....Subject to his non-interference with the administration and with the management of the trustee during the bankruptcy in the due course of the execution of his duty, he can, in my opinion, demand the surplus, and he has a right to the surplus -- a right which he can dispose of by will or deed or otherwise during the pendency of the first bankruptcy, even before the surplus is ascertained, although such disposition wilt of course bo ineffectual unless in the event there prove to be a surplus upon which it can operate.'
The aforesaid passage indicates that the insolvent on adjudication has not been incapacitated from entering into contracts or transferring property.
40. From the aforesaid decisions, the following principles emerge: Insolvency does not operate as civil death. The insolvent's property vests in the Official Receiver for the purpose of administering the estate and for meeting the claim of the creditors. The act does not affect the capacity of the insolvent to enter into contracts and otherwise deal with the property. He is in the position of a person who has alienated all his property or otherwise lost it. But his position cannot be equated to that of a minor or a lunatic. He can be sued with or without the leave of the court, as the case may be and In that suit he can property represent himself. But any decree that might be obtained against him would not bind the Official Receiver in whom his entire properties vest. If the properties vested in the Official Receiver are sold as if they were the properties of the insolvent, the sale would be valid and the judgment-debtor cannot question the validity of the sale. Such a sale would toe analogous to a sale of the property of a third party as if it was the property of the judgment-debtor. The sale cannot be held to be a nullity or one made without jurisdiction.
41. It follows from the aforesaid principles that the appellant who is the representative of the insolvent judgment-debtor is precluded from questioning the validity of the sale on the ground that the Official Receiver was not a party to the decree or to the execution proceedings. The Official Receiver could have taken steps to set aside the sale, but he did not choose to do so. Now that the adjudication has been annulled, there cannot be any difficulty on that score. I would, therefore, agree with my learned brother even on the alternative contention raised by the respondents that the plaintiff cannot question the decree and the sale to which he was a party. (Judgment of the Division Bench (Govinda Menon and Krishnaswami Nayudu JJ.) delivered on the 2nd of April 1953)
Krishnaswami Nayudu, J.
42. The facts necessary for the appreciation of the point raised in this appeal have already been stated in the order of reference made by us on 2-4-1952 and it is not necessary to recapitulate the same again. The plaintiffs claimed possession of the suit properties in their own right as properties belonging to a joint family consisting of themselves and their father Murugappa Goundan. The 2nd defendant who was the purchaser in execution of a mortgage decree in O. S. No. 192 of 1931 obtained against the father of the plaintiffs, conveyed the properties purchased by him to the 1st defendant under a deed of sale dated 11-3-1940.
43. The appellant contests the position of the 2nd defendant as purchaser having any title to the suit properties on two grounds (1) that the purchase by him in execution of the decree in O. S. No. 192 of 1931 without making the Official Receiver a party to the said suit, as the plaintiff's father had become an insolvent, is wholly void and that he obtained no title to the suit properties and (2) that by reason of subsequent proceedings and the decree in O. S. No. 41 of 1934 a suit instituted by another set of mortgagees, the decree obtained by the 2nd defendant in O. S. No. 192 of 1931 was held to be not binding and that by his purchase in execution of that decree he obtained no title and, he having had no title, he could not convey any to the 1st defendant, and therefore the 1st defendant was not entitled to retain possession of the properties to which the plaintiffs are entitled.
The order of reference by us was as to whether the sale was void, and the Full Bench of this court decided the question against the plaintiffs holding that the sale is not vitiated, by the nonjoinder of the Official Receiver in the suit and subsequent proceedings in O. S. No. 192 of 1931. The only other question that remains to be considered is as to whether the effect of the decree in O. S. No. 41 of 1934 on the file of the Sub Court Coimbatore is that the sale in execution of the decree in O. S. No. 192 of 1931 has been virtually set aside.
