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Pannai Ananthanarayana Aiyar Vs. Pannai Ramasubba Aiyar and ors. - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported inAIR1924Mad345; 79Ind.Cas.395
AppellantPannai Ananthanarayana Aiyar
RespondentPannai Ramasubba Aiyar and ors.
Cases ReferredJagannatha Ayyangar v. Narayana Ayyangar
Excerpt:
.....application' (see also williams on bankruptcy, 10th edition, p. the petitioners alleged that the official receiver not only failed to move the court to set aside the alienation in question, but also that he acted against the interests of the creditors. in this case, the requirements of law have been satisfied by making the official receiver a party to the application and the respondent's contention fails. 'it may well be that, when the receiver fails to move in the matter, a creditor may do so. in the well known case of sidebotham (1880) 14 ch. 834, in which it was held that a creditor who bad not been heard before the registrar on the question of the registration of liquidation resolutions was entitled to appeal from the registrar's order, because the question of registration or..........was that the hypothecation in favour of the second respondent was in fraud of creditors. the official receiver, tinnevelly, who is the fourth respondent, sold the hypotheca free of encumbrance and paid the second respondent in full. the petitioning creditors applied to the district court tinnevelly, to have the hypothecation declared void under sections 53 and 54 of the act of 1920. the district judge held that the application was an appeal against the act of the official receiver under section 68 of the act and dismissed it with costs as being barred by limitation, it not having been presented within 21 days of the order of the receiver. this appeal is against the judgment of the district judge.2. the appeal came on for hearing on 1st august 1923, when the appellant's vakil mr......
Judgment:

1. The appellant is one of the two petitioning creditors who applied to the District Court of Tinnevelly in I.P. No.12 of 1919 to have the third respondent in this Court adjudicated an insolvent. One of-the allegations in the petition was that the hypothecation in favour of the second respondent was in fraud of creditors. The Official Receiver, Tinnevelly, who is the fourth respondent, sold the hypotheca free of encumbrance and paid the second respondent in full. The petitioning creditors applied to the District Court Tinnevelly, to have the hypothecation declared void under sections 53 and 54 of the Act of 1920. The District Judge held that the application was an appeal against the act of the Official Receiver under Section 68 of the Act and dismissed it with costs as being barred by limitation, it not having been presented within 21 days of the order of the Receiver. This appeal is against the judgment of the District Judge.

2. The appeal came on for hearing on 1st August 1923, when the appellant's Vakil Mr. P.V. Krishnaswsmy Aiyar asked for time to file an application for leave to appeal under Section 75 Cluse (3). Time was granted and the application for leave to appeal was filed on 6th August 1923. Mr. K.V. Krishnaswamy Aiyar objected to leave being granted as the affidavit on behalf of the appellant was not satisfactory and he further contended that, even if leave were granted, the appeal would be out of time as it was presented on 10th January 1922 without obtaining leave. As the new Provincial Insolvency Act came into force only in 1922 and as the Insolvency law is not well understood in the moffusil, we deemed it proper to grant leave under Section 75, Cluse (3) to file an appeal against the District Judge's order. The appeal as presented under Section 75 (2) having been presented in time, there is no substance in the objection that the appeal is under Section 75, (3) out of time. Even if it is, Section 78, which is a new provision not contained in the old Act, empowers the Court to execuse delay in the presentation of an appeal or application. This being a fit case for excusing delay the appeal was heard on the merits after excusing the delay.

