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Subbia Goundan Vs. Ramaswami Goundan and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1953)2MLJ766
AppellantSubbia Goundan
RespondentRamaswami Goundan and ors.
Cases ReferredBird v. Philpott L.R.
Excerpt:
- - as the insolvent failed to apply for discharge,'the insolvency was annulled on 13th october, 1935, without making any, vesting order. 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. 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 assigne 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.....satyanarayana rao, j.1. this matter was referred to a full bench by govinda menon and krishnaswami nayudu, jj., as the learned judges felt that there were 'conflicting decisions regarding the interpretation of section 37 of the 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 of the provincial.....
Judgment:

Satyanarayana Rao, J.

1. This matter was referred to a Full Bench by Govinda Menon and Krishnaswami Nayudu, JJ., as the learned Judges felt that there were 'conflicting decisions regarding the interpretation of Section 37 of the 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 of the 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 Subba Rao and Panchapakesa Ayyar, JJ. The decision of the Full Bench is Arunachalam v. Narayanaswami (1950) 1 M.L.J. 35 : I.L.R. 1951 Mad. 555. 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 Full Bench case in Arunachalam v. Narayanaswami (1950) 1 M.L.J. 35 : I.L.R. 1951 Mad. 555 was rightly decided. If we had been of opinion, after hearing arguments, that the Full Bench decision required reconsideration, pur only course would have been to refer the matter to a fuller Bench. But we think it is unnecessary to adopt that course.

2. 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 1 as are relevant for a correct appreciation of the question that arises for decision.

3. The first plaintiff is the appellant before us. The father of plaintiffs 1 and 2, one Murugappa and Krishnaswami Goundan were brothers. On 7th December, 1920, under Exhibit D-I, there was a division of family properties between these members of the coparcenery. In 1922, the two brothers started a chit fund, and the printed chit memorandum is Exhibit D-3, dated 14th March, 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 stakeholders, executed on 7th April, 1923, Exhibit 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 tenth auction.. At that auction, however, the ticket was purchased jointly by Venkataramana Ayyar, the second defendant, and one Palani Goundan. Each was entitled to a halfiaji of the amount and the amount had to be paid by Muscugappa and Krishnaswami Goundam. Murugappa paid his half share to Palani Goundan, but Knshnaswami Goundari did hot pay the amount to which Venkataramana Ayyar was entitled. The result was, on 9th October, 1931,, Venkataramana Ayyar 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 5th December, 1931, the suit was decreed, vide Exhibits D-5-a and 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, Exhibit D-12, was filed on 14th October, 1931, by a creditor of Murugappa to adjudicate him an insolvent. An order of adjudication. was made on 19th February, 1932, which related back therefore to the date of the petition, 14th October, 1931. The Official Receiver was not made a party to the suit, and in 1934 in E.P. No. 709 of 1934, Venkataraniana Ayyar brought to sale the properties given as security, and they were sold on 21st March, 1935. The decree-holder himself became the purchaser. Exhibit D-5-c, dated 25th February,. 1932, is the sale certificate obtained by Venkataraniana Ayyar. Possession of the properties was also delivered to the second, defendant on 5th April, 1935, as evidenced by Exhibit. D-5-e, the delivery receipt. As the insolvent failed to apply for discharge,'the insolvency was annulled on 13th October, 1935, without making any, vesting order. The second defendant sold this property on nth March, 1940, under Exhibit D-7 to the first defendant for a large amount. The further facts which arc adverted to in the order of reference are not essential and therefore need not be adverted to.

4. 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 in 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 second 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 retrospectively 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, then title should undoubtedly be upheld.

5. 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 of the 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 19th February, 1932, therefore, dates back to 14th October, 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 omiaaion to implead the Official Receiver as a party to the mortgage action and, execution: proceeding?

6. The question was considered by the Judicial Committee in Kala Chand Banerjee v. Jagannath Marwari 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 Salvesen observed at page 598 :

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 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 Amuiya was a nullity. It was observed:

The ratification by Amuiya of the deed of 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.

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 Puninthavelu Mudaliar v. Bhashyam Ayyangar (1901) 12 M.L.J. 282 : I.L.R. 25 Mad. 406 and in a very recent case by the learned Chief Justice and PanchapakesaAyy ar, J., in Ammanna v. Ramakrishna Rao : (1949)1MLJ249 following the decision in Kala Chand Banerjee v. Jagannath Marwari 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 properparty, as under Section 91 of the Transfer of Property Act, the mortgagor is a person entitled to redeem the property, and under Order 34, rule 1, Civil Procedure Code, 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 of the Transfer of Property 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. 382 : 56 E.R. 903 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 in 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.