44. O. S. No. 41 Of 1934 was a suit instituted by the sons of one of the subscribers to the chit fund of which the plaintiff's father and his brother were the stake holders and in respect of which a security bond was executed, whereby a charge was claimed on the suit properties for the amount payable to the subscribers. The suit was for recovery of a sum of Rs. 9500 and the plaintiffs prayed for a mortgage decree in respect of the suit properties. To that suit the stake holders; the appellants' father Murugappa Goundan and his brother Krishnaswami Goundan were impleaded as defendants 1 and 2. Venkatarama Aiyar, and defendant in the present suit, was the 17th defendant and the plaintiffs were 25th and 26th defendants. Venkataramana Aiyar is the decree-holder in O. S. No. 192 of 1931 and he claims to be the purchaser in execution of the decree. The decree in O. S. No. 192 of 1931 was passed on 5-12-1931 and the sale in his favour was on 23-1-1935 and a sale certificate was issued on 25-2-1935.
The plaint in O. S. No. 41 of 1934 was filed on 4-1-1934 and the plaintiffs therein attacked the decree in O. S. No. 192 of 1931 and contended that it was not binding on them, as it could not affect their co-equal rights in the hypothecs, that the rights of Venkataramana Aiyar were in no sense of a higher degree and that he was not entitled to enforce his decree to the detriment of the plaintiffs in that suit and the other encumbrancer. There is nothing to show that as to the stand taken by Venkataramana Aiyar in his written statement, but in dealing with his case, the learned Subordinate Judge in his judgment in O. S. No. 41 of 1934 observed that he failed to see how far Venkataramana Aiyar could steal a march over the rest by enforcing his security and bringing the properties to sale, when there were others to be paid and he held that the purchaser in execution of the decree, viz., Venkataramana Aiyar held the property subject to the rights of the others to enforce the security for their benefit and could claim no priority.
It is evident therefore that the fact of Venkataramana Aiyar having become the purchaser in execution of the decree was brought to the notice of the Court and his rights were considered. But the sale as such was not recognised as binding on the plaintiffs in that suit in whose favour a mortgage decree was passed, as is apparent from the latter part of the judgment of the learned Subordinate Judge where he says that as regards Venkataramana Iyer, nth defendant, who has got a decree in O. S. No. 192 of 1931, a clause will be inserted in the decree to the elfect that the decree which he has got will not avail him as against the plaintiff in O. S. No. 41 of 1934. The decree in O. S. No. 41 of 1934 directs defendants 1 and 2, the father and uncle of the appellant, and the appellant and other representatives of the family to pay into court the amount of the decree, namely, Rs. 12240-1-10 and, if such amount is paid within the period fixed for redemption, there is a direction that the documents relating to the properties shall be delivered over to the said defendants, who are the mortgagors and their representatives. By Clause 8 of that decree the direction in the Judgment as to Venkataramana lyer's position is carried out, by ordering that the decree in O. S. No. 192 of 1931 got by Venkataramana Aiyar will not avail him as against the plaintiffs, but will be subject to the rights of the plaintiffs under the decree.
What appears from the judgment and decree in O. S. No. 41 of 1934 is that the decree in O. S. No. 192 of 1931 in favour of Venkataramana Aiyar was attacked, and though he had become the purchaser before the termination of that suit, the fact of the purchase is only mentioned in the judgment and the purchase by him as such has not been recognised and he was treated only as a mortgagee decree-holder in the earlier decree, that is in O. S. No. 192 of 1931, and his rights under the said decree were made subordinate to the rights of the decree-holders in O. S. No. 41 of 1934. The validity or otherwise of the purchase by Venkataramana Aiyar in execution of his decree in O. S. No. 192 of 1931 was not the subject matter of any Issue raised in that suit and it could not have been raised as an issue for the reason that the sale was only in February 1935 long after O.S.No. 41 of 1934 was instituted, and issues settled out, it would have been open to Venkataramana Iyer to have insisted on his sale being recognised and he treated as the owner of the equity of redemption, and not the plaintiffs or their father and uncle or other representatives of the joint family, and for a mortgage decree being passed against him as he was the person who had acquired the rights of the mortgagors.