3. Mr. K.V. Krishnaswamy Aiyar raised a preliminary objection that no appeal lay to this Court as the application to the lower Court was under Section 68 of the Provincial Insolvency Act of 1920 and as it was not open to a creditor to move the Court for an order under Section 53 or 54 of the Act against an alienee or a creditor, and he relied on Mariappa Pillai v. Raman Chettiar 52 Ind. Cas. 519 : 42 M. 322 : 10 L.W. 59. and Thabba, Lai v. Shib Charan Das 37 Ind. Cas. 76 : 39 A. 152 : 15 A. L.J. 1. The application to the District Court was not made under Section 68, as is clear from a perusal of the petition. It follows that the District Judge was wrong in treating it as out of time under that section. The question for consideration is, can a creditor move the Court under Section 53 or 54 of the Act? None of the decisions relied on by him go the length of holding that a creditor could not move the Court at all to set aside a voluntary transfer, or to avoid a fraudulent preference, whatever the circumstances might Be. The main point decided in Mariappa Pillai v. Raman Chettiar 52 Ind. Cas. 519 : 42 M. 322 : 10 L.W. 59. was, 'No Court has the jurisdiction to annul, as such, a transfer amounting to a fraudulent preference, or a voluntary transfer made within two years of the adjudication, except a Court exercising insolvency jurisdiction in proceedings which have been instituted to declare the debtor, who made the transfer, an insolvent by a petition duly presented under the Act.' In the course of the judgment there is an observation, 'it is the Official Receiver who must set the Court in motion to annul a transfer under Section 36 or 37.' This observation has to be read in connection with the feats of that case. It is neither laid down, nor intended to be laid down, in that case that, under no circumstances, could a creditor move the Court for an order Section 53 or 54 of the Provincial Insolvency Act of 1920.

4. In Thabba Lal v. Shib Charan Das 37 Ind. Cas. 76 : 39 A. 152 : 15 A.L.J. 1 the petitioning creditor applied to the Insolvency Court for attachment of a certain property as being that of the insolvent. It did not appear that he had ever moved the Receiver to take steps for attaching the property. The Court gtanted the application and directed the Receiver to attach the property which was done. The sons of the insolvent claimed the property as their own. The Court allowed part of the claim. Both the creditor and the sons appealed to the High Court. Walsh, J., observes at p. 155: 'Creditors have a right to prove for their own claims, a right to supply the Receiver with information relating to claims which the insolvent's estate may have against other persons; and they have a right to bring the Receiver's conduct and decisions before the Court if he declines to act or neglects his duties, but they have no legal interest in the insolvent's estate and no title to represent it. If they want the Receiver to litigate the question, they can supply him with funds or indemnify him against the costs in the event of failure, if he is unable to proceed for want of funds; but it would be contrary to the whole scheme of the Insolvency Act, if any one out of a large number of creditors was at liberty to start all kinds of questions and set the law in motion independently of the Receiver. The proper course, if a creditor is desirous of supporting the Receiver and securing a decision in his favour, is to attend the Court to watch the proceedings, or obtain the permission of the Court to intervene as amicus curiae.' The learned Judge observed that if the Receiver declined to move in the matter the proper course for the creditor was to apply to the Court under Section 22 of Act III of 1907. Section 22, now Section 68, gives a right of appeal to a person aggrieved by any act or decision of the Receiver. The word 'act' must be understood in its ordinary sense. It cannot mean a mere omission or refusal to take steps at the request of a creditor. It is not defined in the Act. The General Clauses Act defines the word 'act' as including illegal omissions when it is used with reference to an offence or a civil wrong. A mere refusal of the Official Receiver to take action at the request of a creditor cannot, therefore, be called an act of the Official Receiver as contemplated by Section 68 of the Act. It would be a different matter if, after hearing the parties, he passes an order that the transaction is a valid one. What he does then would amount to a decision against which there is an appeal provided Section 68 contemplates acts of the Official Receiver. such as selling the property of the insolvent, taking possession of property and decisions on creditor's proofs of debt, either admitting them or rejecting them. The whole tenor of Section 68 is against the view of the learned Judge that a creditor's only remedy against the refusal of the Official Receiver to take action under Section 53 or 54 of the Act is by way of appeal under Section 68.