7. This leads us on to the next question regarding the proper interpretation and the effect of reverter of property under Section 37 of the Provincial Insolvency Act. There are two earlier decisions of this Court, Ramaswami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 and Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 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 Ramaswami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 and Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 cannot be treated as useful guides to interpret Section 37 of the Act.' The relevant portion of Section 7 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 case any such vesting order as aforesaid shall become null and void by the dismissal of such petition, all acts theretofore done by any assigne 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 Town, 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 and payments duly made, and all acts theretofore done, by the trustee or any person acting under his authoriy, or by the Court, shall be valid, but the property of the debtor who was adjudged 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.

8. Section 37 (1) of the 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, and 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 and 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 not like the word 'revest', to vest again, in which case the vesting will be from the date from which the order operates. In other word, 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 disposition of property and payments made before that date by the receiver. On a consideration of the two sections, that is, Section 7 of the Indian Insolvency Act, 1848, and Section 37 of the Provincial Insolvency Act, the difference in language does not oconnote any difference in the effect. The opinion of Cockburn, C.J., expressed in the Exchequer Chamber in Bailey v. Johnson L.R. 7 Ex. C. (1871-72) 263 has been adopted as still good law by Williams on Bankruptcy in the latest (16th) edition. At page 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 bank-ruptcy 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 Ms bankruptcy is pronounced, to his 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 Bul-lard, 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 Cockburn, 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 Ramaswami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 and Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 which were concerned with Section 7 of the Indian Insolvency Act, 184.8, 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 consi-deied 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 Peraya v. Kondayya : AIR1948Mad430 the learned Judges saw

no reason to think that the effect of the later statute was any different from what it was at the time when Ramasami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 and Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 were decided.

With these observations of the learned Judges, we respectfully agree. In Ramaswami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 , 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 Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 , 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 up to 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 Lingappa v. Official Receiver, Bellary (1937) 47 L.W. 366, 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 Dharmasamarajayya v. Sankamma : AIR1943Mad453 . In Ralnavelu Chettiar v. Fmnciscu Udayar (1945) 1 M.L.J. 172, 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 all 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 Ponnuswami Chettiar v. Kaliaperumal Naicker : AIR1929Mad480 on which strong reliance was placed by Mr. Muthiah Mudaliar in the arguments 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 .

9. The learned referring Judges placed reliance on the view of Venkataramana Rao, J., in Lakshmanan Chettiar v. Srinivasa lyengar (1937) 71 M.L.J. 707 : I.L.R. (1937) Mad. 203, 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 Suryanarayanamurthy v. Veeraraju : (1945)1MLJ292 , where it was held that the property when it reverts continues to be joint family property. In that case, it was also pointed put that the vesting of the property in the receiver was only to facilitate administration for the purpose of satisfying the claims of the coparceners' 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 page 60:

When the purpose for which the law places a fetter on the coparcenery interest 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 1st defendant as joint family property.

This decision was followed in Hanumantha Gowd v. Official Receiver, Bellary (1937) 47 L.W. 366. The question received exhaustive consideration again by Horwill, J. and Rajamannar, J. (as he then was), in Perayya v. Kondayya : AIR1948Mad430 , which related to a sale by the insolvent, The deed was executed on 10th August, 1931, but was registered on 1st December, 1931. In the meanwhile, on 18th November, 1931, on a creditor's petition, one of the executants was adjudged an insolvent. The document was attacked in the insolvency proceedings, but finally the adjudication itself was annulled in August, 1944. On 6th August, 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 of the Provincial Insolvency Act and Section 43 of the Transfer of Property 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 adjudcation. The earlier decisions were followed and the opinion was expressed that it was valid under Section 37 of the Provincial Insolvency Act also. They also applied Section 43.

10. In Venkataramakrishna Rao v. Sambamurti : (1949)2MLJ833 , the matter aagin came up for consideration before a Division Bench consisting of Horwill and Balakrishna Ayyar, JJ The question arose under the Madras Agriculturists' Relief Act (IV of 1938); 'the judgment-debtor under a decree in a suit of 1933 was adjudged insolvent on 16th April, 1937. The adjudication was subsequently annulled on 5th March, 1941. He thereafter applied under Section 19 of the 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 IV of 1938. If the effect of annulment was to vest the property retrospectively in the insolvent on the material dates under Act IV of 1938, namely, 1st October, 1937, and 22nd March, 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 he was not an agriculturist.