Apparently no such claim was made by Venkataramana Aiyar and he was content to have his rights under his decree recognised which is obvious from the judgment and decree in that suit. The position therefore is that, though he claimed to be the purchaser, his rights as a purchaser failed to be recognised in O. S. No. 41 of 1934, to which suit not only was he a party but the plaintiffs and the other members of the joint family including the original mortgagors were also parties. Though the sale was not as such declared to be not binding, the sale as such was not recognised and practically given the go by Venkataramana Iyer himself, he having been satisfied with his rights under his decree being kept alive.
45. That Venkataramana Aiyar by being a party to the decree in O. S. No. 41 of 1934 and not having appealed against it has relegated himself to the position of a mortgagee-decree-holder giving up his rights as a purchaser is also evident from his conduct in subsequent proceedings relating to the suit properties. The decree-holders in O. S. No. 41 of 1934 took out execution proceedings for sale of the properties and Venkataramana Aiyar applied in E. A. No. 1638 of 1936 in O. S. No. 41 of 1934 for leave to bid at the sale to be held in execution of that decree and to set off. From the order of the Subordinate Judge dated 4-1-1937 in that application it is seen that Venkataramana Aiyar, the 17th defendant claimed entitled to bid for the properties as co-mortgagee with the plaintiffs-decree-holders in O. S. No. 41 of 1934 and the learned Subordinate Judge granted permission to Venkataramana Aiyar only to bid and declined the request for set off. In the affidavit filed in support of that application, Venkataramana Aiyar contends that he is entitled to bid at the auction sale and to adjust the amount of the bid by him towards the amount due to him apparently under the mortgage decree in O. S. No. 192 of 1931. This is further proof to show that he continued to treat himself as the mortgagee decree-holder and never claimed or asserted his rights as purchaser.
46. Another subscriber to the chit fund, to whom moneys were due on the security bond, instituted O. S. No. 25 of 1936 making the appellants and the plaintiffs-decree-holders in O.S. No. 41 of 1934 as also Venkataramana Aiyar, decree-holder in O.S.No. 192 of 1931, as party defendants, and asked for a mortgage decree similar to the one prayed for in the earlier suit. Venkataramana Aiyar was impleaded as the 4th defendant in the suit and he resisted the suit on the ground that he was not a necessary party to the suit and his rights were governed by the decree in O, S. No. 192 of 1931 and O.S. No. 41 Of 1934. A decree was passed in that suit. But the direction was that the mortgaged properties would be sold subject to the rights of Venkataramana Aiyar and the plaintiffs in O. S. No. 41 of 1934 under the decree in O. S. No. 41 of 1934 and Venkataramana Aiyar was to rank as co-mortgagee along with the decree-holders in O.S.No. 41 of 1934 and they were to be paid their respective mortgage amounts. Here again, the decree in O. S. No. 41 of 1934 was confirmed the result of which is that Venkataramana Iyer had no rights and did not and could not claim any rights beyond that of a mortgagee decree-holder in respect of the suit properties under the decree which he obtained in O. S. No. 192 of 1931. Excepting that a sale was held in execution of the decree in O. S. No. 192 of 1931 and Venkataramana Aiyar was declared the purchaser, the sale in his favour was treated as non-existing and was not recognised in the subsequent proceedings referred to which himself and the present appellant were parties.
47. It is contended by Mr. Rajah Aiyar, that nowhere was the sale as such set aside on any of the grounds raised by the plaintiffs and that, on the other hand, in O. S. No. 41 of 1934 it was held that the mortgage executed by the father of the plaintiffs was one which the father could enter into so as to bind his undivided sons and that the fact that the plaintiffs were not made parties to O. S. No. 192 of 1931 is of no consequence, as they were not born on the date of the mortgage, namely, the security bond, which was on 7-4-1923 and that it is not in any event open to the plaintiffs, who are bound by the decree in O. S. No. 192 of 1931 to question the decree or the sale in pursuance of that decree. We have no reason to differ from the conclusions of the lower court on the validity and binding nature of the mortgage created by the security bond on 7-4-1923 as a transaction which is binding on the members of the joint family. We have no doubt that the decree in O. S. No. 192 of 1931 is also binding on the appellant and his brother even though they were not made parties to the suit, since the father must be deemed to have represented them, they being minors, and if the decree is binding on them any further proceedings in execution of that decree would equally be binding and, in that view, the sale to Venkataramana Aiyar was a transaction, which would bind the appellant and his brother.