5. A creditor can at any time during the pendency of the Insolvency procedings move the Court under Section 53 or 51 on the ground that the Official Receiver has refused to move in the matter, as there is no period of limitation provided for such an application. It may be seen from the recital of the facts in Thabba Lal v. Shib Charan Das 52 Ind. Cas. 519 : 42 M. 322 : 10 L.W. 59. that what the creditor did in this case was to go over the head of the Receiver and apply to the Court to attach property claimed by persons who wore not parties to the Insolvency Proceedings, The creditor's application is not described as one under Section 53 or 54. The Insolvency Court exercised powers' of taking possession of property similar to those conferred by Section 56 (3). There is an earlier decision of the same Court in Khushramali v. Bholar Mal 28 Ind. Cas. 573 : 37 A. 252 : 13 A.L.J. 270 to the effect that one creditor can impeach the validity of another creditor's debt and that the Judge is bound to enquire into his petition. The earlier case is not overruled in the latter one and must, therefore, we regarded as representing the prevailing law in the United Provinces.

6. It is no doubt, the policy of the Insolvency Law to prevent a scramble among creditors, to avoid a multiplicity of actions and to have the insolvent's estate wound up with the best possible expedition and the least amount of expense, in the interests of the creditors as well as the insolvent. The jurisdiction of the Court, to make an order under Section 53 or 54 of the Act, on a proper consideration of the facts, no matter who moved the Court, is not restricted by any of the provisions of the Provincial Insolvency Act. Any order made under Section 53 or 54 enures for the benefit of all creditiors and not merely for the benefit of any particular creditor. There is no rule that the Official Receiver alone and nobody else can move in the matter. The sections lay down in what circumstances transfers and preferences shall be deemed void against the Official Receiver. It was held by the Patna High Court in Hamraj Champa Lall v. Ramkishen Bam 38 Ind. Cas. 369 : 2 P.L.J. 101 : 1 P.L.W. 752 : (1917) Pat. 303 that 'what was contemplated by the procedure provided for by this statue was, that the Receiver wa3 the person to impeach any fraudulent transfer or conveyance by the insolvent of his property. If the Receiver refuses to do so, then it would be open to any creditor to apply to the Judge for leave to institute a proceeding under Section 36 on his own behalf and on behalf of the other creditors. But until the Receiver refuses or declines act no one case cam do so, because he is the person to set the proceeding under Section 36 in motion.' In ex parte Kearssley: In re Genese (1886) 17 Q.B.D. 1 : 55 L.J.Q.B. 325 : 34 W.R. 474 : 3 Morrell 57 Cave, J., laid down the course to be pursued by a creditor if the trustees refused to act. ' Now the proper course for creditors, if the trustee refuses to act, or to allow his name to be used, is for them to come to the Court and apply for leave to use the name of the trustee on giving an indemnity against costs. On such an application the Court will consider the nature of the proposed proceedings, and, if satisfied that there are prima facie grounds for allowing the creditors to proceed, will grant the application' (See also Williams on Bankruptcy, 10th Edition, p. 373). The practice in English Bankruptcy Courts appears to all intents and purposes the same in India. The petition of the appellant in this case is, in substance, such an application. The petitioners alleged that the Official Receiver not only failed to move the Court to set aside the alienation in question, but also that he acted against the interests of the creditors. In the absence of any rules framed under the Act in regard to this matter, when an Official Receiver declines to assert his rights, a creditor can apply to the Court to allow him to use the Official Receiver's name in order to recover the insolvent's property, or to set aside a voluntary transfer or to avoid a fraudulent preference, for the benefit of the creditors. In this case, the requirements of law have been satisfied by making the Official Receiver a party to the application and the respondent's contention fails.