11. 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 Full Bench in Arunactialam v. Narayanaswami (1950) 1 M.L.J. 35 : I.L.R. (1951) Mad. 555, also the question raised Was similar, and the contention of the judgment-debtorwas upheld.

12. It has therefore been uniformly held in this Court from Ramasami Kottadiar V. Murugesa Mudali : (1897)7MLJ229 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.

13. Reference was made to the decision in Jethaji Peraji Firm v. Krishnayya : (1929)57MLJ116 , 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 ' revert '. The observations of Reilly, J., in the same case that it cannot be suggested that 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.

14. 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 Bose, C.J., of the Nagpur High Court, as he then was, in Kisan v. Sitaram I.L.R. (1951) Nag. 12 : A.I.R. 1951 Nag. 241. The learned Judge addressed himself to the question whether as a result of the order of annulment the acts preformed by the insolvent during the period of insolvency were revived. The learned Judge refers to the decision in Ramasami Kottadiar v. Murugesa Mudali : (1897)7MLJ229 and Kothandarama Ravuth v. Murugesa Mudaliar : (1903)13MLJ372 , as well as the later case in Lingappa v. Official Receiver, Bellary (1937) 47 L.W. 366 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 Jethaji Peraji Firm v. Krishnqyya : (1929)57MLJ116 , which were quoted with approval by Venkataramana Rao, J., in Lakshmanan Ghettiar v. Srinivasa Iyengar 71 M.L.J. 707 : I.L.R. (1937) Mad. 203. 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 Suryanarayanamurthy v. Veeraraju : (1945)1MLJ292 , and this Bench decision was followed in the later Bench decision in Hanumantha Gowd v. Official Receiver, Bellary (1937) 47 L.W. 366. Presumably, these decisions were not 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 right, title and interest in the property, it must be observed that there is no status tory prohibition against the transfer by the insolvent during the continuance of insolvency and the vesting of the property under Section 28 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 of the Transfer of Property 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 transferable 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 of the Transfer of Property Act. A, a person sui juris may transfer 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 viod 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, Kisan v. Sitaram I.L.R. (1951) Nag. 12 : A.I.R. 1951 Nag. 241, 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 purchases 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 of the Transfer of Property Act, in cases to which that section applies, as was done in Diwan Chand v. Manak Chand (1934) I.L.R. 16 Lah. 392 and Rup Narain Singh v. Har Gopal Tewari I.L.R. (1933) All. 503. The importance of the Allahabad decision Rup Narain Singh V. Har Gopal Tewari I.L.R. (1933) All. 503, 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 probibiting 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 Judge, 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 page 507 of Rup Narain Singh v. Har Gopal Tewari I.L.R. (1933) All. 503. 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 Judges' attention was drawn to those cases, he would have considered the matter more fully.. For those reasons, with great respect we are unable to follow the decision of the learned, Judge.

15. The Patna High Court has also adopted the same view as our High Court in Jokhiram Surajmal Firm v. Chouthmai Bhagiralh 57 M.L.J. 116 : I.L.R. 52 Mad. 648 and Chouthmal Bhagirath v. Jokhiram Surajma 57 M.L.J. 116 : I.L.R. 52 Mad. 648. It may be added 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 affected by reason of the relation back of the order of adjudication to the date of the presentation of the petition. In re Mirja Md. Masrur Ali Khan 4, does not throw much light, though it construes Section 23 of the 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.

16. 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 Bench in Arunachalam v. Narayanaswami (1950) 1 M.L.J. 35 : I.L.R. (1951) Mad. 555 was rightly decided and does not require re-consideration. 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 of the Transfer of Property Act are fulfilled they may also be supported under that section.

17. It remains to consider one other aspect of the case presented by Mr. Rajah Ayyar, 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 The facts in that case were : under a deed of 1830, Surr 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. 21st August, 1848, was fixed for the payment which was subsequently extended to 1st August, 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 the equity of redemption of the same property to one Mrs. Guppage 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 the assignees in insolvency of Davis were made parties to the earlier suit for redemption by Davis. But Guppage 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 Guppage 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 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 circumstance, the insolvency or bankruptcy had been superseded or annulled, he could not have said that the foreclosure was not absolute against him.