But the question to be determined here is not as to whether the sale was not binding for the reason that the appellant and his brother were not made parties to the proceedings in O. S. No. 192 of 1931 or for the reason that the debt incurred under the mortgage was for illegal and immoral purposes, but as to whether in fact the sale to Venkataramana Aiyar could be treated as valid and subsisting after the decree in O. S. No. 41 of 1934. That is the point to be decided in this case End, in view of the clear terms of the decree-In O. S. No. 41 of 1934, where the sale was ignored and Venkataramana Aiyar was treated as mortgagee decree-holder, and his subsequent conduct in being a party to the several proceedings, where his right as a decree-holder alone was recognised and confirmed from time to time, there being no question of the decrees in O. S. Nos. 41 of 1934 and 25 of 1936 not binding on Venkataramana Aiyar, the only reasonable conclusion that could be arrived at on this state of facts is that Venkataramana Aiyar's rights continued to subsist only as mortgagee decree-holder in O. S. No. 192 of 1931 and not as a purchaser.
48. Having given up his rights under the sale and proceeded to enforce his rights as the mortgagee decree-holder it would not be open to him to execute a sale of the property in favour of the first defendant, as his title to the suit properties under the sale has ceased to exist after the decree in O. S. No. 41 of 1934 and the sale therefore in favour of the first defendant cannot be upheld and it cannot convey any rights in the suit properties, which must be deemed to continue with the mortgagors and their representatives the plaintiffs in the present case. The result therefore would be that the first defendant has not acquired any rights to the suit properties under the sale deed Ex. D. 7 dated 11-3-1940 executed by Venkataramana Aiyar in his favour and, not having acquired any rights, he could not continue in or resist delivery of possession. The plaintiffs therefore would be entitled to a decree for possession.
49. The first defendant would, however, be entitled to be subrogated to the rights of the mortgage subsisting on the properties, which mortgage the first defendant had redeemed; the sale deed Ex. D. 7 mentions that the first defendant would be subrogated to the rights of the decreeholders in O. S. No. 41 of 1934 and the other mortgagor, namely Subbiah Goundan, whose mortgage the first defendant claims to have redeemed. The sale was for a consideration of Rs. 30000 out of which Rs. 14700 is stated to have been paid to the decree-holders in O. S. No. 41 of 1934 and Rs. 100,000 to Subbiah Goundan. The finding of the lower courts that these mortgagees have been paid does not require any interference. In addition it has to be considered whether the first defendant would not be entitled also to be subrogated to the rights of Venkataramana Iyer under the mortgage decree in O. S. No. 192 of 1931. Though the first defendant has not paid as such and redeemed Venkataramana Aiyar's debt, the fact is that he has purchased from Venkataramana Aiyar whatever rights he had in the suit properties and in view of our finding that Venkataramana Aiyar had no other title to the properties excepting his right as mortgagee decreeholder it is just and equitable that the first defendant should also be entitled to be subrogated to the rights of the mortgagee decree-holder in O. S. No. 192 of 1931.
The first defendant will therefore be entitled to be subrogated to the rights under all the three mortgagees, namely, under the mortgage decrees in O. S. No. 192 of 1931 and O. S. No. 41 of 1934 and the mortgage in favour of Subbiah Goundan as well as the amounts paid by him Rs. 7500 and Rs. 1000 under Ex. D. 14, D. 13 (a) with interest at six per cent per annum from the date of payment. The plaintiffs are entitled to future mesne profits, such mesne profits to be ascertained on an application to be made by the plaintiffs in the trial court. The decrees of the lower courts are set aside and the suit remanded to the trial court for the ascertainment of the amounts due to the first defendant under all the mortgages or decrees together with interest to which he has been entitled to as mentioned above and the trial court will pass a decree for possession on condition of the plaintiffs paying the first defendant the amount so ascertained. The plaintiffs will be entitled to their costs throughout. The court-fee will be refunded. In view of this decision, no interference is necessary in C. R. P. No. 1534 of 1949 which is dismissed.