7. It is next contended that no appeal lies against the order of the lower Court, as the appellant is not a 'person aggrieved' by the order, and reliance is placed in support of this contention upon Thabba Lal v. Shib Charan Das 37 Ind. Cas. 76 : 39 A. 152 : 15 A.L.J. 1 and Ishar Das v. Ladha Bam 62 Ind. Cas. 924. In Thabba Lal v. Shib Charan Das 37 Ind. Cas. 76 : 39 A. 152 : 15 A.L.J. 1 the Court held that the appellant was not a proper party to the application and he could not appeal against the order except in the event of an order for costs being, made against him which ought not to have been made and he was not a 'person aggrieved' under Section 46 of the old Act. In Ishar Das v. Ladha Ram 62 Ind. Cas. 924. the Lahore High Court followed the decision in Thabba Lal v. Shib Charan Das 37 Ind. Cas. 76 : 39 A. 152 : 15 A.L.J. 1. In Kumarappa Chettiar v. Murugappa Chettiar 36 Ind. Cas. 771, Oldfield and Krishnan, JJ., held that a creditor was a person aggrived by an order in favour of another creditor in a proceeding under Section 36 of the Provincial Insolvency Act, III of 1907, to, which the Official Receiver and the appellant and the other creditor were parties. This decision was followed in another decision by Oldfield and Seshagiri Ayyar, JJ., in Jaggannatha Ayyangar v. Narayana Ayyangar 52 Ind. Cas. 761. 'We see no reason why we should not follow these decisions of our Court and hold that a creditor can appeal when he is a party to the decision appealed against. In Nikko Mal v. Marwar Bank Ltd. 52 Ind. Cas. 1898 : 151 P.R. 1919 a creditor applied to have a sale by the insolvent declared null and void against the Official Receiver. Though his attention was called to the matter by the Court, the Official Receiver took no action. It was held that the Court, under the circumstances, 'had power to entertain the application and, further, that it was the duty of the Court to judicially enquire into the matter when it was brought to its notice. This view is strongly supported by the decision in Khushali Bam v. Bholar Mal 28 Ind. Cas. 573 : 37 A. 252 : 13 A.L.J. 270 already referred to.' In Appireddi v. Appireddi 66 Ind. Cas. 271 : 45 M. 189 : 14 L.W. 639 : 41 M.L.T.J. 606 : (1921) M.W.N. 816 : A.I.R. (1922) (M.) 246 Ayling, Offg. C.J., and Odgers, J., refer to Nikko Mal v. Marwar Bank Ltd. 52 Ind. Cas. 1898 : 151 P.R. 1919 and remark with reference to an application to set aside a transfer: 'It may well be that, when the Receiver fails to move in the matter, a creditor may do so.'

8. In the face of these authorities, it cannot be contended successfully that a creditor can never apply to the Court under Section 53 or 54 of the Provincial Insolvency Act when the Official Receiver refuses to act. But it is urged that a creditor is not a person aggrieved by the order of the lower Court even though it be held that he could move the lower Court for an order under either of the sections. If he could move the lower Court to set aside a transfer or to avoid a preference under Section 53 or 54, he cannot be said to be a person aggrieved by the order of the lower Court passed against him. In Kumarappa Chettiar v. Murugaypa Chettiar 36 Ind. Cas. 771, a Bench of this Court held that 'any appeal against an order passed under sections 36 and 37 of the Provincial Insolvency Act need not necessarily be presented by the Official Receiver, but may be presented by a creditor of the insolvent.' This was again decided in Jagannatha Ayyangar v. Narayana Ayyangar 52 Ind. Cas. 761. We do not rest our decision that an appeal lies in this case upon the slender ground that there is an order for costs against the appellant though that is sufficient to dispose of the. respondent's objection. If the Official Receiver refuses to move the Court under Section 53 or 54 even though a creditor offers to indemnify him against costs in the event of an adverse order against him, such creditor can apply to the Court to permit him to use the Official Receiver's name or make him a party to the proceeding and may move for an order under sections 53 and 54, and if the order is against him, if the Official Receiver refuses to appeal notwithstanding the offer of indemnity against costs, the creditor can appeal against the order and may make the Official Receiver a party to the appeal. In this case, the learned Judge declined to hear the case on the merits and the appellant suffered a legal grievance and, therefore, has right of appeal. In the well known case of Sidebotham (1880) 14 Ch. P. 458 : 49 L.J.B. K. 41 : 42 L.T. 783 : 28 W.R. 715, James, L.J., in the course of his judgment referred to the case of in Ex parte Walter (1876) 2 Ch. B. 326 : 45 L.J.B. K. 105 : 74 L.T. 701 : 24 W.R. 834, in which it was held that a creditor who bad not been heard before the Registrar on the question of the registration of liquidation resolutions was entitled to appeal from the Registrar's order, because the question of registration or nonregistration of such resolution was one which affects the interests of all the creditors.

