1. On 22nd June, 1937, the first respondent, Balayya, who was then in insolvent circumstances, alienated his property in favour of one Nagappa and others. On 13th August, 1938, the alienees sold some of the property to Rami Reddi, and on 10th August, 1944, Rami Reddi transferred some of his rights to Thimmappa. Balayya was adjudicated an insolvent on 8th March, 1938. At the instance of the Official Receiver, the alienations of 22nd June, 1937, and the consequent alienations were set aside. On 9th February, 1940, the adjudication was annulled under Section 43 of the Provincial Insolvency Act; but the property was ordered to continue to vest in the Official Receiver. Subsequently, the alienees deposited in Court a sufficient sum of money to pay off all the creditors and asked that the property be delivered to them. The insolvent subsequently also deposited money sufficient to pay off the creditors as well and to pay the alienees what was due to them under the deed of 22nd June, 1937.
2. The question that arise in these three appeals is whether the insolvent, Balayya, is now entitled to have the property or the alienees.
3. I have no doubt that the learned advocate for the insolvent is right in his contention that the alienation was set aside for all purposes and not to a limited extent or for a limited purpose. In other words, after the alienation was set aside the alienees had no rights whatsoever. Nevertheless, it has always been recognised in insolvency proceedings that where a portion of the property alienated is sufficient to meet the debts of the creditors, the alienee should be given possession of the remaining property; because the object of setting aside the alienation was to satisfy the debts of the creditors. If that purpose could be fulfilled by a sale of only a portion of the property, then the alienees should be allowed to retain the property which it was not necessary to sell, despite the fact that the alienation had to be set aside in its entirety. It seems to me that the same principle would apply where it was not necessary to sell any of the property, because the alienees had deposited in Court a sufficient sum of money to pay off the creditors. No decision bearing directly on the rights of the alienees in such circumstances has been cited; but reference may be had to Dharmasamarajayya v. Sankamma : AIR1943Mad453 , a decision of King, J. Referring to certain English cases, he said:
As it was unnecessary to dispose of the property covered by Exhibit II in order to mest the claims of the insolvent's creditors it seems to me that the effect of the annalment of Exhibit II must automatically disappear at the conclusion of the insolvency proceedings.
Referring to In re Parry: Ex parte Salaman (1904) 1 K.B. 129, the learned Judge said:
The annulment of an alienation of this kind is solely in the interests of an insolvent's creditors; and to the extent that those interests do not require the annulment, the annulment is automatically cancelled. I would hold therefore that from March, 1928, onwards any rights which had accrued under Exhibit II are automatically restored, and this appeal must be decided upon an examination of the gift deed, Exhibit II.
There is some substance in the contention of Mr. Chandra Reddi for the insolvent that since the alienation was set aside by an order of the Court, the setting aside of the alienation cannot be automatically cancelled upon the paying off of the creditors; but the decisions referred to would show that the ordinary course to be adopted, where it is not necessary to sell the property which was the subject of the alienation in order to pay the creditors, is that it should be restored, if not automatically, at any rate by an order of the Court, to the persons from whom it was taken. An insolvency Court administers the assets of the insolvent in equity for the benefit of the creditors and restores it to the person to whom it is properly due, if the claims of the creditors do not necessitate the sale of the property.
4. It is argued that since the order of the Court is one passed in equity the property should not be restored to the alienees, but rather to the alienors; because the property was found in Letters Patent Appeal No. 24 of 1944 to have been sold for a. very inadequate sum. That however is the concern of the alienors. If they chose, in order to defraud their creditors, to sell valuable property for much less than what it was worth, they cannot complain at having to suffer the consequences of their fraud.
5. The alienees have not only asked that the property should be restored to them, but also that the payment of the creditors out of the sum deposited by the insolvent in Court should stand; in other words, that the money that they have deposited in Court should be allowed to be withdrawn by them and that the property should also be given to them. That would be a most inequitable course. It is unlikely that the insolvent had himself the money which he deposited in Court. He had presumably to enter into some arrangement, whereby those who financed him were to be reimbursed after the insolvent re-obtained possession of the property. Moreover, the deposit made by the insolvent must be regarded as a conditional one, that if the Court found that it was unable to grant the insolvent's request to restore the property to him, the money should be given back.
6. The property should therefore be restored to the alienees; but the money deposited by them in the Anantapur Court and subsequently transferred to the Bellary Court should be utilised for the payment of creditors, the insolvent being allowed to withdraw from the Court the amount deposited by him.
7. The appeals are allowed; but in view of the fact that the appellants have asked for more than what could reasonably be given to them and the arguments put forward by them were not those which have been accepted, there will be no order as to costs. If the money deposited by the insolvent, or any part of it, has been already distributed to creditors, the insolvent should be reimbursed from the amount deposited in I.A. No. 9 of 1946 and any amount remaining over of the sum deposited in I.A. No. 9 of 1946, after all the creditors have been paid should be refunded to the petitioner in LA. No. 9 of 1946.