This statement of law exactly applies to the present case, as Murugappa 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 portion was noticed and followed on the question of lis pendens in Punithavelu Mudaliar v. Bhashyam Ayyangar (1901) 12 M.L.J. 282 : I.L.R. 25 Mad. 406. In Inamullth Khan v. Lala Shambu Dayal : AIR1931All159 , 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 Wood v. Surr (1854) 19 Beav. 551 : 52 E.R. 465 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.

18. We answer the reference accordingly.

Subba Rao, J.

19. I have had the advantage of reading the judgment prepared by my learned brother Satyanarayana Rao, J. I am glad that my learned brother has come to the same conclusion arrived at by another Full Bench of this Court in Arunachalam v. Narayanaswami (1950) 1 M.L.J. 35 : I.L.R. (1951) Mad. 555 , 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.

20. 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 proceedings, except with the leave of the Court and on such terms as the Court may impose.

21. Section 28 (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 dater 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, as 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 in 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.

22. 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 of the Code of Civil Procedure. The insolvency of a mortgagor would not obviously have the effect of exempting him from the said provisions. Order 34, rule 1 of the Code of Civil Procedure 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 vest either by transfer inter vivos or by operation. of law are necessary parties to 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.

23. The leading case on the subject is Wood v. Surr (1854) 19 Beav. 551 : 53 E.R. 465. 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 alienee Were made parties, and in their absence an order was mads foreclosing the plaintiff. It was held that the decree was binding on the insolvent and the alienee 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 and of no value, Sir John Romilly countered that contention with the following observations:

The proceeding 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 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 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 Punithavelu Mudaliar v. Bhashyam Ayyangar (1901) 12 M.L.J. 282 :I.L.R. 25 Mad. 406, a similar view has been expressed by Bhashyam Ayyangar, 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 Kala Chand Banerjee v. Jagannath Marwari (1927) 52 M.L.J. 734 : L.R.54 IndAp 190 : I.L.R. 54 Cal. 595, in support of his contention that the decree and the sale were nullities. There, one Amulya Krishna Bose was adjudicated an insolvent on the 21st February, 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 mortgage interest. On 11th January, 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 and 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 their conclusions are found at page 598:

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 of 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 of 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 (1926) 52 M.L.J. 148 :I.L.R. 50 Mad.639, 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 Muthusami Thevan. 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 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 carries 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 Inamullah Khan v. Lala Shambhu Dayal : AIR1931All159 , Sulaiman and King, JJ., have answered a similar question in a way favourable to the respondents in this case. In that case the mortgagor had been adjudicated an insolvent after the preliminary decree but before the final decree, and the Official Receiver had not been impleaded as a party to final decree proceedings on a mortgage. The property was sold in execution of the decree. The montigagor 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 Section 16 (4) and (5), Provincial Insolvency Act, 1907, has been laid down by their Lordships of the Privy Council in the case of Kala Chand Banerji v. Jagannath Marwari 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 not given up; but it is quite clear that the judgment-debtor cannot get the sale set aside on that ground.

The judgment also supports the view that the sale was not a nullity. Inaeed, the learned Judges interpreted the decision of the Judicial Committee in Kala Chand Banerji v. Jagannath Marwari , in the manner I have done in this case. In Rup Narain Singh v. Har Gopal Tewari (F.B.)(1933) All. 503, Iqbal Ahmad 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 page 507, 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 or 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 void ab initio.

24. 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 into 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 Rajaman-nar, J., as he then was in Peraya v. Kondayya : AIR1948Mad430 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 is 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 affect 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.

25. The status of an insolvent in connection with his right to prefer an appeal under Sections 68 and 75 of the Provincial Insolvency Act came up for a judicial scrutiny by a Full Bench of this Court in Narasimham v. Ramayya (1950) 1 M.L.J. 484 : I.L.R. (1951) Mad. 77. 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 Farewell, J., in Bird v. Philpott L.R. (1900) 1 Ch. 822. Farewell, 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 will of course be ineffecutal unless in the event there prove to be a surplus upon which it can operate.

26. The aforesaid passage indicates that the insolvent on adjudication has not been incapacitated from entering into contracts or transferring property.

27. 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 properly 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 be 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.

28. 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.


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