9. We hold the respondent's contention that no appeal lies in this case to be untenable.

10. In his deposition in the District Court the appellant alleged that he asked the Official Receiver to take proceedings under sections 53 and 54 of the Act and that the Official Receiver promised to do so but failed to take any action. The Official Receiver did not go into the witness-box and deny the first petitioner's statement that he informed the Official Receiver about the suit transaction. He contented himself with denying it in his memo, of October 11th, 1921. The District Judged has not found the first petitioner's statement to be untrue but he remarks in paragraph 8 of his judgment: 'It is worthy of note that the condition of sale that the property was to be Sold free of encumbrance and subject to discharge of the amount due to the first respondent out of the sale-proceeds was only announced to the bidders on the day of the sale and before the sale commenced and was not mentioned either in the sale notice, [Ex, IV (a)] posted on the notice board of the Official Receiver's Office, nor in the brief notice of sale sent by post and to creditors (Exs. II, IV, etc).' The mortgage is one of four alienations made at or about the same time and within three mouths of the presentation of the petition for adjudication of the third respondent as an insolvent, one of which was set aside by the Court, one was given up by the mortgage and one was not registered and, therefore, invalid. Any expression of opinion on the evidence might prejudice the trial of the case by the lower Court, but it is sufficient to say that there is a case for enquiry on the merits. It is urged for the respondent that a notice was sent to the appellant as well as to other creditors and that he did not take steps in time to have the hypothecation in question set aside. It would not be proper to express any opinion on the conduct of the Official Receiver, as he is not before us, but the memorandum put in on his behalf shows that he has not correctly understood what is his duty in matters of this kind. When a creditor challenges an alienation or a payment as being in fraud of creditors, it is the Official Receiver's duty to give notice to such creditor and ask him to substantiate his allegation. In this case the allegation that the hypothecation in question was a fraudulent one was made in the petition presented for adjudication of the third respondent as an insolvent. A general notice, which is sent as soon as a person is adjudicated insolvent, asking the creditors to prove their claims, is not such a notice, as should be given to a creditor who impeaches a particular transaction of the insolvent as being in fraud of creditors. The Official Receiver should fix a date for enquiring into the bona fides of particular transactions of the insolvent and should give notice to such creditors as have already informed him of the nature of the transaction and should also give notice to others to appear before him and state their objections, if any, to the alienations or alleged fraudulent preferences by the insolvent. He should examine the insolvent as regards the transactions which have come to his knowledge and the substance of his examination should be reduced to writing and the statements of the creditors and witnesses whom they produce in support of their allegations should also be reduced to writing. If he finds that a certain alienation or other transaction is in fraud of creditors, he should himself move to have it set aside by a Court. But if he is not satisfied that such is the case and, if a creditor is willing to indemnify him against costs in the event of failure, it is his duty to move the Court for setting aside the alienation or other transaction as being in fraud of creditors. He should not in such cases express his own opinion as to the nature of the transaction, but should place before the Court such evidence as the creditor is prepared to produce, for the finding of the Court may differ from that of the Official Receiver, and a trial before the Court will bring out many facts which perhaps the Official Receiver may not be able to get at and, in the event of an adverse decision of the District Court, if a creditor is willing to indemnify him for the costs of an appeal against the order of the Court, the Official Receiver should prefer an appeal after taking security for costs. The Official Receiver should not consider it the duty of creditors alone to bring to his knowledge the nature of any doubtful transaction, but it is-his duty to enquire into the nature of every transaction which prima facie does not appear to be proper and bona fide and valid. In cases where the transaction is within three months, he should enquire fully into the matter before satisfying himself that it is above board; and, in such cases, it is his duty to call upon the creditors to appear before him on a date fixed for the purpose to prove their allegations against the bona fides of the transaction. The Official Receiver should give every facility to the creditors to impugn the transactions of the insolvent which are ostensibly within three months of the insolvency.

11. The order of the District Judge is set aside and he is directed to restore the petition to file and dispose of it according to law.

12. The appellant's costs of this appeal will be borne by the second respondent.


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